Economics Essay 2010 Past Paper Jamie Halvorson 6.

One argument used for imposing import controls on Chinese goods is that average production costs in the UK are higher than average production costs in China. (a)Describe some arguments for imposing import controls, other than cost differences. (i)Describe some arguments against imposing import controls. 15 (b) Explain what is meant by long run average costs. (i)Describe the reasons why a long run average cost curve falls and then rises. 10 (a)It can be argued that import controls can be imposed for reasons other than cost differences and these reasons could be any of the following: Child labour laws The country that you wish to put import controls on may use child labour, forcing them to work from a low age and for a low wage. This is a problem as it goes against the basic human rights of children in the 21st Century. Therefore, you may feel against it, or the country may use the import controls so they do not look like they are for child labour. This can also apply to other practices seen as unacceptable. The import barriers may be put in place to try and promote the goods to be produced in the home country. There may have been a large demand for imported goods and this would therefore have a negative effect on the production of goods in the UK. This would also protect employment in the UK as people are forced to purchase goods from UK firms, which in turn will employ British people. The country may be doing it in retaliation. If say Korea had placed an import control of UK based goods, then the UK may retaliate by purring controls and barriers on Korean goods. (i)Import controls can be seen as a negative idea as they can lead to noneconomic and political debates: As mentioned above, if a country is to place sanctions on the UK, then the UK will retaliate. This will be seen with most countries in the world, if someone is to place an import control on their good then they will do the same back. Import controls may also drive the costs of goods produced in the UK up. This is because of the reason that imported goods and imported resources may be cheaper than ones produced/grown in the UK. This extra cost of production would lead to an increase in the price of a good, which is then passed onto a consumer. With the income barriers will come a restricted choice of goods, this will mean that the consumer will not have as wide a choice of goods as some may have only been available from countries outside of the UK. VG 14 MARKS (b) Long run costs are costs that are felt over a long period of time compared to short run costs. Long run costs are ones that can be changed as they depend on

the output of the firm, if output is high the long run costs will be lower than if output was low. (i)

Output

We can see from the diagram above that the long run average cost curve (LRACC) is made up of many short run average cost curves (SRACC). We see that the curve falls at the beginning this is due to economies of scale. We then see it rise again this is due to diseconomies of scale. Companies may take advantage of economies of scale and this is through the likes of large transport vehicles to transport a large amount of goods, rather than doing it with small vehicles, which would take more trips and therefor cost more. Large firms are also able to spread the costs of advertisements over a large amount of products, this will decrease total costs, which is why we see the fall at the start. As I have said, the rise of the curve is due to diseconomies of scale, this is the opposite of economies of scale and will lead to an increase in costs per unit. An example of this may be communication costs and errors. As a firm grows it will employ more and more management as this management grows there is room for error and the firm will begin to be inefficient, this may simply be through say three separate departments working on the same project, which is not a good use of time and has a large opportunity cost. Good answer but you need to say that long run costs taken into account the costs of the fixed factor aswell as the variable factor. That would give total long run costs and the average would be when it is divided by the output. 7 MARKS 21/25