Advanced level 2025 South West regional mock Economics guide
Advanced level 2025 South West regional mock Economics guide
PAPER TWO
SECTION A
QUESTION 1
a) Candidates are expected to distinguish with diagrams, between the short run average cost
curve and long run average cost curve.
The Short-Run Average Cost (SRAC) curve is a graphical representation of the per unit cost of
producing a good or service when some and not all inputs are adjustable (variable). It represents a
firm which is operating a fixed plant size. The SRAC curve is typically U-shaped- a reflection of
the law of diminishing returns. The falling section illustrates increasing returns to the variable
factor while the rising section illustrates diminishing or decreasing returns to the variable factor as
illustrated below:
The output Q is known as the technical optimum output
On the other hand, the Long-Run Average Cost (LRAC) curve is a graphical representation of the
average cost of producing a good or service when a firm can adjust its plant size and all inputs are
variable. The LRAC curve is therefore an Envelop curve to the series of SRAC curves, each
representing a different plant size operated by a firm. Each point on the curve represents the lowest
cost attainable for producing any given output as the firm expands its scale of operation. The
LRAC curve is typically U-shaped and this shape is explained by the law of returns to scale.
The falling section is associated with increasing returns to scales or economies of scale while the
rising section is associated with decreasing returns to scale or diseconomies of scale. The minimum
possible LRAC is observed when a firm chooses SACC3 and produce an output of Q* units. This
is the optimum output and size of the firm.
(Up to 12 marks for a well explained difference with conjunction and diagrams.
NB: Without conjunction mark on 10 and without diagrams mark on 6
b. Effects of labor immobility in an economy
It leads to frictional unemployment
It leads to a fall in productivity
it slows down the rate of economic growth
it leads to intra industrial and inter industrial wage differentials
increase in regional disparity
Fall in economic efficiency due to mismatch between labour demand and supply
Reduces chances of innovation
(Up to 8 marks for any 4 well explained points)
Listing: max of 2 marks for 4 points
QUESTION 2
a) Candidates are expected to explain with diagrams a converging and diverging
cobweb.
i. A converging cobweb: (ED > ES)
A converging cobweb is one in which, following a shock, price and output oscillate in
a decreasing series of fluctuations until the original equilibrium is eventually restored.
This occurs when demand is more elastic than supply is illustrated as follows:
Price
O
