1.1 Micro Economics

Question 1

What is the basic economic problem?

Answer 1

There is a infinite number of wants and needs but a limited number of resources

Question 2

What is the economic system?

Answer 2

3 questions designed to solve the economic problem:
What to produce?
How to produce?
For whom to produce for?

Question 3

What is economic growth?

Answer 3

An increase in quality or output in a nation, which usually shown on a PPC

Question 4

What are the factors that affect a PPC?

Answer 4

New technology
Improved efficiency
Increase in education and training
New resources
Resource depletion

Question 5

What are some factors that lead to resource depletion?

Answer 5

Natural disasters
War
Finite resources ran out
Workers emigrate

Question 6

When would a consumer most likely not make a rational decision when buying?

Answer 6

Lack of information
Brand loyalty
Influence of others
Influence of substances

Question 7

When would a company most likely not make a rational decision when buying?

Answer 7

People are working off commission
Alternative objectives (E.G charity)
Lack of information

Question 8

What are some factors that may shift the demand curve?

Answer 8

Marketing
Income
Fashion & tastes
Price of substitutes
Price of compliments
Demographic changes

Question 9

What are some factors that may shift the supply curve?

Answer 9

Production cost
New technology
Indirect taxes
Subsidies
Natural factors

Question 10

What is Price elasticity of demand

Answer 10

Level of responsiveness of demand when there is a change in price

Question 11

What is Price elasticity of supply

Answer 11

Level of responsiveness of supply when there is a change in price

Question 12

What is income elasticity

Answer 12

Level of responsiveness of demand when there is a change in income

Also displays what type of good a product is:
Necessity
Luxury
Normal
Inferior good

Question 13

What does price elastic mean

Answer 13

People are responsive to a change in the price of the product

Question 14

What does price inelastic mean

Answer 14

People aren’t responsive to a change in the price of the product

Question 15

What is the formula for P.E.D

Answer 15

%change in demand / %change in price

Question 16

What is the formula for P.E.S

Answer 16

%Change in supply / %change in price

Question 17

What is the formula for income elasticity

Answer 17

%change in demand / &change in income

Question 18

What is P.E.D / P.E.S / Income elasticity if:
=1
>1
<1
= Infinity
= 0

Answer 18

If = 1 it’s unitary elastic
if > 1 it’s elastic
if < 1 its inelastic
if = infinity it’s perfectly elastic
if = 0 it’s perfectly inelastic

Question 19

What are some factors affecting P.E.D

Answer 19

• Availability of substitutes
• Degree of income
• Proportion of income spent on product
• Time

Question 20

What are some factors affecting P.E.S

Answer 20

• Availability of stocks
• Space capacity
• Time

Question 21

What is the reason a business would look at income elasticity?

Answer 21

To plan ahead, making sure there’s enough space for an inelastic product when income rises

Question 22

What is privatisation

Answer 22

The act of selling a government-controlled company to private investors

Question 23

What is a mixed economy?

Answer 23

An economy where goods and services are provided by both the public and private sector

Question 24

What is a planned economy

Answer 24

An economy that relies heavily on the public sector

Question 25

What is a free economy / free market

Answer 25

An economy that relies heavily on the private sector

Question 26

What are the advantages of privatisation and expand where neccessary

Answer 26

• Generate income
• To reduce political interference
  to improve efficiency, some public sectors aren’t profitably driven they may not find cost-effective solutions

Question 27

What are the disadvantages of privatisation and expand where necessary

Answer 27

Monopoly power
Job losses
Lack of environmental responsibility
Short term focus
Inequality

Question 28

What is market failure?

Answer 28

Market failure is where markets lead to inefficiency. this most commonly leads to government intervention

Question 29

What are reasons for market failure and expand where nessecary

Answer 29

• Externalities, E.g if a firm creates air pollution whilst manufacturing, the environmental saving company will fail
• Lack of competition, if a monopoly rises it could lead to consumer exploitation
• Missing markets, E.G if private firms were in charge of a public good like the police force, there would be less focus on protection and more on profit
• Lack of information - if buyers of consumers don’t have enough information, they may buy or sell the product at a different price than its worth
  Factor immobility - 1 sector may find it easier to transport a certain good than another