1.1 Introduction

Question 1

What is Microeconmics

Answer 1

• Behaviour in individual markets
• May invlve market intervention
• Shows how to regulate certain industries e.g. banking
• Helps consumers and firms
• Study of how consumers and firms make themselves as well off as possible in world of scarcity and consequences

Question 2

Basic Economic Problem

Answer 2

Allocation of scarce resources and infinite wants:

What should be produced?
How should it be produced?
Who should it be produced for?

Question 3

Positive statements vs Normative statements

Answer 3

Testable hypothesis on matters of fact e.g. cause and affect

Normative value judgements - good or bad not refuted by evidence e.g. raising NMW is fair

Question 4

Factors affecting demand

Answer 4

Population, Advertising, Substitutes, Income, Fashion, Interest rates, Compliments

Substitutes, Proportion of Income, Luxury, Addictive, Time period

Information/misinformation about the uses can affect consumer decisions
So can government regulations

Question 5

Factors affecting supply:

Answer 5

Productivity, Indirect tax, number of firms, technology, subsidies, weather, cost of production

Time, resource availability, inventory, barriers to entry, ease of factor substitutions, spare capacity

In general depends on price, input prices, conditions of production e.g. technology and government regulation