micro year 1

Question 1

Specialisation leads to lower unit costs

Answer 1

1. separation of tasks int he production process
2. increased practise of workers in specific tasks
3. improved skills through repetition
4. enhanced productivity
5. lower unit costs

Question 2

Specialisation leads to higher unit costs

Answer 2

1. separation of tasks int he production process
2. increased employee boredom
3. worker alienation
4. increased absenteeism and periods of inactivity
5. lower unit costs

Question 3

Increased demand changes equilibrium

Answer 3

1. [insert something that increases demand e.g. reduction in tax]
2. increases effective demand, D-D1
3. equilibrium price becomes disequilibrium prie
4. excess demand
5. producer exploitation leads to price increasing P-P1
6. extension of supply along S
7. contraction of demand along D1
8. new equilibrium price at P1

Question 4

Increased supply changes equilibrium

Answer 4

1. [insert something that increases supply e.g. subsidy]
2. lowers supply at any given price, S-S1
3. equilibrium price becomes disequilibrium prie
4. excess supply
5. suppliers lower price to clear stock of P1
6. contraction of supply along S1
7. expansion of demand along D
8. new equilibrium price at P1

Question 5

Market forces should be encouraged due to price mechanism

Answer 5

1. Greater market forces should be encouraged
2. signalling fiction indicates to producers what resources are required to produce the most desired goods
3. increased efficiency, most productive companies prevail, market rewards innovation
4. increased competition so to preserve profit firms cut costs of production (S-S1) by innovating new products to satisfy consumers needs
5. This decreases the price for consumers (P-P1)
6. Increases consumer surplus

Question 6

Public goods reduce social welfare

Answer 6

1. public goods are non-excludable and non-rivalrous
2. no ability for firms to change prices and make profit
3. goods and services not provided
4. missing market
5. complete market failure
6. misallocation of resources
7. reduced social welfare/allocative efficiency

Question 7

Externalities reduce social welfare

Answer 7

1. third party spill-over effects
2. not included in private decisions
3. divergence between price and social costs and benefits
4. misallocation of resources
5. under/over consumption
6. MPB < MSB
7. partial market failure
8. reduced social welfare/allocative efficiency

Question 8

consumers utility maximisation and contraints

Answer 8

1. consumers seek to maximise welfare
2. consider marginal utility of consumption
3. acquire the bundle of goods and services that provided maximum utility
4. consume to point of satiation of a wide variety of goods and services

Constrains include

• limited income
• a given set of prices
• limited time
• limited information