Economics-microeconomics

Question 1

What is the basic economic problem?

Answer 1

There are limited resources and the government needs to make choices of how to use them to fulfil our infinite wants and needs.

Question 2

Who are the economic agents?

Answer 2

.Individuals
.Households
.Firms
.Government

Question 3

Explain the factors of production

Answer 3

.Capital- technology used to make products
.Enterprise- the people who bring the factors together
.Land- the natural resources used
.Labour- the human input into production

Question 4

Define specialisation

Answer 4

When a firm is focused on producing a particular product

Question 5

What are the advantages of specialisation?

Answer 5

.Allows countries/firms to focus on specific products and improve the quality and quantity of them
.Countries can trade with others

Question 6

What are the disadvantages of specialisation?

Answer 6

.Over Specialisation can leave a country vulnerable to a change in demand
.If finite minerals are overused they can become exhausted

Question 7

Define division of labour

Answer 7

Separating a task into many to create a continuous repeated line of work

Question 8

What are the advantages of division of labour?

Answer 8

.Increased boredom could lead to lack of productivity and worsen quality and quantity of the products
.People could move jobs leaving other sectors scarce of workers also creating a lack of productivity

Question 9

What are the disadvantages of division of labour?

Answer 9

.Decrease in the cost per unit which makes the products cheaper for consumers
.Increased productivity
.Workers can be trained faster and cheaper

Question 10

What are economic goods?

Answer 10

Scarce goods which have an opportunity cost of use, e.g. gold, oil, tin

Question 11

What are free goods?

Answer 11

Resources which are not scarce and have no opportunity cost of use, e.g. air

Question 12

What are sustainable resources?

Answer 12

Resources which can be exploited over and over again because they renew themselves, e.g. fish stocks

Question 13

What are non-sustainable resources?

Answer 13

Resources which are finite and cannot be replaced when used, e.g. coal

Question 14

What are the functions of money?

Answer 14

.A means of exchange- money allows the buying and selling of goods
.A unit of account- money measures the worth of goods
.A store of value- money keeps its value over time
.A method of deferred payment- money allows goods and services to be acquired now and payed for later

Question 15

What is a barter economy?

Answer 15

An economy where people exchange goods and services for others in return

Question 16

What are the problems with a barter economy?

Answer 16

.Double coincidence of wants- people exchange goods without any monetary medium
.Indivisible goods- goods can’t be divided

Question 17

What are the sectors of production in the economy?

Answer 17

.Primary- agriculture
.Secondary- manufacturing
.Tertiary- services
.Quaternary- technology, research

Question 18

What are the characteristics of money?

Answer 18

.Durability- it lasts long
.Portable- easy to use
.Divisible- it can be broken down
.Can’t be counterfeited- hard to copy

Question 19

Define ceteris paribus

Answer 19

All other things remain equal

Question 20

What is a command economy?

Answer 20

An economy where only the government allocates resources deciding what, how and whom to produce.

Question 21

Which economic thinker agrees with the command economy?

Answer 21

Karl Marx

Question 22

What are the disadvantages of a command economy?

Answer 22

.People have less choice and freedom

.Government owned firms have less incentive to be efficient

Question 23

What are the advantages of a command economy?

Answer 23

.Government may provide more equitable distribution of resources
.Shortages and surpluses

Question 24

Define a free market

Answer 24

An economy where resources are allocated by the individual economic agents

Question 25

What are the advantages of a free market economy?

Answer 25

.Consumers are free to choose what they buy(sovereignty) .Producers are free to produce what they want .Profit is the main motive of all businesses

Question 26

What are the disadvantages of a free market economy?

Answer 26

.Inequality .Market failure .Monopolies

Question 27

Which economic thinker agrees with a free market economy?

Answer 27

Adam Smith | Friedrich Hayek

Question 28

What is a mixed economy?

Answer 28

An economy where resources are allocated by the government and through the economic agents

Question 29

What are the advantages of a free market economy?

Answer 29

.The government provides things that businesses can't, e.g. education, healthcare

Question 30

What does a PPF graph show?

Answer 30

.The maximum productive potential of an economy .Opportunity cost .Economic growth or decline .Efficient or inefficient allocation of resources .Possible and unattainable production

Question 31

What is opportunity cost?

Answer 31

The next best alternative that is foregone when making a choice

Question 32

What is the law of diminishing returns?

Answer 32

States that as you add more of one factor in production while others are constant, increasing output of product become smaller

Question 33

What are public sector goods?

Answer 33

Goods and services that are owned by the government

Question 34

What are private sector goods?

Answer 34

Goods and services owned privately by individuals and organisations

Question 35

What is the law of diminishing marginal utility?

Answer 35

States that as we consume more of a good the less we value the good

Question 36

What is the formula for diminishing marginal utility?

Answer 36

DMU = Change in utility | Change in quantity

Question 37

What is demand?

Answer 37

The quantity of a good/service that a consumer is willing and able to buy at a given time and price

Question 38

What factors affect demand?

Answer 38

``` .Population .Advertisement .Substitutes .Income .Fashion/trend .Interest .Complementary goods .External shocks .Speculation ```

Question 39

What is the theory of demand?

Answer 39

States that as the price of a good increases, the demand for the good decreases, vice-versa

Question 40

What factors affect the theory of demand?

Answer 40

.Income effect- when the price of a good rises people can afford less so demand falls .Substitution effect- when the price of a good rises people switch to cheaper alternative goods

Question 41

What is the price elasticity of demand?

Answer 41

Measures the responsiveness of demand to a change in price

Question 42

What is the formula for PED?

Answer 42

PED = Change in quantity demanded | Change in price

Question 43

What is the PED value for perfectly inelastic?

Answer 43

0

Question 44

What is the PED value for inelastic?

Answer 44

0-1

Question 45

What is the PED value for unitary elastic?

Answer 45

1

Question 46

What is the PED value for elastic?

Answer 46

1-infinity

Question 47

What is the PED value for perfectly elastic

Answer 47

Infinity

Question 48

What factors affect PED?

Answer 48

``` .% of income spent .Brand loyalty .Addictiveness .Necessity vs Luxury .Time period .Substitutes ```

Question 49

What is revenue?

Answer 49

Income earned from selling goods and services

Question 50

What is the formula for revenue?

Answer 50

R = P x Q

Question 51

How should firms react to a change in demand?

Answer 51

.Elastic- decreasing price increases revenue | .Inelastic- increasing price increases revenue

Question 52

What is a market?

Answer 52

The interaction between demand and supply

Question 53

What is the price elasticity of supply?

Answer 53

Measures the responsiveness of supply to a change in price

Question 54

What is the formula for PES?

Answer 54

PES = Change in quantity supplied | Change in price

Question 55

What factors affect PES?

Answer 55

.Capacity- no capacity = elastic .Ease/cost of production- easy/low cost to move Fop = elastic .Stocks- long shelf life = elastic .Time period- Long run = elastic

Question 56

1

Answer 56

u

Question 57

j

Answer 57

b

Question 58

j

Answer 58

v

Question 59

k

Answer 59

b

Question 60

jk

Answer 60

.

Question 61

jb

Answer 61

.

Question 62

What is supply?

Answer 62

The quantity of goods and services that producers are willing and able to sell at a given time and price

Question 63

What is the theory of supply

Answer 63

States that as price rises the quantity supplied rises, vice-versa

Question 64

Why does the supply curve slope upwards?

Answer 64

The incentive of profits

Question 65

What factors affect supply?

Answer 65

``` .Productivity .Indirect tax .Number of firms .Technology .Subsidies .Weather .Cost of production ```