Chapter 13, 14

Question 1

Macroeconomics

Answer 1

National economy and government policies

Question 2

Microeconomics

Answer 2

Demand and supply + Market structures

Question 3

The national economy

Answer 3

the national output of goods and services is measured as GDP

Question 4

Factors of production

Answer 4

Land, labour, capital and entrepreneurship

Question 5

Influences on the national economy

Answer 5

Government
Consumers
Savers
Businesses

Question 6

Business trade cycle

Answer 6

The continual sequence of rapid growth in GDP, followed by a slow down in growth and then a fall. Growth then comes again and when this has reached a peak the cycle begins again.

Question 7

Traits of the boom phase

Answer 7

Demand may outstrip supply causing inflation
Businesses tend to be more profitable
Expectations of the future are very optimistic

Question 8

Traits of the recession phase

Answer 8

Businesses suffering a loss in sales revenue
reducing inventory and cutting back investment
Adds momentum to recession

Question 9

Inflation

Answer 9

an increase in price levels generally and a decline in the purchasing power of money

Question 10

Problems of inflation

Answer 10

Fewer people can afford goods
Wage inflation
Exports falling as imports appear cheaprr
Consumers may stock pile fearing price increase

Question 11

Two types of inflation

Answer 11

Cost push inflation and Demand pull inflation

Question 12

Cost push inflation

Answer 12

Price rises resulting from an increase in the costs of production of goods and services

Question 13

Demand pull inflation

Answer 13

Persistent excess of demand over supply

Question 14

Monetary policy

Answer 14

Government policy on interest rates, exchange rates and money supply

Question 15

Fiscal policy

Answer 15

Government policy on government spending taxation and borrowing

Question 16

Expansionary financial stance

Answer 16

Government spending> taxation = increased borrowing

Question 17

Contractionary fiscal stance

Answer 17

Government spending< taxation = reduced borrowing

Question 18

Demand curve

Answer 18

Shows the demand at each price assuming that all other variables are constant

Question 19

Things that determine demand

Answer 19

Price of the good itself
Price of other goods
Substitutes
Complements
National income 
Fashion 
income distribution

Question 20

Price elasticity of demand

Answer 20

looks at the degree to which demand is affected by changes in the selling price

Question 21

PED< 1

Answer 21

Inelastic

Question 22

Ped> 1

Answer 22

Elastic

Question 23

PED = 0

Answer 23

Perfectly inelastic

Question 24

Factors affecting PED

Answer 24

Substitues
Time
Competitors pricing
Nature of the product
Proportion of income

Question 25

Elasticity

Answer 25

Measures the responsiveness of demand to a change in a relevant variable

Question 26

Inelastic products

Answer 26

increasing the price will increase the total revenue even though fewer units are sold

Question 27

Giffen goods

Answer 27

Goods that as the price increases they still buy them and then buy more as they can't afford other goods

Question 28

Veblen goods

Answer 28

Bought for ostentation, so a higher price makes them more exclusive and desirable

Question 29

Cross elasticity of demand

Answer 29

Looks at the degree to which demand is affected by changes in price of other products

Question 30

Supply curve

Answer 30

shows supply at each price assuming all other variables are constant

Question 31

Things that determine supply

Answer 31

``` Price of the good itself Price of other goods Price of joint products Cost Changes in technology ```

Question 32

Market structures

Answer 32

A description of the number of buyers and sellers in a market for a particular good and their relative bargaining powers.

Question 33

Perfect competition

Answer 33

Large number of buyers and sellers Free entry to/exit the market Free access to perfect information Homogeneous/identical products

Question 34

Implications of perfect competition

Answer 34

Single selling price Suppliers can only sell at the market price Suppliers only make normal profits

Question 35

Monopolistic competition

Answer 35

Many buyers and sellers Some differentiation of products Some customer loyalty Few barriers to entry

Question 36

Implications of monopolistic competition

Answer 36

Firms have some freedom to set prices | Lack of barriers to entry ensure only normal profits in the long run

Question 37

Oligopolies

Answer 37

Few large suppliers Differentiation of products High degree of mutual dependency

Question 38

Implications of Oligopolies

Answer 38

Difficult to predict the actions of competitors Price wars Collusion to form cartels

Question 39

Monopoly

Answer 39

One supplier Many buyers Barriers prevent new entrants

Question 40

Implications of monopoly

Answer 40

Supplier can fix price or quantity | Firms make super normal profits

Question 41

Market failure

Answer 41

When a free market fails to produce the optimum allocation of resources

Question 42

4 types of market failure

Answer 42

Market imperfections Externalities Public goods Economies of scale

Question 43

Market imperfections

Answer 43

Markets do not satisfy assumption of perfect competition

Question 44

Externalities

Answer 44

Cost or benefits which the market mechanism fails to take into account because the market only incorporates private costs and benefits

Question 45

Public goods

Answer 45

Without government intervention some goods would not be provided at all by a market economy

Question 46

Economies of scale

Answer 46

Results in larger firms making more profit, larger firms pushing smaller firms out of business, reducing choice

Question 47

What does the CMA do?

Answer 47

Investigates those suspected of breaching competition act