EXAM!

Question 1

Define normative statement

Answer 1

Value judgements that can’t be concluded from looking at the evidence avalible

Question 2

Define positive statement

Answer 2

Statement that can be scientifically tested by referring to evidence to see if correct

Question 3

Distinguish the difference between a need and a want

Answer 3

Need: necessity, needed for survival
Want: not a necessity, not needed for survival, something desired

Question 4

Define economic welfare

Answer 4

Well being of an individual/group within society/an economy

Question 5

Define factions of production

Answer 5

Inputs into the production process

Question 6

What is the basic economic problem

Answer 6

Wants are infinite and resources are scarce

Question 7

Define opportunity cost

Answer 7

The cost of giving up the next best alternative

Question 8

What’s the difference between a free good and an economic good

Answer 8

Free good: a resource that isn’t scarce/available without limit
Economic good: good that can be sold

Question 9

Define demand

Answer 9

Quantity of a good/service that consumers are willing and able to buy at a given price over a given period of time

Question 10

Define price elasticity of demand and show equation

Answer 10

Measures to the extent the demand of a good changes in response to a change in price of the good
%change in Q D
—————-
%change in P

Question 11

Distinguish between a Normal good and an inferior good

Answer 11

Normal: demand increases when income increases (vice versa)
Inferior: demand decreases when income increases (vice versa)

Question 12

What is income elasticity of demand?

Answer 12

Measures the extent to which demand for a good changes in response to a change in income
% change in Q D
—————–
% change in Y

Question 13

What is cross elasticity of demand?

Answer 13

Measures extent to which the demand of a good changes in response to a change in price of another good
%change of Q D of good A
—————————-
% change in P of good B

Question 14

Define supply

Answer 14

Quantity of a good/ service a firm is willing and able to sell at given prices over a period of time

Question 15

What is price elasticity of supply

Answer 15

Mesure the extent to which supply of a good changes in response to a change in price
%change in Q supplied
————————
%change in P

Question 16

What is market equilibrium?

Answer 16

When planned demand meets planned supply (no excess D or S)

Curves cross

Question 17

What is market disequilibrium?

Answer 17

Excess demand or supply (any price other than the equilibrium

Question 18

Define derived demand

Answer 18

Demand for a good/service involved in producing another good/service

Question 19

Define composite demand

Answer 19

Goods that have more than one use

Question 20

Define goods in joint supply

Answer 20

When one good is produced and other is also produced as part of the production process of producing the first good

Question 21

Define joint demand

Answer 21

Goods complementary to each other bought together

Question 22

What are the conditions of demand

Answer 22

• income: normal, inferior
• change in price of substitute goods
• change in price of complementary goods
• tastes/preferences
• population/size
• future predictions

Question 23

What are the conditions of supply?

Answer 23

• changes in costs of production
• taxes/subsidies
• changes in price of goods in joint supply
• changes in price of substitutes
• technology
• knowledge
• weather

Question 24

Define productivity

Answer 24

Output per unit of input over a period of time

Question 25

Define production

Answer 25

Process/processes converting inputs into outputs

Question 26

Define specialisation. What are the advantages?

Answer 26

A worker performing a task/narrow range of tasks - more efficient - saves time

Question 27

Define the division of labour

Answer 27

Different workers performing different tasks in the course of producing a good/service

Question 28

Define short run

Answer 28

Time period in which at least one factor of production is fixed and cannot be varied

Question 29

Define long run

Answer 29

Time period in which no factors of production are fixed and in which all the factors of production can be varied

Question 30

Distinguish between fixed cost and variable cost

Answer 30

Fixed cost: cost of production in the short run does not change with output Variable cost: cost of production which changed with output produced in the short and long run

Question 31

Distinguish between economies and diseconomies of scale

Answer 31

Economies of scale: as output increases average long run costs fall Diseconomies of scale: as output increases long run average costs rise

Question 32

Define total revenue and state equation

Answer 32

Money a firm received from selling its output Price X Q sold

Question 33

Define total costs and state equation

Answer 33

Whole cost of producing a particular level of output Fixed cost + variable cost

Question 34

Define market structure

Answer 34

Organisation of a market in terms of the number of firms in the market and how they behave

Question 35

Define pure monopoly

Answer 35

When there is only one firm in the market

Question 36

Define monopoly power

Answer 36

Power of a firm to act as the price maker not taker | -makes short and long term profits

Question 37

What are the conditions of perfect competition

Answer 37

- large number of buyers and sellers in the market - perfect market info - ability to buy and sell desired amount at given price level - individual sellers can't influence a market - homogenous product (no branding) - no barriers to entry

Question 38

Define allocative efficiency

Answer 38

When avalible economic resources are used to produce the combination of goods/services that best match people's tastes and preferences

Question 39

Define productive efficiency

Answer 39

When it is impossible to produce more of one good without producing less of another (opp cost)

Question 40

Define barriers to entry

Answer 40

Obstacles for new firms to enter the market

Question 41

What is the concentration ratio

Answer 41

Indicates total market share for a number of leading firms | Output of them as a percentage of total market output

Question 42

Define market failure

Answer 42

When the free market forces of demand and supply leads to a misallocation of resources

Question 43

What are market forces

Answer 43

Forces of demand and supply allocating the price and quantity of scarce resources

Question 44

Distinguish between a merit good and a demerit good

Answer 44

Merit : good/service providing greater social benefits than private/long term benefits exceeding short term Demerit: greater social costs then private costs when consumed

Question 45

Distinguish between a private and public good

Answer 45

Private: good which is excludable and diminishable Public: good which is non excludable and non diminishable