micro 5

Question 1

What are the two ways of allocating resources

Answer 1

market mechanism
planning

Question 2

What is market mechanism

Answer 2

Allocating resources by bring suppliers and buyers together who agree on a price for the product or service being sold

Question 3

what is planning

Answer 3

allocating resources through administrative decisions

Question 4

What are the three types of economy

Answer 4

command economy
mixed economy
free market economy

Question 5

What is a command economy

Answer 5

Resources are allocated by the state, little market mechanism

Question 6

What is a mixed economy

Answer 6

More resources are allocated by the state in comparison to a free market. The difference is mainly in healthcare and welfare

Question 7

What is a free economy

Answer 7

Resources are allocated by market mechanism - however there are no pure free market economies

Question 8

What is an example of a command economy

Answer 8

USSR

Question 9

What is an example of a mixed economy

Answer 9

UK

Question 10

What is an example of a free market economy

Answer 10

USA

Question 11

What is market equilibrium

Answer 11

The point at which demand is equal to supply

Question 12

What is equilibrium price

Answer 12

The price at which supply meets demand. AKA market clearing price

Question 13

Where is market equilibrium seen on a curve

Answer 13

When the demand curve intersects the supply curve

Question 14

What is disequilibrium

Answer 14

When there is an imbalance in the quantity supplied and the quantity demanded of a product

Question 15

What is PED

Answer 15

measures the sensitivity of changes in customer demand to a given change in price

Question 16

How do you calculate PED

Answer 16

%change in demand/%change in price

Question 17

What does it mean if PED is greater than 1

Answer 17

Demand is price elastic so customers are sensitive to price

Question 18

What does it mean if PED is less than 1

Answer 18

Demand is price inelastic so customers aren’t sensitive to price

Question 19

What is unitary demand

Answer 19

when PED is 1

Question 20

What does it mean when PED is 0

Answer 20

Perfectly inelastic demand

Question 21

What does it mean when PED is infinity

Answer 21

Perfectly elastic demand

Question 22

When does elastic demand exist

Answer 22

In competitive markets where lots of substitutes exist

Question 23

What type of products seem to be inelastic

Answer 23

necessities

Question 24

What factors influence PED value

Answer 24

• Availabiltiy of similar products
• Time
• Type of product
• The proportion of income spent on a product

Question 25

What is PES (Price elasticity of supply)

Answer 25

Measures the responsiveness of supply to a change in price

Question 26

How is PES calculated

Answer 26

%change in quantity supplied/%change in price

Question 27

What is elastic PES

Answer 27

A change in price will lead to a more than proportional change in quantity demanded

Question 28

What is inelastic PES

Answer 28

A change in price will lead to a less than proportional change in quantity demanded

Question 29

When is PES inelastic

Answer 29

When PES is between 0 and 1

Question 30

When is PES elastic

Answer 30

When PES is greater than 1

Question 31

What factors influence PES

Answer 31

• Time scale: price becomes more elastic in long run
• Spare capacity
• Level of stocks
• Barriers to entry to the market