Micro Economics

Question 1

What is demand?

Answer 1

Demand is quantity demanded of a good or service at every possible price.

Question 2

What refers to a particular price?

Answer 2

The quantity demanded.

Question 3

What is supply?

Answer 3

Quantity supplied at all possible prices.

Question 4

What does quantity supplied refer to?

Answer 4

Refers to good and service provided at particular price.

Question 5

What is price elasticity of demand?

Answer 5

Price elasticityof demand is the percentage change in quantity demanded of good or service divided by percentage change in price of that good or service that brought about the quantity change.

Question 6

What are major influences on demand?

Answer 6

Price of substitutes or complements, consumers’ income and advertising.

Question 7

What does elasticity refer to? (

Answer 7

Elasticity refers to responsiveness of the quantity demanded (or supplied) to changes in related variable such as own price, income or price of substitute or complement.

Question 8

Firms are assumed to have behaved in what way?

Answer 8

In a way to maximise profits.

Question 9

What is opportunity cost?

Answer 9

Opportunity cost is amount any input would earn in bed its next best use.

Question 10

What is supernormal profit?

Answer 10

Profit in excess of both measured costs and those associated with opportunity costs.

Question 11

What is marginal cost?

Answer 11

Additional cost of producing one unit of output, and profits are maximised that output level when marginal costs marginal equals marginal revenue.

Question 12

What is a production function?

Answer 12

Production function is maximum amount that can be produced by any given amount of inputs used in production.

Question 13

What will influent the choice of production technique?

Answer 13

Choice of production technique influenced by relative input prices.

Question 14

What shape are long run average totals cost curves?

Answer 14

U shaped

Question 15

What happens to average costs in economies of scale?

Answer 15

Average costs fall

Question 16

What happens to average costs in diseconomies of scale?

Answer 16

Average costs rise

Question 17

In the long run what type of costs are spread over more units of output before production becomes too complex and costs rise?

Answer 17

Some fixed costs.

Question 18

What output level do firms produce at?

Answer 18

Where MC equals MR

Question 19

In the long run what level should AR and AC otherwise the firm would go out of business?

Answer 19

Average revenue must be greater than average cost

Question 20

In the short run what costs will firms be concerned?

Answer 20

Short run firm will be concerned with covering variable costs. it should ignore fixed costs in its output decision.

Question 21

What is perfect competition?

Answer 21

Perfect competition is the market situation where there are many buyers and sellers and no individual can influence the market price

Question 22

What are the requirements for a competitive industry?

Answer 22

Large number of firms, each of which is small relative to industry size, a homogenous product made by each firm and no restriction on firms entering or leaving the industry

Question 23

What is the supply curve?

Answer 23

Supply curve is quantity firm wishes tosupply at each price.

Question 24

What is firms short-run supply curve?

Answer 24

Short run supply curve is the output level associated in the short run with different prices

Question 25

What is finis long run supply curve?

Answer 25

In the long run the supply curve is the long run MC curve abovethe average total cost curve

Question 26

What shape is industry supply curve it all firms and potential new entrants have the same cost curves?

Answer 26

Industry supply cure is horizontal coinciding with minimum point on LR-AC curve

Question 27

What is the industry supply curve?

Answer 27

Industry supply curve is sum of all individual firms outputs at each price level

Question 28

What is an industry with only one firm called?

Answer 28

Pure monopoly hence the industry is the firm and the only potential supplier

Question 29

What demand curve does A monopolist face?

Answer 29

Monopolist faces downward sloping demand curve and thus MR will always be less than AR or price

Question 30

Where dal's profit maximising output occur?

Answer 30

Profit maximising output occurs where MC=MR

Question 31

When are supernormal or monopoly profits possible?

Answer 31

Supernormal profits possible in long run since there is no possibility of new entrants forcing down profits

Question 32

What is the supply curve of pure monopoly?

Answer 32

There is no supply curve for pure monopoly independent of the location of the demand curve

Question 33

What is a natural monopoly?

Answer 33

Natural monopoly is one that experiences falling LRACs over a large range of output.

Question 34

When does price discrimination occur?

Answer 34

Price discrimination occurs when a firm cancharge different prices to different customers.

Question 35

What is monopolistic competition?

Answer 35

Monopolist competition is market structure in which an industry contains a relatively large number of fairly small firms and in which entry and exit to the industry is relatively easy.

Question 36

In monopolistic competition who has significant pricing power?

Answer 36

In monopolistic competition no single firm has significant pricing power.

Question 37

What is the relationship between business cycle and stock market performance?

Answer 37

Relationship between business cycle and stock market performance is highly variable although analysts can point to some regularity in sectoral returns over the cycle.

Question 38

When analysing competitive forces and industry profitability Porter emphasised what five forces?

Answer 38

Porter’s five forces are the bargaining power of suppliers and that of buyers/ customers, the threat of substitutes and rivalry between current competitors.

Question 39

What are the five phases of product lifecycle?

Answer 39

Introduction, growth, maturity and decline phases before yielding to obsolescence. The time scale will vary between products.

Question 40

What is another techniquein assessing firms position?

Answer 40

Another technique in assessing firm position is SWOT - strengths, weaknesses, opportunities and threats.

Question 41

What 4p's are used when assessing firms competitive advantage and threats?

Answer 41

4Ps are product, place, promotion and price.

Question 42

What are the extra 3 P's?

Answer 42

Proposed to add people, process and physical evidence to reflect of importance services.