Micro economics

Question 1

The price mechanism involves 3 functions the …..

Answer 1

Rationing function
Signalling function
Incentive function

Question 2

The rationing function

Answer 2

As prices increase demand decreases and amount of resources used is rationed

Question 3

The signalling function

Answer 3

Change in price sends signal to supplier and customer E.g. buy more or supply more

Question 4

The incentive function

Answer 4

Something that motivates producers and customers to change behaviour is low price but more

Question 5

Utility

Answer 5

The satisfaction from consuming an item

Question 6

Total utility

Answer 6

Total satisfaction from a given level of utility

Question 7

Marginal utility

Answer 7

Change in satisfaction from consuming an extra unit

Question 8

Law of diminishing marginal utility

Answer 8

As the amount consumed of a commodity increases the utility derived by the consumer from the additional units decreases

Question 9

The 4 economic agents are

Answer 9

The consumer
Producer
Government
Workers

Question 10

Price elasticity of demand

Answer 10

The responsiveness of demand to a change in price

Question 11

What is the formulation of demand

Answer 11

%change in quantity demanded/%change in price

Question 12

When is a product elastic

Answer 12

When % change in demand is greater than % change in price (0-1)

Question 13

When is a product inelastic

Answer 13

When % change in demand is less than % change in price (-1)

Question 14

Elastic vs inelastic on a supply and demand

Answer 14

Elastic demand is very flat inelastic demand is very steep

Question 15

Price elasticity of supply

Answer 15

How sensitive supply is to a change in price (%change in quantity supplied / % change in price)

Question 16

Income elasticity of demand

Answer 16

How sensitive demand is to a change in income (%change in quantity demanded/%change in income)

Question 17

What is a normal good

Answer 17

A normal good is a good when demand rises as income rises ( when in formula will be a positive between 0 and 2)

Question 18

An a inferior good

Answer 18

Is a good when demand falls as income rises and vice versa (negative number)

Question 19

Cross elasticity of demand

Answer 19

The responsiveness of demand of one good to a change in price to a related good
Substitutes are positive
Compliments are negative

Question 20

Pubic goods are (three things)

Answer 20

Non-rivalry
Non-excludable
Non-rejectable

Question 21

Why should the government provide public goods

Answer 21

Non- rival consumption ?
May prevent under provision
May lead to eos
Helps poor afford stuff like healthcare

Question 22

Quasi-public good

Answer 22

Has similar / some of the characteristics of a public good

Question 23

Merit good

Answer 23

A commodity or service such as education that is regarded by society or government as a deserving public good

Question 24

Characteristics of a merit good

Answer 24

Private or public
Positive marginal costs of suppling extra users
Limited in supply/ high opportunity costs
Rival & excludable & rejectable

Question 25

Characteristics of a public good

Answer 25

``` Funded/provided by the government Provide for one provide for all Non-rival Non-excludable Non-rejectable ```

Question 26

The principal agent theory

Answer 26

Occurs when one person or entity(agent) is able to make decisions and/or take action that impact another person or entity (principal)

Question 27

De-merit goods

Answer 27

Are opposite of merit goods they have negative externalities

Question 28

What is asymmetric information

Answer 28

Imperfect information when one party has more information than another

Question 29

Government intervention to close Info gap could include

Answer 29

``` Compulsory labels Anti speeding adverts Sun beds no under 18 (cancer) Refunds on faulty goods Guarantees ```

Question 30

Why arnt economic agents always rational

Answer 30

``` Can’t balance costs and benefits Social network influence Lack of self control Emotion Satifice rather than maximise ```