micro economics theme 1

Question 1

Calculation for PED

Answer 1

% change in Q demanded. / % change in P

Question 2

SPLAT meaning for PED

Answer 2

S- substitutions
p - percent of income
L - luxury or necessity
A- addictive
T- time period

Question 3

Calculation for YED (income elasticity of demand)

Answer 3

% change in Q demanded / % change in income

Question 4

a negative figure of YED means

Answer 4

income rises , Q demanded falls

Question 5

positive figure of YED mean s

Answer 5

income rises , Q demanded rises

Question 6

when is a good , luxury , necessity ,inferior

Answer 6

> 1, 0-1 , <0

Question 7

calculation for PES

Answer 7

%change in Q supplied / % change in price

Question 8

PES factors (4)

Answer 8

time to produce
stock ability
factor immobility
spare production capacity

Question 9

what is the price mechanism

Answer 9

force of supply and demand determine prices

Question 10

three functions of price mechanism

Answer 10

singling
rationing
incentive

Question 11

Consumer surplus meaning

Answer 11

number of people willing to pay above the given price

Question 12

producer surplus meaning

Answer 12

number of producers willing to supply a good/ shrive for the price they receive

Question 13

tax definition

Answer 13

compulsory contribution to government revenue

Question 14

types of tax
with example

Answer 14

direct tax - national insurance , income tax , cooperation tax
indirect tax
- VAT

Question 15

the two types of indirect taxes

Answer 15

Specific - amount of tax used is same
Ad valorem
- a percentage tax. e.g VAT

Question 16

benefits of tax (3)

Answer 16

increase government revenue
incentive to save
tax on carbon emissions reduces incentives to damage environment

Question 17

negatives of tax - indirect taxes (3)

Answer 17

burden pushed onto consumers - raises prices
less incentive to join the market - less revenue and profits
create black markets for products

Question 18

negatives of tax - direct tax (3)

Answer 18

reduces disposable incomes
reduces profits and revenue - less research and development
less incentive to base in the Uk - however still lowest in G7

Question 19

what is a subsidy

Answer 19

a grant from the government to increase production or lower prices

Question 20

Advantages of a subsidy (6)

Answer 20

• reduce levels of inequality
• encourage investment into more sustainable resources
  -support fledging industries
• improve geographical mobility of labour
• support Research and development
• LOWER PRICES

Question 21

disadvantages of subsidies (3)

Answer 21

• subsidy dependant
  -high cost
• government failure
• excess supply

Question 22

what is behavioural economics

Answer 22

use of psychology to explain the irrational decisions people make

Question 23

herd animals

Answer 23

people make decisions based upon others opinions and actions around us

Question 24

private cost meaning

Answer 24

cost experienced by an individual or firm

Question 25

external cost

Answer 25

one experienced by a third party

Question 26

social cost

Answer 26

cost to society , external + private costs

Question 27

example of negative externality
Aeroplanes
negatives and positives

Answer 27

Aeroplanes
- noise and environmental pollution
benefits
- important for globalisation and the movement of labour and goods

Question 28

private benefit

Answer 28

benefit experienced by individual using the good/services

Question 29

external benefits

Answer 29

benefit experienced by third party

Question 30

social benefit

Answer 30

private + external benefits to society
e.g reduced crime

Question 31

negative externality graph

Answer 31

mpb=msb
msc mpc

Question 32

positive externality graph

Answer 32

msc=mpc

mpb msb

Question 33

positive externality of ……….
negative externality of
………………..

Answer 33

consumption

production

Question 34

health care private benefits (4)

Answer 34

-improves health to those given
-increased life expectancy
-increased income from employment
-benefit included in the price mechanism

Question 35

health care external benefits (3)

Answer 35

• healthier workforce for employers - increased productivity
• increased inward investment
  reduced spread of contagious diseases

Question 36

price mechanism

Answer 36

the manner which profits of goods and services affects the supply and demand of goods and services by the elasticity of demand

Question 37

market failure

EXAMPLES

Answer 37

when a market leads to a misallocation of resources
e.g negative externalities , monopolies , inefficiencies

Question 38

government failure

Answer 38

when government intervention leads to worse or new unintended failures

Question 39

causes of government faliure (2)-

Answer 39

• information gap
• distortion of price signals