Microeconomics

Question 1

Opportunity cost

Answer 1

Cost of the next best alternative foregone when a choice is made

Question 2

Factors of production

Answer 2

C - Capital

E - Enterprise

L - Land

L - Labour

Question 3

Ceteris paribus

Answer 3

All other things remaining equal

Question 4

How to shift out PPF curve and increase production

Answer 4

Improve quantity/quality of CELL

Question 5

PPF curve

Answer 5

The maximum output an economy can achieve when all its resources are efficiently employed

Question 6

Scarcity

Answer 6

Resources are finite in supply and so cannot meet all human wants

Question 7

Resources

Answer 7

CELL used in production of goods and services

Question 8

Positive statements

Answer 8

Objective statements which can be tested to see if it is true or false

Question 9

Normative statement

Answer 9

Statement based on a value judgement and cannot be tested

Question 10

How to tell if statement is normative

Answer 10

Words such as:

Should
Could
Would
Ought to

Question 11

Demand

Answer 11

The quantity of a good or service consumers are WILLING AND ABLE to buy at a given price in a given time period

Question 12

What can cause a shift in demand

Answer 12

P - Population
A - Advertising
S - Substitutes price
I - Income
F - Fashion/Tastes
I - Interest rates
C - Complements price

Question 13

Supply

Answer 13

The quantity of a good or service producers are willing and able to produce at a given price in a given time period

Question 14

What can cause a shift in supply

Answer 14

P - Productivity
I - Indirect tax
N - Number of firms
T - Technology
S - Subsidy
W - Weather
C - Costs of production

Question 15

Free Market Economy

Answer 15

Individuals are free to make their own choices and own the factors of production without government interference

Resources are allocated through the price mechanism

Question 16

Command Economy

Answer 16

The government or central authority makes all economic decisions

Question 17

Mixed Economy

Answer 17

Resources are allocated partly by the government and partly by the price mechanism

Question 18

How do consumers and producers act in free market economies

Answer 18

Consumers make decisions based on satisfactions

Producers make decisions based on profit

Question 19

Advantages of free market economy

Answer 19

Efficient allocation of scarce resources

Increased innovation

Profit motive stimulates investment which can lower prices

Competitive markets responsive to customers

Question 20

Disadvantages of free market economy

Answer 20

Susceptible to monopolies

Under provision of pure public goods

Rise in the scale of income and wealth inequality

Question 21

Which economist was in support of free market economies

Answer 21

Adam Smith

Question 22

Advantages of command economy

Answer 22

Provides a minimum standard of living

Less wastage of resources

Less inequality

Question 23

Disadvantages of command economy

Answer 23

Could be bribery and corruption in government

Less motivation and efficiency

Consumers lose freedom

Question 24

Which economist supported command economy

Answer 24

Karl Marx

Question 25

Role of government in mixed economy

Answer 25

Regulation of economy - environmental standards, consumer protection Public goods and services - funds education, infrastructure, healthcare Welfare and redistribution - welfare programs to address inequality Stabilization - using fiscal and monetary policies to manage economic cycles

Question 26

Which economist supported mixed economy

Answer 26

Fredrich Hayek

Question 27

Market failure

Answer 27

Market fails to allocate resources efficiently

Question 28

Consumer surplus

Answer 28

Difference between price consumers are willing and able to pay for a good/service and the price they actually pay

Question 29

Where to find consumer surplus on a diagram

Answer 29

Below the demand curve and above the price line

Question 30

Producer surolus

Answer 30

The difference between the price producers are willing and able to supply a good/service for and the price they actually receive

Question 31

Where to find producer surplus found on a diagram

Answer 31

Above the supply curve and below the price line

Question 32

What is the demand curve equal to

Answer 32

Marginal benefit curve

Question 33

VAT

Answer 33

Indirect tax

Question 34

Division of labour

Answer 34

Where a task is broken down to its component parts

Question 35

Specialisation

Answer 35

Labour allocate all their time in producing just one good or service

Question 36

Advantages of specialisation

Answer 36

Increased productivity Lower costs Larger quantities can be produced

Question 37

Disadvantages of specialisation

Answer 37

Job dissatisfaction Dependancy

Question 38

Functions of money

Answer 38

Medium of exchange Measure of value Store of value Method of deferred payment

Question 39

External benefits

Answer 39

Positive externality Accruing to a 3rd party

Question 40

Market failure

Answer 40

Price mechanism leads to inefficient allocation of resources