Theme 6

Question 1

What is micro economics?

Answer 1

Branch of economics that analyses the market behavior of individual consumers and firms to understand the decision making process of the firm and households.
It is connected with:
1. Interaction between the individual buyers and sellers
2 Factors the influence the choices made by buyers and sellers
3 Patterns of supply and demand

Question 2

What influences consumers choice 5 things

Answer 2

1 Personal
2 Social
3 Economic
4 Psychological
5 Environment

Question 3

The ‘Market’ concept: Types of market economies

Answer 3

1. A market economy is a type of economic system in which the trading and exchange of goods, services and information takes place in a free market.
2. It is an economy in which government poses few or no restriction on buyers and sellers
3. Can also be known as a free market economic

Question 4

Why do we exchange things in a free market economy

Answer 4

exchange for more equilateral satisfaction than gifts: win-win situation.

Question 5

Monopolies in South Africa

Answer 5

Monopoly: A market in which there is a sole supplier of a product with no close substitutions.
An important characteristic of a monopolized market is barriers to entry -> new firms cannot preferably enter the market.
Some things that can cause barriers to entry are:
1 Legal restrictions
2 Economies of scale
3 Control of essential resource.

Question 6

1. Free market

Answer 6

1. Governed by law of supply and demand, the market itself will determine the price of goods and services and participants.
2. Businesses can decide what goods to produce and in what quantity, and consumer businesses can decide what they want to purchase and at what price.

Question 7

2. Planned economy:

Answer 7

1. Opposite of free economy, government decides what to produce, in what quantity and to be sold at what price.
2. Price controls on goods and services

Question 8

Mixed economy:

Answer 8

1. Blend market and planned economies, meaning government will have some role in regulating the market, but all activity will be driven by buyers and sellers.
2. Include elements of both capitalism and socialism.

Question 9

Pricing strategy:

Answer 9

Firms decide what to charge different customers and in different situations.

Question 10

Steps for determining prices:

Answer 10

1 Establish pricing objectives
2 Study costs
3 Estimate demand
4 Study competition
5 Decide on a pricing strategy
6 Set price.

Question 11

What are the 10 principles of economics

Answer 11

1 People face tradeoffs
10 Society faces a short run trade off between inflation and unemployment
5 Trade can make everyone better off
3 Rational people think at the margin
4 People respond to incentives
7 Government sometimes improve market outcomes
9 Prices rise when government prints to much money
6 Markets are usually a good way to organize economic activity
8 The standard of living depends on a country’s production
2 The cost of something is what you give up getting it

3Tradeoffs:
2Governement
2*People
Market, Lving,Cost