Unit 2(2.1-2.6)

Question 1

What is Microeconomics

Answer 1

the allocation of resources within specific markets

Question 2

what is macroeconomics

Answer 2

It refers to the allocation of resources within the economy as a whole(multiple markets)

Question 3

What are markets made of

Answer 3

demand and supply.Price adjusts to reach an equilibrium between both

Question 4

what is equilibrium

Answer 4

when at a given price, the quantity supplied equals the quantity demanded

Question 5

What is disequilibrium(Surplus and Shortage)

Answer 5

Surplus: when the quantity demanded is greater than the quantity supplied
Shortage:when the quantity supplied is greater than the quantity demanded

Question 6

what is the price mechanism

Answer 6

the process where the price adjusts to bring equilibrium in a market

Question 7

what does the price act as in a market

Answer 7

an incentive to producers to produce more or less
a signal to other producers to enter or exit the industry
a rationing device(it affects the quantity demanded

Question 8

what happens if demand rises in a market

Answer 8

the price will rise. This will:
act as an incentive for existing producers to produce more
encourage other producers to enter the market
reduce the quantity demanded

Question 9

What does a demand curve show

Answer 9

shows the quantity consumers are willing to buy at each price

Question 10

influences on demand(except for price)

Answer 10

prices of other goods and services
income levels
marketing activities of the business
size of the buying population

Question 11

what is a contraction in a demand curve

Answer 11

when the price rises and there is a decrease in the quantity demanded

Question 12

what is an extension in a demand curve

Answer 12

when the price falls and there is an increase in the quantity demanded

Question 13

the 3 economic questions

Answer 13

what to produce,how to produce and for whom

Question 14

when does a shift in demand occur

Answer 14

occurs due to a change in factors other than price.

Question 15

what is a shift in demand

Answer 15

there is a change in quantity demanded at each price

Question 16

what causes an outwards shift in demand

Answer 16

more effective marketing
increase in income( only for normal goods)
an increase in the price of a substitute
a decrease in the price of a complement(consumer needs both the products)

Question 17

what causes an inward shift in demand

Answer 17

a reduction in marketing activities
a decrease in income
a decrease in the price of a substitute
an increase in the price of a complement
a decrease in the market size( fall in the number of buyers)

Question 18

what is an individual demand curve

Answer 18

shows the quantity an individual consumer is willing and able to buy at each price

Question 19

what is a market demand curve

Answer 19

shows demand for the market, constructed by adding together the quantity demanded by all the different consumers

Question 20

What does a supply curve show

Answer 20

shows the quantity that producers are willing and able to produce at each and every price

Question 21

factors that affect supply

Answer 21

the number of producers
the cost of resources(such as material and labor
state of technology
the way in which work is organised and managed
taxes on producers or subsidies for producers

Question 22

what causes an extension in supply

Answer 22

a rise in price which increases the quantity supplied

Question 23

what causes a contraction in supply

Answer 23

a fall in price which reduces the quantity supplied

Question 24

what causes an outward shift in supply(Increase)

Answer 24

more producers
lower costs
better technology
more capital equipment

Question 25

what causes an inward shift in supply(decrease)

Answer 25

fewer producers higher costs poorer working methods less capital equipment

Question 26

what is an individual supply curve

Answer 26

shows the quantity an individual producer is willing and able to produce at every price

Question 27

what is a market supply curve

Answer 27

adding together the quantity supplied by all the different producers

Question 28

what direction is a demand curve

Answer 28

downward sloping

Question 29

what direction is the supply curve

Answer 29

upward sloping

Question 30

what happens in a shortage

Answer 30

when the quantity demanded is greater than the quantity supplied.Price will then increase which reduces quantity demanded and increases quantity supplied until price equilibrium is reached

Question 31

What happens in Surplus

Answer 31

when the quantity supplied is greater than the quantity demanded. Price will fall which reduces the quantity supplied and increases the quantity demanded until equilibrium is reached

Question 32

what does an indirect tax do

Answer 32

increases producer costs and shifts supply inwards

Question 33

what does a subsidy do

Answer 33

reduces producer costs and shifts supply inwards