2 competativeMarkets Work

Question 1

Define resource allocation

Answer 1

The way in which a societies productive assets are used amongst their alternate uses

Question 2

Explain the incentives on the behaviour of econ agents and resource allocation

Answer 2

In setting out good decisions, economic agents respond to incentives

Incentives aim to influence economic behaviour

E.g. Household realises the price of a good has fallen, it will purchase demand more - its cost has fallen relative to its benefit

Question 3

Evaluate the effectiveness of incentives on the behaviour of econ agents and resource allocation

Answer 3

Influence based on traditional theory

However behavioural theory argues ..

Circumstances - state of the economy

Question 4

How do market, planes and mixed economies allocate resources

Answer 4

Market- market forces guide allocation of resources

Planned - gov solely dictates

Mixed - market mechanism + government intervention to cure market imperfections

Question 5

Advantages / disadvantage of mixed econ

Answer 5

Pros

• incentive for efficiency
• answers to coordination prob
• broad consumer choice

Cons

• monopoly power
• inequity

Planned pros

• low unemployment
• no risk of monopoly power
• equal distribution of wealth

Question 6

Define maximisation

Answer 6

Traditional econ

Agents aim to maximise their utility (satisfaction/happiness/wellbeing)

Act rationallly - make decision best for themselves

Question 7

Objectives of economic agents

Answer 7

Government 
Increase GDP
Decrease unemployment 
Equilibrium in the BOP
Inflation under 2%

Households
Labour force -maximise income whilst attaining satisfactory amount f free time
Consumers- max satisfaction consumption of goods

Firms - maximise profit / breakeven/ invest/expand/monopoly/Dina goal stability to achieve ethical objectives

Question 8

Evaluate the different objectives of economic agents within an economy

Answer 8

State objectives maximising utility / rational

Behavioural economics...
Computation weaknesses
Info failure 
Anchoring 
Bounded rationality

Question 9

Define market

Answer 9

A set of arrangers that allows transaction to take place

Question 10

Sub markets

Answer 10

Smaller markets within a market e.g. Labour market consists of doctors/teachers/mechanics

Question 11

Relationship between individual and demand

Answer 11

Population
Advertisement 
Substitutes 
Income 
Fashion
Ion treat rates 
Compliments 

Demand form a firm or household

Question 12

Derived demand

Answer 12

Demand for a commodity which is a convenience of demand for another

Question 13

Joint demand

Answer 13

Demand for goods that are interdependent, such that they are demanded together

Question 14

Composite demand

Answer 14

Demand for a good that has multiple uses

Question 15

Competitive demand

Answer 15

Demand for rivalry goods e.g. Substitutes

Question 16

Difference between a movement along the demand curve (extension /contraction ) and a shift

Answer 16

An extension/ contraction is when price decreases/ increases

A shift is influenced by PASIFIC

Question 17

Explain with a diagram consumer surplus

Answer 17

It’s in the Photo album

Question 18

Evaluate the impact of changes in price on consumer surplus

Answer 18

An increase in price creates a fall in consumer surplus, a decrease - a rise

Draw diagram

E.g. From e1-e2 less consumers are willing and able to buy a product this the surplus falls.

However in the whole curve shifts this fall in surplus may be restored