Allocation of resources

Question 1

What is a microeconomic?

Answer 1

Microeconomic is the study of individual and business decisions.

Question 2

What is Macroeconomic?

Answer 2

Macroeconomic looks at the decision of countries and government

Question 3

What is a market system?

Answer 3

A market system is where resources are allocated through the demand and supply

Question 4

What is a trade union?

Answer 4

An organizations that represents the interest of workers

Question 5

What is a market economy?

Answer 5

A market economy also known as a free enterprise economy, is one in which consumers determine what is produced. In a market economy those who who earn the highest incomes exercises the maximum influence on what is produced.

Economic decisions are made by individuals and firms. There is no government involvement.

Question 6

What are the features of a market economy?

Answer 6

Private property, Freedom of choice, Motivation of self interest, competition, limited government.

Question 7

What is public goods?

Answer 7

Public goods are commodities or services that benefit all members of society, and which are often provided for free through public taxation

Question 8

What is Merit goods?

Answer 8

Merit goods are goods that which create a positive effect the community is ought to be consumed more.E.g Hospitals and Schools

Question 9

What is external cost?

Answer 9

External cost are the negative impacts on society (third-parties) due to production or consumption of goods and services. Example: the pollution from a factory.

Question 10

What is external benefits?

Answer 10

External benefits are the positive impacts on society due to production or consumption of goods and services. Example: better roads in a neighborhood due to the opening of a new business.

Question 11

What is Private cost?

Answer 11

Private costs are the costs to the producer and consumer due to production and consumption respectively. Example: the cost of production.

Question 12

What is Private benefits?

Answer 12

Private benefits are the benefits to the producer or consumer due to production and consumption respectively. Example: the better immunity received by a consumer when he receives a vaccine.

Question 13

How to workout social costs?

Answer 13

Social Costs = External costs + Private Costs

Question 14

How to workout social benefits?

Answer 14

Social Benefits = External benefits + Private benefits

Question 15

What is resource allocation?

Answer 15

Resource allocation: the way in which economies decide what goods and services to provide, how to produce them and who to produce them for.

Question 16

What are the three questions?(Basic economic question)

Answer 16

what to produce, how to produce, and for whom to produce

Question 17

What is a market?

Answer 17

A place where buyers and sellers come together to exchange goods/services.

Question 18

What is demand?

Answer 18

Demand is the want and willingness of consumers to buy a good or services at a given price. Effective demand is where the willingness to buy is backed by the ability to pay. For example, when you want a laptop but you don’t have the money, it is called demand.

Question 19

Private sector?

Answer 19

Private Sector: Firms which are owned by private individuals

Question 20

Public sector?

Answer 20

Public Sector: Firms which are owned by the government.

Question 21

Command Economies?

Answer 21

Command Economies are those where all of the firms within an economy are owned and operated by the government (state). There is no private sector and the government makes all of the pricing decisions.

Question 22

Mixed Economies?

Answer 22

Mixed Economies have elements of both of these. Mostly the pricing decisions are made by the firms in the market and the relationship between supply and demand. However, the government can intervene and change the prices or provide goods and services that are not offered by the private sector

Question 23

Effective demand?

Answer 23

Effective Demand: Where the consumer’s desire to consume a good or service is matched by their ability to pay for it.

Question 24

What causes a shift in demand?

Answer 24

• A change in the consumer’s income
• The price of other goods
• Population changes
• Changes in fashion
• Changes in legislation
• Advertising and marketing

Question 25

What causes the demand curve to shift outwards?

Answer 25

• an increase in disposable incomes after tax
• a rise in the price of substitutes
• a fall in the price of a complement
• tastes and fashion favour the product
• an increase in advertising
• a rise in the population
• other factors, e.g. hot weather increases demand for cold drinks and sun creams.

Question 26

What causes the demand shift to shift inwards?

Answer 26

• a fall in disposable incomes after tax
• a fall in the price of substitutes
• a rise in the price of a complement
• tastes and fashion favour other products
• a reduction in advertising
• a fall in the population
• other factors, e.g. hot weather reduces the
demand for winter coats

Question 27

What is supply?

Answer 27

Supply: The quantities of a product that suppliers (firms) are willing and able to sell at various prices per period of time, all other things being equal.

Question 28

Factors affecting supply

Answer 28

The size of the market
The nature of the market – if there are a greater number of competitors in the market then there will be increased supply
The costs of the factors of production 
Technology available
The price of substitutes 
Indirect taxes
Government intervention 
Joint Supply

Question 29

What is individual supply?

Answer 29

Individual Supply: The amount of goods and services produced by a single firm at a given price level.

Question 30

What is Market Supply?

Answer 30

Market Supply: The amount of goods and services produced by all firms in the market at a given price level.

Question 31

What causes the supply curve to shift inwards?

Answer 31

• other products become more profitable to
produce
• a rise in the cost of factors of production
• a fall in the supply of resources
• technical failures, such as a cut in power
supplies or mechanical breakdowns
• a fall in business optimism and profit
expectations
• the government withdraws subsidies and/or
increases taxes on profits
• other factors, e.g. wars and natural disasters

Question 32

What causes the supply curve to shift outwards?

Answer 32

-other products become less profitable to
produce
• a fall in the cost of factors of production
• an increase in the supply of resources
• technical progress and improvements in
production processes and machinery
• an increase in business optimism and
expectations of profit
• the government subsidises production
and/or cuts taxes on profits
• other factors, e.g. good weather boosts
crop harvests