Booklet 1 Micro Y12

Question 1

Ceteris Paribus

Answer 1

“All other things being equal”

Question 2

What are the 3 economic agents?

Answer 2

Households/Consumers
Firms
Government

Question 3

Why might we not maximise utility?

Answer 3

Habits

Substance Abuse

Prioritising short-term benefits

Moral, political, religious beliefs

Question 4

Cost-benefit Principle

Answer 4

Action should only be taken if the benefit outweighs the cost.
Rational utility maximisers will never give themselves disutility.

Question 5

Positive VS Normative Statement

Answer 5

Positive: Fact

Normative: Opinion

Question 6

What’s the basic economic problem?

Answer 6

Infinite human wants, finite resources

Question 7

What are the 3 ways of allocating resources?

Answer 7

Free market

Mixed economy

Planned economy (government)

Question 8

What are the 4 factors of production?

Answer 8

CAPITAL
ENTERPRISE
LAND
LABOUR

Question 9

The 4 kinds of output made by production?

Answer 9

SERVICES
CAPITAL GOODS
CONSUMER DURABLES
CONSUMER NON-DURABLES

Question 10

Trade-Off

Answer 10

A situation where an improvement in one variable leads to deterioration in another

Question 11

Opportunity Cost

Answer 11

The benefit foregone for the next best alternative

Question 12

What does a PPF illustrate?

Answer 12

The productive capacity of the economy

Question 13

How do you calculate productivity?

Answer 13

Question 14

How can labor productivity be improved?

Answer 14

Through training, specialization, or supervision.

Question 15

What are the benefits of higher productivity?

Answer 15

Lower costs,
improved competitiveness,
higher profits,
investments,
and higher wages

Question 16

What does economic growth result in?

Answer 16

A shift of the Production Possibility Frontier (PPF) outward.

Question 17

What is average cost?

Answer 17

Total cost divided by the number of output.

Question 18

What is allocative efficiency?

Answer 18

Producing the combination of output that maximizes consumer welfare.

Question 19

To be productively efficient the economy must be…

Answer 19

1. TECHNICALLY EFFICIENT - Producing maximum output
2. Minimising costs

Question 20

What is Pareto efficiency?

Answer 20

Nobody can be made better off without someone being made worse off.

Question 21

What is statically efficient?

Answer 21

Efficient at any one time (e.g., productive + allocative efficiency).

Question 22

What is dynamically efficient?

Answer 22

Becoming more efficient over time (e.g., investments).

Question 23

What is x-inefficiency?

Answer 23

A firm’s inability to fully utilize their resources. Lack of incentive to minimize costs as they are able to increase prices.

Question 24

What is specialization?

Answer 24

Focusing on one area of production.

Question 25

What is the division of labor?

Answer 25

A method of organizing work that involves breaking down tasks into smaller, specialized tasks.

Question 26

What are the drawbacks of specialization?

Answer 26

Bored/demotivated workers, deskilled due to a narrow range of tasks, less flexible, risk of unemployment if their job disappears.

Question 27

Who is associated with the pin-making example in specialization?

Answer 27

Adam Smith.