Chaper 2- The Allocation Of Resources

Question 1

What is the difference between microeconomics and macroeconomics?

Answer 1

Microeconomics is the study of individual markets. Microeconomic decision makers are producers and consumers.

Macroeconomics is the study of the entire economy as a whole. Examples include studying the the total size of the economy, unemployment rate etc. Macroeconomic decisions are made by the government of a particular economy, town or state.

Question 2

Define resource allocation

Answer 2

The way in which economies decide what goods and services to provide, how much to produce and who to produce them for.

Question 3

Define demand and effective demand

Answer 3

Demand is the want and willingness of consumers to buy a good or service at a given price. Effective demand is where the willingness to buy is backed with the ability to pay

Question 4

What are the factors that can cause shifts in the demand curve?

Answer 4

Consumer incomes
Taxes on incomes
Price of substitutes
Price of complements
Changes in consumer tastes and fashion 
Degrees of advertising

Question 5

Define supply

Answer 5

Supply is the want and willingness of producers to supply a good or services at a given price

Question 6

Name the factors that cause shifts in supply curve

Answer 6

Changes in cost of production
Changes in the quantity of resources available
Technological changes
The profitability of other products

Question 7

Define market equilibrium price

Answer 7

The price at which the demand and supply curves in a given market meet

Question 8

Define Price elasticity of demand (PED)

Answer 8

The responsiveness of the quantity demanded for it to change its price.

Question 9

What affects PED?

Answer 9

No. of substitutes
Time period
Proportion of income spend on commodity

Question 10

Define a market economic system (free market)

Answer 10

All resources are allocated by the market -private producers and consumers. Little to no government intervention in resource allocation.

Question 11

What are the advantages of a market economic system?

Answer 11

A wide variety of goods and services will be produced as different firms will compete to satisfy needs and wants of consumers

Firms will respond quickly to consumer changes in demand.

High efficiency will exist. Since producers will want to maximise profits, they will use resources very efficiently.

Since there is barely any government intervention, firms will find it easy and inexpensive to to start and run a business.