Gaps in my knowledge - Micro

Question 1

What are some advantages of specialisation and the division of labour?

Answer 1

• Decreases unit costs means cheaper prices
• Increases the output
• Increases quality and employees become highly skilled

Question 2

What are some disadvantages of specialisation and the division of labour?

Answer 2

• Increases absenteeism in the workforce
• Monotony of work could reduce quality
• Workers are specialised and so fewer staff to cover other jobs if someone is sick etc

Question 3

What is a medium of exchange as a function of money?

Answer 3

• Money can be used to be exchange for goods and services

Question 4

What is a measure of value as a function of money?

Answer 4

• Easier to compare the value of two goods

Question 5

What is a store of value as a function of money?

Answer 5

• Money can be stored as the value won’t depreciate

Question 6

What is a method of deferred payment as a function of money?

Answer 6

• Money can be used to buy something now and be paid later on

Question 7

What are the 5 factors influencing PES using TEASS?

Answer 7

• Spare capacity
• Availability of factors of production
• Stockpiles and perishability
• State of the economy
• Time period

Question 8

How does the price mechanism work to allocating resources efficiently?

Answer 8

Signalling - Excess demand or excess supply
Incentive - Changes in prices because they are profit maximisers
Rationing - Extension/contractions in demand and supply
Allocation - all allocated efficiently in the market

Question 9

What is the difference between non-rivalrous and non-excludable?

Answer 9

Non-rivalrous - 2 people are prevented from CONSUMING the same good (competition)
Non-excludable - Costly to prevent someone else from using the same good or benefitting from it

Question 10

What are the two types of information gaps?

Answer 10

Asymmetric information and incomplete information

Question 11

How is an information gap prevented in an economy?

Answer 11

Advertising, regulation and subsidies for underconsumption and taxes for overconsumption

Question 12

What are the 3 reasons for diseconomies of scale?

Answer 12

Alienation - when a firm expands, employees are not cared about as much
Bureaucracy - When a firm spends too much on paperwork
Communication - More employees in a firm mean poorer communication which could worsen productivitiy

Question 13

What is external economies of scale?

Answer 13

When an overall industry expands and grows. Examples of economies of scale include: Knowledge transfers, more skilled local workers

Question 14

What is the gig economy?

Answer 14

labor market that relies heavily on temporary and part-time positions filled by independent contractors and freelancers rather than full-time permanent employees

Question 15

What are economies of scope?

Answer 15

This is when a business diversifies by producing different types of goods and therefore they are more able to benefit from lower ac

Question 16

What are economies of scope a benefit for?

Answer 16

Conglomerates

Question 17

What is the relationship between increasing returns to scale and economies of scale?

Answer 17

When a firm increases the efficiency of production, they will be able to produce more - this could be due to division of labour and innovation. As a result of this increase in output, this could lead to more output being spread over fixed costs resulting in greater economies of scale benefit

Question 18

What is the relationship between decreasing returns to scale and diseconomies of scale

Answer 18

When a firm has grown but less efficiency means the same number of inputs leads to a smaller output, this could reduce output being spread over the same fixed costs and as a result leading to higher costs which results in diseconomies of scale

Question 19

What is an evaluation of concentration ratios in an 8 marker?

Answer 19

Concentration ratios doesn’t include the market share and their contribution in the WHOLE market and so the Herfindahl index of market concentration is used to measure the market shares of all firms in an industry

Question 20

What is a dominant strategy and what it is always in markets?

Answer 20

The strategy that each player in the market would most benefit from
- It is almost always going to be charging the lower price to benefit from higher revenue

Question 21

What is the first movers advantage in a market?

Answer 21

When a firm in the market is the first to innovate and develop something in particular, likely going to increase the most sales and develop loyalty
- Also likely to benefit from internal economies of scale

Question 22

What is joint demand?

Answer 22

This is when an increase in demand leads to a further increase in demand for another product

Question 23

What are the conditions for price discrimination to take place?

Answer 23

• Market power
• Price elasticities in that market
• Ability to prevent the reselling of tickets in that industry

Question 24

What are 2 benefits of price discrimination to consumers?

Answer 24

• Elastic consumers benefit
• Improved customer service as any extra revenue could be re-invested back into the business to improve facilities for example

Question 25

What are the costs to consumers of price discrimination?

Answer 25

• Reduced consumer surplus
• Overcrowding
• Inelastic consumers worse-off - could encourage re-selling

Question 26

What are the benefits of price discrimination to producers?

Answer 26

• Higher overall revenue, they can cross subsidise
• Charge elastic consumers a lower price, more profit from them - attracts them to the business

Question 27

What are cons of price discrimination to producers?

Answer 27

• Depends on the magnitude of price discrimination
• Re-selling could reduce profits for firms
• Costs of regulators to ensure people receive the correct price ticket

Question 28

What is the law of diminishing returns?

Answer 28

• If one variable factor is added will others remain fixed, this may increase marginal product due to specialisation but then, it will fall because all other factors are fixed so the benefit will not be as great