Introduction to Microeconomics

Question 1

Define economic goods

Answer 1

A product or service which can command a price when sold which satisfy the needs of humans

Question 2

what are free goods?

Answer 2

a resource, such as sunlight or air, which has zero margional cost. For free

Question 3

Define scarcity

Answer 3

A product which is restricted in quantity or availability to create or produce.

Question 4

Define what is a positive statement

Answer 4

A positive statement is a statement with no value judgements placed in them and mentions just facts.

Question 5

Define a normative statement

Answer 5

A statement that includes value judgements on whhat they think should be done ``should’’

Question 6

What is opportunity cost

Answer 6

the foregone benefit for the of the next best alternative

Question 7

Define utility

Answer 7

the satisfaction one gains from consuming a prooduct.

Question 8

Define the factors of production

Answer 8

the factors of production are needed to make a good and service. Without factors of production, nothing will be produced/

Question 9

what is margional utility?

Answer 9

The extra satisfaction of consuming an extra (additional) unit.

Question 10

What are the factors of production?

Answer 10

C- Capital (man made - factories)
E-enterprise (who runs the business
L- labour (who makes the products
L- land

Question 11

What is a free market?

Answer 11

In a pure Market Economy there is no government involvement in economic decisions. All busineses are run privatly with no government intervention

Question 12

what is a command economy

Answer 12

An Economic system in which most resources are state owned and also allocated centrally (government)

Question 13

what is a mixed market?

Answer 13

An economic system in which resources are allocated through a mixture of the market and direct public sector involvement

Question 14

what are the advantages/disadvantage of the Free market economic system

Answer 14

Advantages of this market system include efficient resource allocation, competition, innovation, and product variety.
- monopolies, no government intervention, poor working conditions, and unemployment.

Question 15

what are the advantages/disadvantages of the Mixed market economic system

Answer 15

• innovation, variety, social welfare.
• tax regulation, ghoverment monopolies, ineffective regulation

Question 16

what are the advantages /disadvantages of the command market economic system

Answer 16

• efficiency, low unemployment,
• Lack of innovation and less variety, mislocation within the central sector

Question 17

what is a ppc

Answer 17

The production possibilities curve (PPC) is a graph that shows all of the different combinations of output that can be produced given current resources and technology.

Question 18

What causes the ppc to shift to the right

Answer 18

innovation, immigrants, war

Question 19

What causes the ppc to shift to the left

Answer 19

conflict, weather, recession

Question 20

Define specialisation

Answer 20

The concentration by a worker, firm, region or whole economy on a narrow range of goods and services

Question 21

what are the benefits of specialisation

Answer 21

• Higher output - Total output of goods and services is raised and quality can be improved. A higher output at lower costs means more wants and needs might be satisfied with a given amount of scarce resources.
• Variety - Consumers have improved access to a greater variety of higher quality products
• A bigger market - Specialisation and international trade increase the size of the market offering opportunities for economies of scale (a fall in long run costs per unit of output)
• Competition and lower prices - Increased competition for domestic producers acts as an incentive to minimise costs and innovate to remain competitive.

Question 22

what are the risks of specialisation

Answer 22

• If a country has Finite resources (such as oil), when these run out, the economy is likely to suffer
  -If a country has Finite resources (such as oil), when these run out, the economy is likely to suffer

Question 23

what is the division of labour.

Answer 23

The specialisation of labour where the production process is broken down into separate tasks

Question 24

Advantages of division labour

Answer 24

To the business:
- Specialist workers become quicker at producing goods- Production becomes cheaper per good because of this- Production levels are increased- Each worker can concentrate on what they are good at and build up their expertise
To the worker:
- Higher pay for specialised work- Improved skills at that job.

Question 25

disadvantage of division of labour

Answer 25

To the business:
- Greater cost of training workers- Quality may suffer if workers become bored by the lack of variety in their jobs
To the worker:
- Boredom as they do the same job for long periods to earn a descent wage - Their quality and skills may suffer- May eventually be replaced by machinery

Question 26

When it comes to behavioural economics, how do most people act?

Answer 26

Most people act in wats which only maximises their happiness and maximises their welfare.

Question 27

What is bounded rationality and why?

Answer 27

Bounded rationality is where people act on something without exploring all the possible options and outcomes.
This can happen through
- Limited amount of information
- Limited amount of time to analyze
- Limited mental capacity

Question 28

What are heuristics?

Answer 28

Heuristics are mental shortcuts or rule of thumb which can produce a quick, satisfactory but not perfect answers to complex questions
such as
I want the same food as last time.

Question 29

What are the shoves and nudges in behavioural economics

Answer 29

-Eliminating or restricting choices
• Banning smoking in public places
• Banning takeaways close to schools / laws on using tanning salons
-Financial disincentives to take a particular course of action
• Higher taxes on cigarettes / fuel / congestion charge
• Vouchers for healthy behaviour choices
-Influencing Choice
• Provision of information - e.g. calorie counts on menus
• Changes to environment - e.g. designing buildings with fewer lifts