Micro 1.3

Question 1

Advantages of specialisation

Answer 1

Uses resources more efficiently

Increases growth rate

Question 2

Disadvantages of specialisation

Answer 2

Over-reliance on specialised good

Would lead to unemployment

Question 3

Advantages of division of labour

Answer 3

Increased productivity

Lower costs

Question 4

Disadvantages of division of labour

Answer 4

Boredom - workers leave job

Workers replaced by machinery

Question 5

Advantages of command economies

Answer 5

More certainty
More equality
Public goods

Question 6

Disadvantages of command economies

Answer 6

Government failure

Poor quality from state-owned firms

Question 7

Advantages of free-market economy

Answer 7

Profit maximisation = Higher wages
Competition leads to low prices
Resources allocated efficiently

Question 8

Disadvantages of free-market economy

Answer 8

Market failure
Public goods not provided
Pollution
Inequality

Question 9

Difference between nominal and real income

Answer 9

Real income is adjusted for inflation

Question 10

What does unit elasticity mean

Answer 10

Change in price brings about equivalent change in demand

Question 11

Inelastic demand = __________ take more of the tax

Answer 11

Consumers

Question 12

How does excess supply lead to equilibrium

Answer 12

Producers decrease their supply so more consumers buy their goods

Question 13

How does excess demand lead to equilibrium

Answer 13

Consumers bid higher prices to buy the good, encouraging suppliers to supply more

Question 14

3 main functions of the price mechanism

Answer 14

Rationing
Incentive
Signalling

Question 15

What is rationing

Answer 15

Scarce resources means goods are allocated to consumers who are willing to pay the most

Question 16

What is incentive

Answer 16

Increasing price means producers are encouraged to produce more

Question 17

What is signalling

Answer 17

Where price changes signal changes in supply and demand

Question 18

If PED is more elastic, a relatively _______ tax is required to have an impact

Answer 18

Smaller

Question 19

Example of non-rival good

Answer 19

Radio

Question 20

Example of non-excludable

Answer 20

Street lights

Question 21

Profit max =
Revenue max =
Sales max =

Answer 21

Profit max = MC = MR
Revenue max = MR = 0
Sales max = AC = AR

Question 22

Long-run shutdown point

Answer 22

When AC > AR

Question 23

Short-run shutdown point

Answer 23

When AVC > AR

Question 24

Where is allocative efficiency

Answer 24

P = MC

Question 25

Where is productive efficiency

Answer 25

Lowest point on AC curve

Question 26

What is dynamic efficiency

Answer 26

Suffering increased short-run costs to gain decreased long-run costs

Question 27

What is x-inefficiency

Answer 27

A rise in costs due do a lack of competition causing a fall in productivity