Micro

Question 1

What is economics?

Answer 1

Economics examines how limited resources are used to produce goods and services to satisfy needs and wants and improve living standards.

Question 2

Microeconomics

Answer 2

Microeconomics is a branch of economics which examines individual decision making by firms and households, and how this impacts on particular markets for goods or services

Question 3

Macroeconomics

Answer 3

Macroeconomics is a branch of economics that examines the workings and problems of the economy as a whole.

Question 4

Living standards

Answer 4

Living standards refer to how well off a nation is overall. Living standards are affected by both material and non-material living standards.

Question 5

Material Living standards

Answer 5

Material Living standards refer to the economic well being of individuals as affected by actual per capita consumption of goods and services and incomes per year

Question 6

Non-Material Living standards

Answer 6

Non Material Living standards are subjective but refer to the quality of life and could be affected by the amount of leisure time, happiness, life expectancy, crime rate and quality of the natural environment.

Question 7

Resources

Answer 7

Resources are productive inputs and include natural, labor and physical capital used by the business. (management, entrepreneurial skills, the risk taker)

Question 8

Relative Scarcity

Answer 8

Relative Scarcity describes when a nation’s wants are virtually unlimited, but there are not enough resources to satisfy these wants.

Question 9

Opportunity Cost

Answer 9

Opportunity Cost is equal to the benefit foregone by a decision not to direct resources into the next alternative use.

Question 10

Production possibility curve

Answer 10

Production possibility curves are used to illustrate the production choices available to society in the ways resources may be used or allocated.

Question 11

Efficient allocation of resources

Answer 11

An efficient allocation of resources occurs when productive inputs are used to produce particular types of goods and services that best maximize the general satisfaction of society’s needs and wants, well being and living standards.

Question 12

Market capitalist economy

Answer 12

A market capitalist economy involves the market or price system making decisions about what to produce, how to produce and for whom to produce, with private ownership of most resources.

Question 13

Market failure

Answer 13

Market failure occurs when the price system allocates resources inefficiently reducing the overall satisfaction of society’s wants, well being and living standards.

Question 14

Relative prices

Answer 14

The term Relative prices simply means the price level of one good (such as wheat) or service compared with or relative to the price level of another good (such as wool) or service. Changes in relative prices (price signals) affect the relative profitability of different types of goods and services and hence dictate how scarce resources are used or allocated.

Question 15

Market failure can arise when…(7)

Answer 15

1. Competition between firms in markets is weak and there are monopolies and oligopolies
2. The market does not produce enough socially desirable public goods and services at a low and affordable price (so everybody can access them)
3. Those who do not directly pay for service (such as street lighting) cannot easily be excluded from gaining benefits (the free rider problem). Here it is hard to make profits so there is a underproduction.
4. The market over-produces socially undesirable goods and services because some their profits are high.
5. There is asymmetric information : one party to a transaction knows more than another, undermining effective decision making
6. There is economic instability due to time lags in supply adjusting to demand
7. The operation of markets result in a inequality in the distribution of incomes and wealth that is damaging to society

Question 16

Pure competition

Answer 16

-Many sellers in the industry
-strong competition
-no product differentiation
-ease of entry and exit
-firms are price takers
goods are homogeneous (the same)
-buyers and sellers have perfect information
-mobile resources

Question 17

Monopolistic competition

Answer 17

• Most common form of market structure
• many buyers many sellers
• product differentiation e.g coca cola and home brand coke
• moderate ease of entry and exit

Question 18

Oligopoly

Answer 18

• a few sellers in the industry
• some product differentiation
• fairly difficult entry and exit
• e.g coles and woolworths

Question 19

Pure monopoly

Answer 19

• one seller in the industry
• weak competition
• product differentiation is unimportant
• entry and exit is difficult
• firm is a price maker and has a lot of market power

Question 20

Why are positive externalities considered to be market failures?

Answer 20

Where positive externalities exist, the good or service may be under-consumed or under-provided since the free market may fail to value them correctly or take them into account when pricing the product. If there are external benefits the market delivers an output below the quantity that maximises social welfare.

Question 21

The most effcient form of resource allocation is one which…

Answer 21

minimises opportunity cost

Question 22

Price elasticity

Answer 22

This simply refers to the extent to which the demand or supply of a good or service is responsive to a change in price.

Question 23

Market Mechanism

Answer 23

Market mechanism is the system of decision making whereby the free forces of supply of and demand for particular goods and services operate to set relative prices at the point of the market equalibrium

Question 24

Types of elasticity for demand

Answer 24

1. Type of item (necessities/non-necessities)
2. Substitutability (lots of subs/unique)
3. Cost and relative importance (high/low proportion of income)
4. Minor complementary items (swimming pool/water, water will be inelastic)

Question 25

Types of supply elasticity

Answer 25

1. Storability
2. Resource mobility and unused industry capacity
3. The time period

Question 26

Shift of the curve vs movement along the curve

Answer 26

Shift of the curve = Demand/Supply factors

Movement along the curve = change in price

Question 27

Most stable component of the AD equation

Answer 27

Private Consumption Expenditure (C)

Question 28

Most volatile component of the AD equation

Answer 28

Private Investment Expenditure (I)

Question 29

Components of Aggregate Demand

Answer 29

(C) Private (household) consumption expenditure
(I) Private investment expenditure
(G1) Government expenditure
(G2) Government Capital Expenditure
(X-M) Net External Demand

Question 30

Factors that effect (C) Private (household) consumption expenditure

Answer 30

Household or personal income (the more you earn the more you spend)
Cost and availability of credit (interest rates)
Consumer confidence (affected by job security)
Govt action (changes to taxes/welfare)

Question 31

Factors that effect (I) Private investment expenditure

Answer 31

Business confidence (expectations on the state of the economy, markets demand for products, operating costs, predictions on market conditions such as inflation and anticipated availability of resources such as labor or raw materials.)
Costs and availability of finance (interest rates)
Govt action (changes to taxes/wages/budgetary and even environmental policies)

Question 32

Factors that effect G1 and G2

Answer 32

Availability of funds (taxation/revenue)
Government priority’s/ideology
State of business cycle

Question 33

Factors that effect (X-M) Net External Demand

Answer 33

Overseas economic condditions (China's slowdown, Brexit concerns, effects (x))
Domestic demand ("spilling over," effects (m))
Goverment Policy (ChAFTA)
Exchange Rate
Relative Inflation

Question 34

Costs of production

Answer 34

Wages
Inputs/imports
Government taxes

Question 35

Availability of resources

Answer 35

Labor (improvement in labor force, is migration the anwser? funding education and training)
Land (droughts, floods, cyclones)
Capital (R&D)