Micro economics 111

Question 1

economics is the study of?

Answer 1

How people use limited resources to satisfy there unlimited needs

Question 2

What is Opportunity Cost?

Answer 2

The BEST alternative possibility

Question 3

What are the factors of production?

Answer 3

Land, Labour, Capital, Enterprise

Question 4

What is land and what does it generate?

Answer 4

Land is natural resources, it generates rent.

Question 5

What is Labour and what does it generate?

Answer 5

Labour is the mental and physical effort by humans to produce goods and services. Labour generates a wage

Question 6

What is Capital and what does it generate?

Answer 6

Capital is the human made resources (tools, equipment, machinery etc.) used to produce goods and services. It generates interest.

Question 7

What is Enterprise and what does it generate?

Answer 7

Enterprise is the person or people who take the risk or innovate on an idea. The generate profits.

Question 8

What is Productive efficiency?

Answer 8

Productive efficiency is the production of an output at the lowest possible cost

Question 9

What is allocative efficiency?

Answer 9

The production of products that best suits consumers demand ie. producing cheap large screen tvs that can only play black and white images would have a low allocative efficiency (because aint nobody got time for that)

Question 10

What are the 4 Cs when referring to the types of Economies?

Answer 10

Custom, Co-operation, Command and competition

Question 11

Who is responsible for the surplus created by government created price floors?

Answer 11

The gov’ment. Obviously.

Question 12

What is an example of an inelastic product?

Answer 12

Cigarettes

Question 13

What does elastic demand mean?

Answer 13

When demand is quite responsive to the change in price. (has a elasticity coefficient greater than 1)

Question 14

How do you determine the elasticity coefficient?

Answer 14

(change in Qd/average Qd)/(change in P/Average P)

Question 15

What does a price ceiling produce?

Answer 15

Shortage

Question 16

What does a price floor produce?

Answer 16

Surplus

Question 17

When demand goes up what does that do to the price and quantity?

Answer 17

The price and quantity go up

Question 18

When the Supply goes up what does that do to the price and quantity?

Answer 18

The price goes down and the quantity goes up

Question 19

What are the 5 shift factors in the demand curve?

Answer 19

1. Income (specifically real income)
2. Taste and preference
3. Price of related goods (Substitutes and complimentary)
4. Expectations (futures)
5. Population (market size changes)

Question 20

What are the 6 shift factors in the supply curve?

Answer 20

1. Price of resources (wages, inputs costs etc)
2. Business Tax
3. Technology improvement
4. Price of substitutes in production (eg beef prices rise so farmers move away from milking cows and into butchering them which decreases the supply of mulk
5. Expectations (futures)
6. Number of suppliers

Question 21

What is the law of demand?

Answer 21

Price and quantity are inversely related

Question 22

What are the three determinants of price elasticity?

Answer 22

availability of substitutes
percentage of household income spent on commodity
The amount of time elapsed since the price change