Micro- Economics (2.1)

Question 1

Explain what is meant by a market

Answer 1

a market is a way of bringing together buyers and sellers to buy and sell goods and services. these markets are seen in a market economy. this means that they rely on the forces of supply and demand to determine the allocation of scarce resources as well as government intervention.

Question 2

Explain the features of the primary sector

Answer 2

The direct use of natural resources. This involves extraction of basic goods from the land
and sea. Products will either be
consumed directly or used as raw materials in the production process.

Question 3

Explain the features of the secondary sector

Answer 3

All economic activity concerned with either manufacturing or construction. Manufacturing includes both direct use and indirect use of raw materials. Construction is the process of constructing a building or infrastructure.

Question 4

Explain the features of the tertiary sector

Answer 4

All economic activity where a service is
provided. Services can be provided firm to firm,
individuals or the government. The only sector concerned with dealing with people directly.

Question 5

Explain the difference between product and factor markets

Answer 5

A product market is a market where finished goods or services are offered to consumers, businesses and the public sector:
1) Effective product markets ensure consumers benefit from lower prices and increased choice by increasing competition.
2) They also encourage firms to innovate.
3) Price is determined by the interaction of supply and demand.
On the other hand, the factor market is where the services of the factors of production (CELL) are bought and sold. Price for each factor is based on supply and demand and is a derived demand.

Question 6

Explain the interdependence between factor and product markets

Answer 6

Households are examples of the interdependence between product and factor markets because they are consumers of finished goods and services while also supplying labour to firms. As a result, they are paid wages for their labour and consequently can use the wages and salaries to buy goods and services from the product market.

Question 7

Specialisation

Answer 7

The process by which individuals, firms, regions and whole economies focus on producing those things that they have an advantage at producing.

Question 8

Evaluate the costs and benefits of specialisation and exchange for producers

Answer 8

Benefits
- Higher Output: total production of goods and services is increased
- Higher Productivity: workers who specialise in one task become as skilled as they possibly can in that area which increases productivity
- Time Saving: it takes time to stop producing one thing and switch to another so specialisation saves time and money
Costs
- Diseconomies of Scale: as output increases, costs may eventually rise because resources may become shorter in supply or it takes more people to organise the work force
- Movement of Workers: workers may become bored and leave (labour turnover) which increases costs as more people have to be trained particularly in low skilled and low paid work.

Question 9

Evaluate the costs and benefits of specialisation and exchange for workers

Answer 9

Benefits
- Increased job satisfaction: allowing workers to do work they are good at improves motivation and satisfaction at work
- Increased skill: workers become more skilled and knowledgable about their work and resultantly they can earn more money –> improved standard of living
Costs
- Boredom: demotivation
- Deskilling: lose skills in other types of work
- Unemployment: lack necessary skills/ experience