Micro-Economics

Question 1

Allocative Efficiency

Answer 1

When it is not possible to make anyone better off without making someone worse

Question 2

Composite Demand

Answer 2

Where goods/services have more than one use so that an increase in demand for one product leads to a fall in supply of the other (e.g. If there is an increase in demand for cheese, there will be less resources (milk) available for butter)

Question 3

Complementary products

Answer 3

Goods that are consumed together

Question 4

Cross price elasticity of demand

Answer 4

Responsiveness of demand for good X following a change in the price of good Y (make a distinction between substitute products and complementary goods)

Question 5

Derived Demand

Answer 5

Occurs when the demand for a particular product demands on the demand for another product / activity

Question 6

Division of labour

Answer 6

Breaking the production process and assigning workers to particular tasks

Question 7

Economic Welfare

Answer 7

The benefit / satisfaction an individual or society gets from the allocation of resources

Question 8

Economic Goods

Answer 8

Goods that are scarce and therefore have an opportunity cost

Question 9

Effective Demand

Answer 9

Demand supported by the ability to pay for a good or service

Question 10

Equilibrium

Answer 10

The price at which demand is equal to supply

Question 11

Externalities

Answer 11

Producing/consuming a good cause an impact on third parties not directly related

Question 12

Factor Market

Answer 12

The market for the factors of production that make goods and services

Question 13

Free Goods

Answer 13

Goods that have no opportunity cost

Question 14

Free Market Economy

Answer 14

Very limited government involvement in allocation of resources, main role is to ensure that there is fairness in the market

Question 15

Human Capital

Answer 15

The skills, abilities, motivation and knowledge of labour

Question 16

Incidence of Tax

Answer 16

The proportion of tax that is passed onto the consumer

Question 17

Income elasticity of demand

Answer 17

The proportion to which demand changes when there is a change in income

Question 18

Market Demand

Answer 18

Total demand in a market for a good, the sum of all individuals’ demand

Question 19

Maximum Price

Answer 19

A price ceiling above which the price of a good or service is not allowed to increase

Question 20

Minimum Price

Answer 20

A price floor below which the price of a good or service is not allowed to decrease

Question 21

Renewable resources

Answer 21

Resources that are able to be replenished over time

Question 22

Normal Goods

Answer 22

Goods or services that will see an increase in demand when income rises

Question 23

Opportunity cost

Answer 23

The next best alternative given up when an economic decision is made

Question 24

Price elasticity

Answer 24

The responsiveness of demand to a change in the price level

Question 25

Production Possibility Boundary

Answer 25

Indicates the maximum possible output that can be achieved

Question 26

Productive efficiency

Answer 26

When a firm operates at minimum average total cost, producing the maximum possible output

Question 27

Inferior Goods

Answer 27

Goods or services that will see demand fall when income rises

Question 28

Subsidies

Answer 28

Payments by the government to producers to encourage production of a good/service

Question 29

Value Judgements

Answer 29

Statements or opinions expressed that are not testable or cannot be verified

Question 30

Normative Judgements

Answer 30

Opinions that require value judgements to be made

Question 31

Positive Statements

Answer 31

Statements that can be tested against real-world data

Question 32

Contractions in demand

Answer 32

Falls in the quantity demanded caused by rises in prices

Question 33

Extensions in demand

Answer 33

Increases in demand caused by falls in price

Question 34

Planned Supply

Answer 34

The amount producers plan to produce at each given price

Question 35

Actual Supply

Answer 35

The amount that producers in fact produce

Question 36

Market Supply

Answer 36

Total supply in market, the sum of all individual supplier’s supply

Question 37

Extension in Supply

Answer 37

When there is an increase in supply because the market price has risen

Question 38

Contraction in Supply

Answer 38

When there is a decrease in supply because price levels have fallen

Question 39

Joint Supply

Answer 39

When the production of one good also results in the production of another

Question 40

Market-clearing price

Answer 40

The price at which all goods that are supplied will be demanded

Question 41

Substitutes

Answer 41

Goods that can be used as alternatives to another good