Micro Intro

Question 1

What is the Economic problem?

Answer 1

Finite resources, Infinite wants, we have to make choices.

Question 2

What are the 4 factors of production?

Answer 2

Land, Labour, Capital, Enterprise

Question 3

What is Opportunity Cost?

Answer 3

The benefit of the next best alternative forgone

Question 4

What are the 3 economic agents and what do they want to maximise?

Answer 4

Producers - maximise profit
Consumers - maximise utility
Governments - maximise welfare of citizens

Question 5

What are 3 benefits of a free market?

Answer 5

Cheaper and quicker for firms, more innovation, consumers drive choice

Question 6

What are 3 drawbacks of a free market?

Answer 6

Limited products (if too costly for firms), ethics compromised for profit, risk of market failure.

Question 7

What are 3 benefits of a mixed economy?

Answer 7

Efficiency (low costs & innovation), less market failure (gvt can tax & sub), less inequality (eg. min wage)

Question 8

What are 2 drawbacks of a mixed economy?

Answer 8

Politics can influence gvt decisions, free market can cause inequality.

Question 9

What are 3 benefits of a command economy?

Answer 9

Less inequality, less u/e (gvt creates job opportunities), gvt puts common good over firm profits.

Question 10

What are 2 drawbacks of a command economy?

Answer 10

Less innovation (due to less profit motive), Inefficiency (gvt slow to respond, lots of admin).

Question 11

Define utility, marginal utility and total utility.

Answer 11

Utility - satisfaction derived from consuming a product.

Marginal - utility derived from an additional unit

Total - utility derived from all units

Question 12

What is the law of diminishing marginal utility?

Answer 12

As consumption increases, marginal utility for additional units decreases.

Question 13

What are positive and normative statements?

Answer 13

Positive - based on facts, can be proved, not debateable.

Normative - allows for views & opinions, may be based on facts, are debateable.

Question 14

What do production possibility frontiers (PPFs) show?

Answer 14

PPFs show all combos of 2 goods that can be produced w/ given resources.

Question 15

What does it mean if you are inside, outside or on the PPF line?

Answer 15

Inside - doesn’t use all resources efficiently

Outside - impossible given current resources

On - efficiently uses all available resources

Question 16

How is opportunity cost created on the PPF?

Answer 16

Movement along the line can increase the production of one good at the expense of another good, thus creating opportunity costs.

Question 17

How may the PPF shift outward/ inward?

Answer 17

Outward - increase in quality/ quantity of FoPs (eg. better tech)

Inward - decrease in quality/ quantity of FoPs (eg. natural disaster)

Question 18

What is the difference between consumer and capital goods?

Answer 18

Consumer goods - products that satisfy people’s wants and needs

Capital goods - products used in production of other goods (eg. machines)

Question 19

Why may capital goods be increased on the PPF?

Answer 19

Increasing capital goods increases future potential o/p but comes at a short term cost.

Question 20

What is the difference between productive and allocative efficiency?

Answer 20

Productive efficiency - production at the lowest cost, max goods w/ given resources. All points on PPF.

Allocative efficiency - combination which maximises welfare in society. One point of PPF.

Question 21

What is specialisation and division of labour?

Answer 21

Specialisation - someone becomes an expert at a skill/ job.

Division of labour - assigning workers to their best job to increase efficiency.

Question 22

What are 2 benefits and 2 drawbacks of specialisation?

Answer 22

Saves costs (don’t need all equipment for everyone), saves time.

BUT: can be boring/ monotonous, workers take less pride in job

Question 23

Describe the 3 sectors of the economy.

Answer 23

Primary sector - extracting raw materials from the earth (eg. farming, mining)

Secondary sector - converting materials into products (eg. building, working in factory)

Tertiary sector - provision of services (eg salesman, accounting)

Question 24

What are chains of production?

Answer 24

The path that manufactured goods go from raw materials to finished product. (eg, tree farm -> factory -> Ikea)

Question 25

What is the difference between private and public sector?

Answer 25

Private Sector - people that set up businesses to sell G/S.

Public sector - gvt organisation that provide G/S in the economy.