Micro Yr1

Question 1

Command economy advantage

Answer 1

-Minimum standard of living
-less resources wasted : no competitive services
-long term planning
-standardised goods (cost efficient)
-government merit goods

Question 2

Command economy disadvantage

Answer 2

Information gaps, decision made incorrect : waste of resources
-decision slow/ bribery (money paid to resign)
-less motivation/ efficiency to work cause less reward for hard work

Question 3

Adam Smith

Answer 3

Believed specialisation and DOL increased labour productivity : increase efficiency

Question 4

Specialisation adv

Answer 4

-labour productivity
-higher quality
-cheaper than specialist tools
-workers need to be trained for only 1 task

Question 5

Specialisation dis

Answer 5

-Boring : poor quality + leave firm and lower productivity and dis EOS
-one person not in, production is stopped
-no wide industrial training : suffer from structural unemployment

Question 6

Easterlin paradox

Answer 6

-income increasing would only increase happiness if needs aren’t met

Question 7

Factors affect PED ( price elasticity of demand)

Answer 7

SPLAT!

-Substitutes
-Percentage of income : high price and increases it becomes more elastic
-luxury/necessity : L goods elastic, N goods are in elastic
-Addiction : increase elastic, just increase tax
-Time period : Short term, PED is inelastic, long term find more substitutes

Question 8

Factors affecting PES (price elasticity of supply)

Answer 8

Time : FOP fixed short term
Work below full capacity :
Availability of FOP
Ease of entry into the market
Availability of substitute

Question 9

Factors that shift demand

Answer 9

PASIFIC

POPULATION
-Advertising
-substitutes
-income + YED
Inferior good: demand less, normal +
-Fashion : trends
-Interest rates
-compliment prices : too high decrease demand

Question 10

Factors that affect supply

Answer 10

PINTSWC

-productivity :
-Indirect
-no of firms
-Technology
-subsidies
-weather/ external shocks
-changes in Cost of production
Increase wage, Raw material

Question 11

Adv of specialisation for Trade

Answer 11

Comparative advantage
-reduce opportunity cost to produce
-boost global output
Increase choice of goods and access to raw materials
-can increase capital Improving PPF
Increased competetion
-encourage domestic producers to become efficient and lower prices

Question 12

DisAdv in Trade for DOL/S

Answer 12

-countries overdependent on 1 export : farming as developing countries overspecialise.
-poor countries produce non- renewable goods : loss of resource/income
-over specialisation

Question 13

Function of money

Answer 13

-medium of exchange
-measure of value
-store of value
-method for deferred payment

Question 14

Adam smith belief

Answer 14

Laissez Faire
Price mechanism allocates resources to everyone’s advantage
-competition increase which decrease price and consumer benefits

Question 15

Free Market Adv

Answer 15

Automatic (invisible hand)
-consumer sovereignty
-high motivation to work
-increase productive efficient due to high competition

Question 16

Friedrich Hayek (capitalist)
(FREEEDOMMM!)

Answer 16

-argue state control led to less freedom
-people in free market have freedom, can take what they nner

Question 17

Free market Dis

Answer 17

-lack of merit goods
-unproductive expenses (adverts)
-monopoly :high prices
-externalities
-

Question 18

Karl Marx

Answer 18

-believe Free market caused inequality : workers exploited (underpaid)
-more firms fail due to high competition

Question 19

Goods that are Price inelastic

Answer 19

-Low substitutes e.g petrol, cigs
-necessities e.g petrol for car, food
-addictive e.g cigarettes
-cost a small % of income

Question 20

Impact of price inelasticites on firms and government

Answer 20

-If demand is elastic, firms rev decrease Instead, they could try advertising to increase brand loyalty and make demand more inelastic
-Price Discrimination. Some people pay higher prices for tickets for trains because their demand is more inelastic.
E.gAdults (with more inelastic demand) face higher prices. Students with more elastic demand get lower price.
-Tax incidence. If demand is price inelastic, then a higher tax will lead to higher prices for consumers (e.g. tobacco tax). The tax incidence will mainly be borne by consumers. If demand is price elastic, firms will face a bigger burden, and consumers will have a lower tax burden.

Question 21

Relationship between income and happiness : neo-classical view

Answer 21

-Neo-classical economic theory assumes that higher income correlates to higher levels of utility and economic welfare.

Question 22

Factors that affect happiness

Answer 22

-Income
-Quality of work
-Quality of consumption
-Leisure
-welfare of family members
-environment

Question 23

Why rising gdp won’t increase happiness

Answer 23

-high pollution from high consumption.
-high congestion and crowding
-rising levels of inequality
-rise in obesity and stress to find a higher paying job