Microeconomics A2 LS8-11

Question 1

Assumptions of perfect competition model.

Answer 1

1. Firms aim to maximise profit
2. There are many participants
3. The product is homogenous
4. No barriers to entry or exit
5. Perfect knowledge
6. No externalities

Question 2

What is derived demand?

Answer 2

Demand for one item lead to higher demand for another item

Question 3

Factors that can shift the demand curve for labour.

Answer 3

1. Changes in productivity of labour
2. Changes in price of good that labour produces
3. Changes in demand for good that labour produces
4. Changes in price of capital

Question 4

What is the substitution effect?

Answer 4

Encourages workers to offer more labour at higher wage because change in opportunity cost of leisure

Question 5

What is the income effect?

Answer 5

Encourages workers to demand more leisure as a result of an increase in income

Question 6

Non-pecuniary benefits.

Answer 6

Firms can provide benefits m not fully reflected in wages

Question 7

How is the individual supply of labour curve?

Answer 7

Backward-bending

Question 8

How is the industry labour supply curve?

Answer 8

Upward sloping
More people offer themselves for work at higher wage rates

Question 9

Factors influencing position of labour supply curve.

Answer 9

1. Size of working age population
2. Wages on offer at substitute occupations
3. Barriers to entry
4. Non-pecuniary benefits
5. Overtime

Question 10

How is the labour demand curve?

Answer 10

Downward sloping

Question 11

EVAL of perfect competition.

Answer 11

• productive efficiency achieved in long run, not short run
• allocative efficiency in long run and short run
• merely a theoretical idea

Question 12

What is a monopoly?

Answer 12

Single seller of a good

Question 13

Assumptions under monopoly.

Answer 13

1. Single seller of good
2. No substitutes
3. Barriers to entry and exit
4. Profit maximisation goal

Question 14

Germany curve in monopoly diagram.

Answer 14

Downward sloping.