Microeconomics LS7-LS12

Question 1

What is deduction?

Answer 1

Starting with a hypothesis.

Question 2

What is induction?

Answer 2

Collecting evidence

Question 3

What are decision makers assumed to be in classical and neoclassical economics?

Answer 3

Rational.

Question 4

What is utility for consumers?

Answer 4

The satisfaction derived from consuming a good.

Question 5

What is utility for producers?

Answer 5

Maximising profit. Achieving through producing as efficiently as possible and what consumers want.

Question 6

What is required to make rational decisions?

Answer 6

Time
Information
Ability to process information

Question 7

What approach does behavioural economics use?

Answer 7

The inductive approach

Question 8

What does behavioural economics assume?

Answer 8

Individuals have bounded rationality (want to maximise utility but can’t due to lack of time, information and ability to process information)

Question 9

What are the aspects of human behaviour that prevent rational decision making?

Answer 9

Consumer inertia
People are influenced by the behaviour of others
Consumers weakness at computation

Question 10

What is demand?

Answer 10

Is the quantity of goods and services purchased at a given price over a given time period.

Question 11

What is the difference between substitute and complement goods?

Answer 11

Substitute goods- two alternative products that can be used for the same purpose
Compliment goods- products that are used together

Question 12

What are factors that affect demand (cause a shift in demand) :

Answer 12

1- change in age structure
2- income
3- advertising
4- changes in consumer tastes

Question 13

What is supply?

Answer 13

Is the quantity of good and services that firms are willing to sell at a given price over a given time period.

Question 14

What is equilibrium price?

Answer 14

Only prince where demand of buys equals supply of sellers in market

Question 15

What is a direct tax?

Answer 15

Tax levied directly on individual or organisation.

Question 16

What is indirect tax?

Answer 16

Tax levied on a good or service.

Question 17

What is specific tax?

Answer 17

Same fixed amount for all prices.

Question 18

What is ad valorem tax?

Answer 18

Increases as amount sold increases.

Question 19

Why does the government impose taxes?

Answer 19

• To raise government revenue

- To discourage certain economic activities

Question 20

Why does the government give out subsidies?

Answer 20

In order to encourage firms production

Question 21

What is price elasticity of demand?

Answer 21

Measures the repsonsoiveneness of demand given a change in price.

Question 22

What is price elastic and price inelastic?

Answer 22

Price elastic- change in price causes proportionately larger change in demand/ supply
Price inelastic- change in price causes proportionately smaller change in demand/ supply

Question 23

What are the determinants of PEoD?

Answer 23

1- Number of substitutes
2- Necessity/ luxury
3- Addictiveness
4- Time
5- Proportion of income spent on product

Question 24

What is the PEoD/ PEoS equation?

Answer 24

Price elasticity of demand/ supply= percentage change in quantity demanded/ supplied/ percentage change in price

Question 25

What are the determinants of PEoS?

Answer 25

1- Time required to produce product
2- Level of spare capacity
3- Number of finished goods/ stocks
4- Time
5- Perishability of the product