revision for the may mocks (after january)

Question 1

what does SIRA stand for

Answer 1

signals that price is too low/high
incentives to change price
rations excess demand /supply
allocates scarce resources

Question 2

what is a market

Answer 2

a place where buyers meet suppliers to exchange goods

Question 3

what is consumer surplus

Answer 3

difference between the price consumers are willing to pay and the price they actually pay (area above the price level and inside the demand curve)

Question 4

what is the producer surplus

Answer 4

difference between the price that producers are willing to supply products at and the price that is actually charged(area below the price level and inside the supply curve)

Question 5

what is tax

Answer 5

cost on an individual or firm which reduces disposable income. imposed by the government

Question 6

what is a subsidy

Answer 6

money grant given to firms to decrease the cost of production

Question 7

which goods are typically supported by the government

Answer 7

merit goods

Question 8

what does socially optimum mean

Answer 8

the price and quantity which maximises society surplus

Question 9

what is market failure

Answer 9

when the market fails to allocate scarce resources at socially optimum level of output and socially optimum price

Question 10

negative production externalities

Answer 10

when the cost to 3rd parties > private cost of production (overproduction)

Question 11

what is an externality

Answer 11

external cost/benefit that outside the initial transaction

Question 12

what is a positive externality

Answer 12

benefit to 3rd parties as a result of the actions of a separate economic agent(MSB >MPB)

Question 13

what is a public good

Answer 13

a good which is non excludable - no price can be charged for the good
non rival - the quantity doesn’t diminish upon consumption

Question 14

what does the DWL show

Answer 14

shows the loss of a external benefit OR the gain of an external cost

Question 15

what is a quasi public good

Answer 15

non excludable but rival good

Question 16

what are the advantages of a free market economy

Answer 16

promotes competitiveness between firms as the firms are responsive for their own prices.
reduces risk of government failure as government dont know what is demanded

Question 17

what is government failure

Answer 17

when the intervention of the government result is a net loss

Question 18

what are 3 microeconomic reasons

Answer 18

elasticity
externalities
demand

Question 19

what is demand

Answer 19

amount of consumers are able and willing to buy a good

Question 20

what is indirect tax

Answer 20

tax on consumer expenditure

Question 21

what does it mean when XED is positive and > 1

Answer 21

substitute and close good

Question 22

what does it mean when XED is negative and < -1

Answer 22

complement and close good

Question 23

what is a minimum price

Answer 23

lowest price that can be legally set

Question 24

what are the determinants of PED

Answer 24

availability of substitutes
time horizon(in the short term consumers dont have time to change their habits)
luxury or necessity
income levels

Question 25

examples of policies that can be used to control market failure

Answer 25

information provision(can help people make better decisions)
min/max prices
public goods
tax goods that create negative externalities