Unit 3: Microeconomic decision makers

Question 1

Money

Answer 1

An item which is generally acceptable as a means of payment

Question 2

Commercial banks

Answer 2

Banks which aim to make a profit by providing a range of banking services to households and firms

Question 3

Liquidity

Answer 3

Being able to turn an asset into cash quickly without a loss

Question 4

Central Bank

Answer 4

A government-owned bank which provides banking services to the government and commercial banks and operates monetary policy

Question 5

Disposable income

Answer 5

Income after income tax has been deducted and any state benefits received.

Question 6

Wealth

Answer 6

A stock of assets including money held in bank accounts, shares in companies, government bonds, cars and property

Question 7

Rate of interest

Answer 7

A charge for borrowing money and a payment for lending money

Question 8

Average propensity to consume (APC)

Answer 8

The proportion of household disposable income which is spent

Question 9

Consumption

Answer 9

Expenditure by households on consumer goods and income

Question 10

Savings ratio

Answer 10

The proportion of household income that is saved (also called average propensity to save - APS - or savings rate)

Question 11

Mortgage

Answer 11

A loan to help buy a house

Question 12

Earnings

Answer 12

The total pay received by a worker

Question 13

Wage rate

Answer 13

A payment which an employer contracts to pay a worker. It is the basic wage a worker receives per unit of time or unit of output

Question 14

Time-rate system

Answer 14

A system of being paid based on the number of hours work

Question 15

Piece-rate system

Answer 15

A system of being paid based on the amount produced

Question 16

National minimum wage (NMW)

Answer 16

A minimum rate of wage for an hour’s work, fixed by the government for the whole economy

Question 17

Wage differential

Answer 17

The difference in wages

Question 18

Primary sector

Answer 18

Covers agriculture, fishing, forestry, mining, and other industries which extract natural resources.

Question 19

Secondary sector

Answer 19

Covers manufacturing and construction industries

Question 20

Tertiary sector

Answer 20

Covers industries which provide services

Question 21

Elasticity of demand for labour

Answer 21

A measure of the responsiveness of demand for labour to a change in the wage rate

Question 22

Elasticity of supply of labour

Answer 22

A measure of the responsiveness of the supply of labour to a change in the wage rate.

Question 23

Specialisation

Answer 23

Concentrating on particular products or tasks

Question 24

Division of labour

Answer 24

Dividing production into smaller tasks so that workers can specialise in particular tasks.

Question 25

Trade union

Answer 25

An association which represents the interests of a group of workers

Question 26

Collective bargaining

Answer 26

Representatives of workers negotiating with employers' associations

Question 27

Real income

Answer 27

Income adjusted for inflation

Question 28

Industrial action

Answer 28

When workers disrupt production to put pressure on employers to agree to their demands

Question 29

Strike

Answer 29

A group of workers stopping work to put pressure on an employer to agree to their demands

Question 30

Industry

Answer 30

A group of firms producing the same product

Question 31

The quarternary sector

Answer 31

Covers service industries that are knowledge based

Question 32

Internal growth

Answer 32

An increase in the size of a firm resulting from it enlarging existing plants or opening new ones

Question 33

External growth

Answer 33

An increase in the size of a firm resulting from it merging or taking over another firm

Question 34

Horizontal merger

Answer 34

The merger of firms producing the same product and at the same stage of production

Question 35

Vertical merger

Answer 35

The merger of one firm with another firm that either provides an outlet for its products or supplies it with raw materials, components or the products it sells

Question 36

Conglomerate merger

Answer 36

A merger between firms producing different products

Question 37

Rationalisation

Answer 37

Eliminating unnecessary equipment to make a firm more efficient.

Question 38

Vertical merger backwards

Answer 38

A merger with a firm at an earlier stage of the supply chain

Question 39

Vertical merger forwards

Answer 39

A merger with a firm at a later stage of the supply chain

Question 40

Internal economies of scale

Answer 40

Lower long run average costs resulting from a firm growing in size

Question 41

External economies of scale

Answer 41

Lower long run average costs resulting from an industry growing in size

Question 42

Internal diseconomies of scale

Answer 42

Higher long run average costs resulting from a firm growing too large

Question 43

External diseconomies of scale

Answer 43

Higher long run average costs arising from an industry growing too large

Question 44

Corporation tax

Answer 44

A tax on profits of a company

Question 45

Total cost

Answer 45

The total amount that has to be spent on the factors of production used to produce a product

Question 46

Average total cost

Answer 46

Total cost divided by output

Question 47

Fixed costs

Answer 47

Costs which do not change with output in the sort run

Question 48

Average fixed cost

Answer 48

Total fixed cost divided by output

Question 49

Variable cost

Answer 49

Costs that change with output

Question 50

Average variable cost

Answer 50

Total variable cost divided by output

Question 51

Long run

Answer 51

The time period when all factors of production can be changed and all costs are variable

Question 52

Price

Answer 52

The amount of money that has to be given to obtain a product

Question 53

Market structure

Answer 53

The conditions which exist in a market including the number of firms

Question 54

Competitive market

Answer 54

A market with a number of firms that compete with each other

Question 55

Normal profit

Answer 55

The minimum level of profit required to keep a firm int he industry in the long run

Question 56

Supernormal profit

Answer 56

Profit above that needed to keep a firm in the market in the long run

Question 57

Monopoly

Answer 57

A market with a single supplier

Question 58

Barrier to entry

Answer 58

anything that makes it difficult for a firm to start producing the product

Question 59

Barrier to exit

Answer 59

Anything that makes it difficult for a firm to stop making the product

Question 60

Scale of production

Answer 60

The size of production units and the methods of production used

Question 61

Sunk costs

Answer 61

Cost that cannot be recovered if the firm leaves the industry