AQA A-level Economics (Microeconomics) Exam Questions and Answers |Complete Solutions
Graded A+ |100% Correct
Positive externality which is the same as an external benefit, occurs when the consumption
or production of a good causes a benefit to a third party, where the social benefit is greater
than the private benefit
Predatory pricing temporarily reducing the price of a good to below average cost to drive
smaller firms or new marker entrants out of the market
this can happen in oligopolies to new entrant so they can retain their SNP in the long run
Negative externality which is the same as an external cost, occurs when consumption or
production of a good costs to a third party, where the social cost is greater than the private cost
Production externality an externality (which may be positive or negative) generated in the
course of producing a good or service
Consumption externality an externality (which may be positive or negative) generated in the
course of consuming a good or service
Missing market a situation in which there is no market because the functions prices have
broken down this is complete market failure
Social benefit the total benefit of an activity, including the external benefit as well as the
private benefit. Expressed as an equation: social benefit= private benefit + external benefit
Merit good a good such as healthcare, for which the social benefits of consumption exceed
the private benefits. Value judgements are involved in deciding that a good is a merit good
Subsidy a payment made by government or other authority, usually to producers, for each
unit of the subsidised good that they produce
,Demerit good a good, such as tobacco, for which the social costs of consumption exceed the
private costs. Value judgements are involved in deciding that a good is a demerit good
Information problem occurs when people make wrong decisions because they don't possess
or they ignore the relevant information. Very often they are myopic (short-sighted) about the
future
Immobility of labour the inability of labour to move from one job to another, either for
occupational reasons or for geographical reasons
Geographical immobility of labour occurs when workers find it difficult or impossible to
move to jobs in other parts of the country or in other countries for reasons such as higher
housing costs in locations where the jobs exist
Occupational immobility of labour occurs when workers find it difficult or impossible to
move between jobs because they lack or cannot develop the skills required for the new jobs
Equity fairness or justness
Distribution of income and wealth the way in which income and wealth are divided among
the population
Regulation involves the imposition of rules, controls and constraints, which restrict freedom
of economic action in the market place
Tax a compulsory levy imposed by the government to pay for its activities. Taxes can also be
used to achieve other objectives, such as reduced consumption of demerit goods
, Price ceiling a price above which it is illegal to trade. Price ceilings, or maximum legal prices,
can distort markets by creating excess demand
Price floor a price below which it is illegal to trade. Price floors, or minimum legal prices, can
distort market by creating excess supply
Government failure occurs when government intervention reduces economic welfare,
leading to an allocation of resources that is worse than the free-market outcome
Behavioural economics challenges traditional economic theory as it assumes that economic
agents don't always act rationally making designs that maximises their utility and welfare, but
that economic agents are also influenced by social and emotional factors as well.
Biases describe a situation in which an individual has a mental tendency towards a particular
preference. Consequently any decisions influenced by these biases are unlikely to be purely
rational, even when individuals might believe they're weighing up the pros and cons
Availability biases when people make judgments about the probability of an event
happening that they are heavily influenced by things they can remember
Rule of thumb are the general principles t help an individual make decisions where the
principles are based on experience or practice rather than on calculations or evidence
Anchoring bias caused by individuals relying too much on an individual piece of information
when making a decision
Social norms rules of behaviour that are considered acceptable within a group or society
Choice architecture describes the different ways in which choices can be presented to
consumers or individuals
Graded A+ |100% Correct
Positive externality which is the same as an external benefit, occurs when the consumption
or production of a good causes a benefit to a third party, where the social benefit is greater
than the private benefit
Predatory pricing temporarily reducing the price of a good to below average cost to drive
smaller firms or new marker entrants out of the market
this can happen in oligopolies to new entrant so they can retain their SNP in the long run
Negative externality which is the same as an external cost, occurs when consumption or
production of a good costs to a third party, where the social cost is greater than the private cost
Production externality an externality (which may be positive or negative) generated in the
course of producing a good or service
Consumption externality an externality (which may be positive or negative) generated in the
course of consuming a good or service
Missing market a situation in which there is no market because the functions prices have
broken down this is complete market failure
Social benefit the total benefit of an activity, including the external benefit as well as the
private benefit. Expressed as an equation: social benefit= private benefit + external benefit
Merit good a good such as healthcare, for which the social benefits of consumption exceed
the private benefits. Value judgements are involved in deciding that a good is a merit good
Subsidy a payment made by government or other authority, usually to producers, for each
unit of the subsidised good that they produce
,Demerit good a good, such as tobacco, for which the social costs of consumption exceed the
private costs. Value judgements are involved in deciding that a good is a demerit good
Information problem occurs when people make wrong decisions because they don't possess
or they ignore the relevant information. Very often they are myopic (short-sighted) about the
future
Immobility of labour the inability of labour to move from one job to another, either for
occupational reasons or for geographical reasons
Geographical immobility of labour occurs when workers find it difficult or impossible to
move to jobs in other parts of the country or in other countries for reasons such as higher
housing costs in locations where the jobs exist
Occupational immobility of labour occurs when workers find it difficult or impossible to
move between jobs because they lack or cannot develop the skills required for the new jobs
Equity fairness or justness
Distribution of income and wealth the way in which income and wealth are divided among
the population
Regulation involves the imposition of rules, controls and constraints, which restrict freedom
of economic action in the market place
Tax a compulsory levy imposed by the government to pay for its activities. Taxes can also be
used to achieve other objectives, such as reduced consumption of demerit goods
, Price ceiling a price above which it is illegal to trade. Price ceilings, or maximum legal prices,
can distort markets by creating excess demand
Price floor a price below which it is illegal to trade. Price floors, or minimum legal prices, can
distort market by creating excess supply
Government failure occurs when government intervention reduces economic welfare,
leading to an allocation of resources that is worse than the free-market outcome
Behavioural economics challenges traditional economic theory as it assumes that economic
agents don't always act rationally making designs that maximises their utility and welfare, but
that economic agents are also influenced by social and emotional factors as well.
Biases describe a situation in which an individual has a mental tendency towards a particular
preference. Consequently any decisions influenced by these biases are unlikely to be purely
rational, even when individuals might believe they're weighing up the pros and cons
Availability biases when people make judgments about the probability of an event
happening that they are heavily influenced by things they can remember
Rule of thumb are the general principles t help an individual make decisions where the
principles are based on experience or practice rather than on calculations or evidence
Anchoring bias caused by individuals relying too much on an individual piece of information
when making a decision
Social norms rules of behaviour that are considered acceptable within a group or society
Choice architecture describes the different ways in which choices can be presented to
consumers or individuals
