Micro Economics Edexcel A level
What are the four assumptions of micro economics? - ANS Rational
Consumers, perfectly competitive market, average consumer, ceteris paribus
What is a positive statement? - ANS a statement that can be tested and
validated
What is a normative statement? - ANS an opinion, a value judgement
What is the economic problem? - ANS Resources are scarce, however
wants are unlimited. There are finite resources so goods/services need to be
allocated efficiently.
What is opportunity cost? - ANS Cost of the next best alternative foregone
What is the PPF? - ANS production possibilities frontier is a graph showing
the combinations of output that the economy can possibly produce given the
current production and technology
What do points x, b and y show? - ANS X - underutilisation - at this point the
opportunity cost is zero as you can increase one good without decreasing the
other.
B - Efficient
C - unattainable
Difference between capital and consumer goods? - ANS Capital goods are
used to make consumer goods, consumer goods are goods to meet needs and
wants when consumed
What are the economic agents? - ANS Producers - decide what to make and
how much they are willing to sell for
,Consumers - decide what they want to buy and how much they are willing to sell
for
Governments - decide how much to intervene in the way producers and
consumers act
What is specialisation? - ANS when a country decides to focus on making a
particular good/service
What is division of labour? - ANS production process of a good which is broken
down in various small tasks
What are the advantages and disadvantages of specialisation and division of
labour? - ANS Advantages
- Greater output - focus on one means they will become better
- Less wastage - less mistakes more efficient
- Lower unit costs - EOS gained cause unit costs to decrease
- Greater variety - more countries producing different goods
Disadvantages
- Boredom - same thing every day
- Structural unemployment - people wont have skills to find other jobs
- Over-reliance - on trading partners
What are the functions of money? - ANS medium of exchange, unit of account,
store of value, deferred payment
What is a free market economy? - ANS Economic system based on supply and
demand
What is a command economy? - ANS An economic system in which the
government makes decisions to allocate resources
What is a mixed economy? - ANS a combination of a free market and
command economy
Advantages and disadvantages of free market economy - ANS + Choice - if
enough demand firms will produce
, + Competition - Free market economies allow firms to compete against each
other. This entails many benefits, the main two being lower prices and greater
quality.
+ Efficiencies - efficiency gains which high levels of competition can result in
- Profit maximisation - consumers may have to pay high prices and suffer from
low quality goods
- Missing markets - no provision of public goods
- Monopolies - lack of competition
Advantages and disadvantages of command economy - ANS + More equal
society - state allocates in society's best interest, maximising social welfare
rather than businesses which aim to maximise profit.
+ Provision of public goods
+ Prevention of monopolies - state allocates resources so less risk of monopolies
- Inefficient allocation of resources
- Lack of innovation
- Lack of information
Define Demand - ANS Demand refers to the amount of consumers that are
willing and able to buy a certain good at a given price in a given period of time
What are factors that cause a shift in demand? - ANS PIRATES
P- Population. The larger the population, the higher the demand.
I- Income. If consumers have more disposable income, they are able to afford
more goods, so demand increases.
R- Related goods. Related goods are substitutes or complements. A substitute
can replace another good
A- Advertising. This will increase consumer loyalty to the good and increase
demand.
T- Tastes and fashions. The demand curve will also shift if consumer tastes
change.
E- Expectations. This is of future price changes.
S- Seasons. Demand changes according to the season.
What are the four assumptions of micro economics? - ANS Rational
Consumers, perfectly competitive market, average consumer, ceteris paribus
What is a positive statement? - ANS a statement that can be tested and
validated
What is a normative statement? - ANS an opinion, a value judgement
What is the economic problem? - ANS Resources are scarce, however
wants are unlimited. There are finite resources so goods/services need to be
allocated efficiently.
What is opportunity cost? - ANS Cost of the next best alternative foregone
What is the PPF? - ANS production possibilities frontier is a graph showing
the combinations of output that the economy can possibly produce given the
current production and technology
What do points x, b and y show? - ANS X - underutilisation - at this point the
opportunity cost is zero as you can increase one good without decreasing the
other.
B - Efficient
C - unattainable
Difference between capital and consumer goods? - ANS Capital goods are
used to make consumer goods, consumer goods are goods to meet needs and
wants when consumed
What are the economic agents? - ANS Producers - decide what to make and
how much they are willing to sell for
,Consumers - decide what they want to buy and how much they are willing to sell
for
Governments - decide how much to intervene in the way producers and
consumers act
What is specialisation? - ANS when a country decides to focus on making a
particular good/service
What is division of labour? - ANS production process of a good which is broken
down in various small tasks
What are the advantages and disadvantages of specialisation and division of
labour? - ANS Advantages
- Greater output - focus on one means they will become better
- Less wastage - less mistakes more efficient
- Lower unit costs - EOS gained cause unit costs to decrease
- Greater variety - more countries producing different goods
Disadvantages
- Boredom - same thing every day
- Structural unemployment - people wont have skills to find other jobs
- Over-reliance - on trading partners
What are the functions of money? - ANS medium of exchange, unit of account,
store of value, deferred payment
What is a free market economy? - ANS Economic system based on supply and
demand
What is a command economy? - ANS An economic system in which the
government makes decisions to allocate resources
What is a mixed economy? - ANS a combination of a free market and
command economy
Advantages and disadvantages of free market economy - ANS + Choice - if
enough demand firms will produce
, + Competition - Free market economies allow firms to compete against each
other. This entails many benefits, the main two being lower prices and greater
quality.
+ Efficiencies - efficiency gains which high levels of competition can result in
- Profit maximisation - consumers may have to pay high prices and suffer from
low quality goods
- Missing markets - no provision of public goods
- Monopolies - lack of competition
Advantages and disadvantages of command economy - ANS + More equal
society - state allocates in society's best interest, maximising social welfare
rather than businesses which aim to maximise profit.
+ Provision of public goods
+ Prevention of monopolies - state allocates resources so less risk of monopolies
- Inefficient allocation of resources
- Lack of innovation
- Lack of information
Define Demand - ANS Demand refers to the amount of consumers that are
willing and able to buy a certain good at a given price in a given period of time
What are factors that cause a shift in demand? - ANS PIRATES
P- Population. The larger the population, the higher the demand.
I- Income. If consumers have more disposable income, they are able to afford
more goods, so demand increases.
R- Related goods. Related goods are substitutes or complements. A substitute
can replace another good
A- Advertising. This will increase consumer loyalty to the good and increase
demand.
T- Tastes and fashions. The demand curve will also shift if consumer tastes
change.
E- Expectations. This is of future price changes.
S- Seasons. Demand changes according to the season.
