MICROECONOMICS 7TH EDITION BY JEFFREY
M PERLOFF 2026 MOCK EXAM PRACTICE SET
WITH SOLUTIONS A+
◉ Households. Answer: A group of consumers that buy goods and
services. They also supply their labour to firms to produce goods
and services in order to earn the income needed to purchase g+s
◉ Factors of production. Answer: The available resource inputs used
in the production process of g+s (Capital, Enterprise, Land and
Labour)
◉ Capital. Answer: Man made aids for production; goods used to
make other goods
◉ Entrepreneurship. Answer: The willingness of an
entrepreneur/individual to take risks and organise production. An
entrepreneur is someone who bears the risk of a business and
organises production
◉ Labour. Answer: The human resource that is available in the
economy; the quantity and quality of human resources
,◉ Land. Answer: The natural resources available in the economy;
the quantity and quality of natural resources
◉ Factor payments/rewards. Answer: Capital=Interest
Enterprise=Profits
Labour=wages
Land=rent
◉ A model. Answer: A simplified representation of reality used to
create hypotheses about economic decisions and events
◉ Production. Answer: Any economic activity that leads to a flow of
goods and services for which people are willing and able to pay
◉ Production possibility frontier. Answer: A curve showing the
maximum quantities of different combinations of goods and services
that can be produced in a set time period given the available
resources and current state of technology
◉ Law of diminishing returns. Answer: As a firm adds variable
factors of production(usually labour) to fixed capital, the marginal
returns that the firm gains will gradually begin to decrease
,◉ Consumer good. Answer: A finished good that is sold for
consumption
◉ Capital good. Answer: Ant tangible asset that an organisation uses
to produce goods or services such as office buildings, machinery etc.
◉ Specialisation. Answer: Where individuals, businesses and whole
economies are not self-sufficient but concentrate on producing
certain goods and services, then trading their surplus.
◉ Division of labour. Answer: The assignment of different parts of a
manufacturing process or task to different specialised people in
order to improve efficiency
◉ Productivity. Answer: Output of a good or service, per factor of
production, per period of time
◉ Functions of money. Answer: A medium of exchange-it should be
accepted universally for the payment of goods, services and debt
Unit of account-It allows the value of goods, services and other
assets to be compared so that the prices of products reflect the value
that society places on them
Standard of deferred payment-Money can be used to pay back debt
Store of value-It must be possible to use for future transactions and
so it must be non-diminishable
, ◉ Resource allocation. Answer: The way in which a society's factors
of production are divided amongst their alternative uses
◉ Objectives of households. Answer: Households make decisions
about how to allocate expenditure based on the utility they derive
from consuming a good or service
◉ Objectives of firms. Answer: Firms make decisions about what to
produce and how much to produce (how to use their factors of
production) in order to receive a return/profit for their endeavours.
◉ Objectives of the government. Answer: Government's objectives
are to maximise social welfare and will do this through decision
making regarding taxation to fund public expenditure, enforcement
of laws and regulation that provide a system for the market to work
in. May aim to achieve 'macroeconomic performance indicators'
◉ Utility maximisation. Answer: The aim of trying to achieve the
highest level of satisfaction possible from the
consumption/production of a good
◉ Profit maximisation. Answer: The aim of trying to achieve the
highest levels of profit possible
M PERLOFF 2026 MOCK EXAM PRACTICE SET
WITH SOLUTIONS A+
◉ Households. Answer: A group of consumers that buy goods and
services. They also supply their labour to firms to produce goods
and services in order to earn the income needed to purchase g+s
◉ Factors of production. Answer: The available resource inputs used
in the production process of g+s (Capital, Enterprise, Land and
Labour)
◉ Capital. Answer: Man made aids for production; goods used to
make other goods
◉ Entrepreneurship. Answer: The willingness of an
entrepreneur/individual to take risks and organise production. An
entrepreneur is someone who bears the risk of a business and
organises production
◉ Labour. Answer: The human resource that is available in the
economy; the quantity and quality of human resources
,◉ Land. Answer: The natural resources available in the economy;
the quantity and quality of natural resources
◉ Factor payments/rewards. Answer: Capital=Interest
Enterprise=Profits
Labour=wages
Land=rent
◉ A model. Answer: A simplified representation of reality used to
create hypotheses about economic decisions and events
◉ Production. Answer: Any economic activity that leads to a flow of
goods and services for which people are willing and able to pay
◉ Production possibility frontier. Answer: A curve showing the
maximum quantities of different combinations of goods and services
that can be produced in a set time period given the available
resources and current state of technology
◉ Law of diminishing returns. Answer: As a firm adds variable
factors of production(usually labour) to fixed capital, the marginal
returns that the firm gains will gradually begin to decrease
,◉ Consumer good. Answer: A finished good that is sold for
consumption
◉ Capital good. Answer: Ant tangible asset that an organisation uses
to produce goods or services such as office buildings, machinery etc.
◉ Specialisation. Answer: Where individuals, businesses and whole
economies are not self-sufficient but concentrate on producing
certain goods and services, then trading their surplus.
◉ Division of labour. Answer: The assignment of different parts of a
manufacturing process or task to different specialised people in
order to improve efficiency
◉ Productivity. Answer: Output of a good or service, per factor of
production, per period of time
◉ Functions of money. Answer: A medium of exchange-it should be
accepted universally for the payment of goods, services and debt
Unit of account-It allows the value of goods, services and other
assets to be compared so that the prices of products reflect the value
that society places on them
Standard of deferred payment-Money can be used to pay back debt
Store of value-It must be possible to use for future transactions and
so it must be non-diminishable
, ◉ Resource allocation. Answer: The way in which a society's factors
of production are divided amongst their alternative uses
◉ Objectives of households. Answer: Households make decisions
about how to allocate expenditure based on the utility they derive
from consuming a good or service
◉ Objectives of firms. Answer: Firms make decisions about what to
produce and how much to produce (how to use their factors of
production) in order to receive a return/profit for their endeavours.
◉ Objectives of the government. Answer: Government's objectives
are to maximise social welfare and will do this through decision
making regarding taxation to fund public expenditure, enforcement
of laws and regulation that provide a system for the market to work
in. May aim to achieve 'macroeconomic performance indicators'
◉ Utility maximisation. Answer: The aim of trying to achieve the
highest level of satisfaction possible from the
consumption/production of a good
◉ Profit maximisation. Answer: The aim of trying to achieve the
highest levels of profit possible
