Micro Economics Edexcel A level Questions & Answers(graded A)

Micro Economics Edexcel A level Questions & Answers(graded A) What are the four assumptions of micro economics? - ANSWERSRational Consumers, perfectly competitive market, average consumer, ceteris paribus What is a positive statement? - ANSWERSa statement that can be tested and validated What is a normative statement? - ANSWERSan opinion, a value judgement What is the economic problem? - ANSWERSResources are scarce, however wants are unlimited. There are finite resources so goods/services need to be allocated efficiently. What is opportunity cost? - ANSWERSCost of the next best alternative foregone What is the PPF? - ANSWERSproduction 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? - ANSWERSX - 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? - ANSWERSCapital goods are used to make consumer goods, consumer goods are goods to meet needs and wants when consumed What are the economic agents? - ANSWERSProducers - 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? - ANSWERSwhen a country decides to focus on making a particular good/service What is division of labour? - ANSWERSproduction process of a good which is broken down in various small tasks What are the advantages and disadvantages of specialisation and division of labour? - ANSWERSAdvantages - 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? - ANSWERSmedium of exchange, unit of account, store of value, deferred payment What is a free market economy? - ANSWERSEconomic system based on supply and demand What is a command economy? - ANSWERSAn economic system in which the government makes decisions to allocate resources What is a mixed economy? - ANSWERSa combination of a free market and command economy Advantages and disadvantages of free market economy - ANSWERS+ 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 - ANSWERS+ 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 - ANSWERSDemand 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