Micro Easter Topics

Question 1

What is a Monopoly!?

Answer 1

When one firm controls the market with a 25% or more share

Question 2

Name two of the main reasons for a monopoly?

Answer 2

High barriers to entry preventing other firms entering the market

Few competitors in existence

Question 3

What is a barrier to entry?

Answer 3

Restrictions to enter and leave a market

Question 4

Name 7 features of a monopoly!?

Answer 4

1. High Prices
2. Poor Quality
3. Low Quantity
4. Poor information between firms and customers
5. Inelastic demand curve
6. Firms are able to influence price
7. Some product differentiation

Question 5

What is the concentration ratio?

Answer 5

The combined percentage market share of the top 5 firms in the market

Question 6

Name 7 features of perfect competition?

Answer 6

1. Low Prices
2. High Quantity
3. Good Quality
4. No product differentiation
5. Perfect information
6. Elastic demand curve
7. Cant influence price

Question 7

What is meant by the term Survival as a objective of a firm?

Answer 7

The state of continuing to exist or avoiding failure

Question 8

What does it mean for a firm to meet the objective of ‘growth’?

Answer 8

This is increasing the firms sales volume or total revenue over a period of time, usually measured annually (yearly)

Question 9

What is perfect competition?

Answer 9

Where there are lots of firms in the industry who have to fight to sell to customers in order for the customers to get the best quality products

Question 10

Describe the relationship between Quantity and Price on the demand curve

Answer 10

If price increases then demand is lower as less people can afford to pay for it, of prices are low then demand rises

Question 11

What are the 6 factors that affect demand?

Answer 11

Income
Substitutes
Complements
Advertisements
Time of year
Technology

Question 12

What four things effect price elasticity of a good?

Answer 12

Degree of necessity - necessary products are inelastic as they are essential no matter the price

Habit-formed goods - good such as tobacco are inelastic as people are addicted and feel it is crucial to have the product

Substitutability - products with close alternatives are elastic as customers can get better deals elsewhere

Time - in the short run consumers may not be able to find replacement products making it inelastic but in the longer run it become elastic as alternatives can be found

Question 13

Describe the relationship between quantity and price on the supply curve?

Answer 13

If prices are high more firms want to produce in that market as they can make higher profit therefore quantity rises, but if price is low then less firms can successfully supply the product and make a profit

Question 14

Name the 4 factors that cause the supply curve to shift?

Answer 14

Taxes and subsidies to a business

Costs of production

Changes in technology

Question 15

Name the 3 main factors that influence price elasticity of supply?

Answer 15

Spare capacity - as if firms have more space available its elastic whereas if they are working at full capacity then its inelastic

Time - it takes firms time to increase production as they may need to employ new resources so in the short run supply cant change much so supply is inelastic whereas long run supply can increase more becoming elastic

Ease of switching products - if its easy to switch products its elastic but if its difficult is inelastic

Question 16

What is equilibrium?

Answer 16

The price suppliers are willing to sell and consumers are willing to buy, where supply and demand cross

Question 17

What is a production possibility frontier used to show?

Answer 17

It is used to show different combinations of output for two products, showing the difficulty to allocate resources in a economy with the issue of scarity

Question 18

What does productively efficient mean?

Answer 18

Being on the PPF curve, where you are maximising all of your resources

Question 19

What is allocative efficiency?

Answer 19

Using resources to maximise the satisfaction of what people want

Question 20

What is an opportunity cost?

Answer 20

Giving up your second best option to get your first

Question 21

Why is the PPF a concave shape?

Answer 21

Because opportunity costs increase the higher level of outputs you make

Question 22

What causes the PPF to move outwards?

Answer 22

The economy growing and expanding

Question 23

What is ceteris paribus?

Answer 23

All other things being equal

Question 24

What is effective demand?

Answer 24

This is demand with the ability to pay, not just a wish or desire

Question 25

What is specialisation?

Answer 25

This is where workers specialise in specific jobs or tasks, as well as firms who specialise in producing specific products

Question 26

What is division of labour?

Answer 26

Breaking a complex task into smaller tasks which different sections have specific duties

Question 27

Why is specialisation effective?

Answer 27

Because it enables you to have specialist workers who can work to their strengths producing the best quality production improving future outputs

Question 28

What is a disadvantage to specialisation?

Answer 28

Gets repetitive and boring as worker does the same task each day

Question 29

How do you calculate total costs?

Answer 29

Fixed costs + variable costs

Question 30

What is average cost?

Answer 30

Total cost of production/output

Question 31

What is the difference between revenue and total revenue?

Answer 31

Revenue is how much you make for a single product whereas total revenue is how much you make for all your products

Question 32

What does economics of scale mean?

Answer 32

The benefits to large scale production resulting in lower average unit costs

Question 33

What are the 5 types of economies of scale?

Answer 33

Technical - as firms get bigger they can get better capital equipment e.g. Better and bigger lorries Financial - easier to access finance and get loans as they have lots of assets Purchasing - unit costs lowered as they can buy in bulk Marketing - advertising expenses can be spread over more units Managerial - can employee more expert managers for specific sectors

Question 34

What is diseconomies of scale?

Answer 34

Where you are becoming to big and stop being efficient, e.g. Too many managers sat doing little work

Question 35

What are the 2 types of diseconomies of scale?

Answer 35

Ineffective coordination - ideas and information cannot be communicated through the business from bottom to top Managerial lack of output - you are paying lots of managers who do little work and therefore are overpaid and have less impact on the business

Question 36

What is profit maximisation?

Answer 36

When a firms total sales are the highest above total costs of production

Question 37

What is Sales maximisation?

Answer 37

Sales maximisation - when sales revenue is maximised

Question 38

What is growth maximisation?

Answer 38

When a firm tries to expand and become bigger

Question 39

What is Market share maximisation?

Answer 39

Firm tried to maximise it percentage market share

Question 40

How can you judge if a market is an oligopoly?

Answer 40

If the 5 firm concentration ratio is above 80%

Question 41

What is a private good?

Answer 41

A private good is where one persons consumption of the good means that the good is not available for other people e.g. Bread

Question 42

What are the two kinds of public good?

Answer 42

Non-rival - one persons consumption of a good doesn't effect anyone else's e.g. Street lights Non-excludable - once provided it is impossible to stop other individuals from using them e.g. Beaches and parks

Question 43

What is complete market failure?

Answer 43

There is no market at all, called a missing market

Question 44

What is partial market failure?

Answer 44

When a market exists but there is a misallocation of resources that doesn't maximise social welfare

Question 45

What is a quasi-public good?

Answer 45

A public good that shares features of a private good, e.g. Toll road or private beach

Question 46

What is a merit good?

Answer 46

A merit good is a good under provided and under consumed

Question 47

What is a demerit good?

Answer 47

A demerit good is a good that is over provided and over consumed

Question 48

What is government failure?

Answer 48

This is when governments intervene but they have unintended consequences and make the allocation of resources worse rather than better

Question 49

What is the rationing function?

Answer 49

Shortages and surpluses

Question 50

What is the signalling function?

Answer 50

How price helps firms choose weather or not they should move into the market e.g. If prices are increasing they should move in, if prices fall move out

Question 51

What is the allocative function?

Answer 51

This is where resources are moving from where they are not needed to where they are

Question 52

What is a pro free market?

Answer 52

Firms know what is best to produce and government should stay out of the way

Question 53

What are Interventionist economists?

Answer 53

Believe governments should correct market failure by intervening

Question 54

What 3 reasons can cause government failure?

Answer 54

Inadequate information Conflicting objectives Administrative costs

Question 55

What is geographical immobility?

Answer 55

When you cant move jobs to other areas because house prices are too high and so you cant afford to live in nearby areas

Question 56

What is occupational immobility?

Answer 56

When workers find it hard to move between jobs because of lack of skills or outdated skills

Question 57

What is inequality?

Answer 57

The difference between the highest earners and the lowest earners

Question 58

What is social mobility?

Answer 58

The ability to start at the bottom of the income ladder and work your way up