Reinforcement, Revision and Extension Worksheets

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A2 JANUARY MOCK EXAM REVISION

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Name the three major economic agents in microeconomics.

Consumers Government Firms

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Name three advantages of a free market economy.

1. Efficient use of resources due to competition2. Innovation due incentives 3. Wider variety of goods/ increased consumer choice. 4. Greater flexibility/adaptability 5. Lower prices due to competition

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List the THREE functions of the price mechanism

1. Signalling2. Incentive 3. Rationing

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TRUE OR FALSE The signalling funtion of price suggests that prices should increase when there is a shortage of goods and services.

FALSE1. The statement is the rationing function.OR2. The signalling function tell firms where to put their resources.

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EXTENSION SHEET

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Define the concept of opportunity cost

The cost of an activity in terms of the next best alternative foregone.

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What law explains the concave shape of the PPF below?

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The law of increasing opportunity cost/ law of diminishing marginal returns.

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EXTENSION SHEET

Answer is C. A. The opportunity cost of 90 units of consumer goods is 60 units of capital goods (80-20) B. is wrong because the rate of economic growth will increase due to more capital goods being produced. D. Is wrong because there will be less consumer goods available for current use, hence SOL falls

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TRUE/FALSE An improvement in technology will enable the economy to move to point Y.

TRUE Technology increases the productivity of both goods, as such point Y becomes attainable.

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A good has a Y.E.D. of +2.1. What type of good is this?

The plus sign means that as income increases so too does the demand for the good. The value of the coefficient is >1, hence it is a luxury good

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Who is rational consumer?

When the consumer aims to maximise their utility and minimise their costs. It occurs when the marginal benefit is greater than or equal to the marginal cost of a decision.

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List THREE assumptions of rational consumer behaviour?

1. Consumers always act in their own self-interest. 2. Consumers have perfect information. 3. Consumers are able to calculate or measure their utility. 4. Consumers act independently when making decisions. 5. Consumers always aim to maximise utility.

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State THREE factors that often bring about irrational consumer behaviour

1. Habitual Behaviour---the consumer is not carefully weighing the benefits and costs of a decision. 2. Computational limitations---limited time, limited cognitive ability, limited knowledge 3. Influenced by others, rather than acting independently.

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Name the two types of indirect taxes

Ad valorem and Specific Tax

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EXTENSION SHEET

ANSWER IS B The distance between the two curves is the subsidy. It increases consumption o the socially optimal output level by reducing the cost/price to the customer.

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Define the term external benefit.

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Why is a negative externality considered a market failure?

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REVIEW SHEET

Overproduction or overconsumption of the good/service Third party costs. The true cost of the activity is not borne by the firm or the consumer as it is passed on to others

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Why is monopoly/monopoly power considered a market failure?

1. Resources could be better allocated. 2. It is not allocatively efficient. 3. Loss of both consumer surplus DWL. Welfare is NOT maximised.

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Are substitutes

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Define the term price discrimination

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REVIEW SHEET

Charging different prices for the same or similar goods or services to different consumers, assuming costs are the same.

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List THREE factors that must be in place for price discrimination to be effective.

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1. The firm must be a price maker. 2. The firm needs to recognise different types of consumers 3. The firm must be able to keep the different groups of consumers separated. 4. There must be no market seepage.

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Draw a diagram illustrating third degree price discirmination

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EXTENSION SHEET

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LIST FIVE FACTORS THAT COULD INFLUENCE THE SUPPLY OF LABOUR

1. Skills required and length and cost of training/education. 2. Fringe benefits on offer---non-wage factors. 3. Job satisfaction. 4. Migration laws. 5. The wage rate (movement) 6. Government policies .(Tax and welfare) 7. Infrastructure, housing costs 8. Demographics

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Diagrams should be ACE! That means remember to label the Axes, Curves and all Equilibrium points. You also need to remember your ABC’s with diagrams – Accurate, Big and Clear Simply drawing a diagram from memory will likely only allow you to gain AO1 marks. T To be able to access higher-skill marks, you will need to make a change or adapt your diagram – perhaps shift a curve, indicate a particular important area and so on.

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