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A1 MOCK EXAM REVISION PART 1
Name the three major economic agents in microeconomics.
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Consumers Government Firms
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02
Name three advantages of a free market economy.
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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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02
List the THREE functions of the price mechanism
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1. Signalling2. Incentive 3. Rationing
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02
TRUE OR FALSE The signalling funtion of price informs suppliers to move their resources into or out of a market.
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TRUE. When prices increase tney should increase the quantity supplied of the good as they are likelyt o make profit The opposite is true.
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02
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TRUE OR FALSE When there is a shortage the price of a good should fall to incentivise customers to buy more.
The price will rise and this will incentivise consumers to buy less. Hence reducing the demand for the product.
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02
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TRUE OR FALSE Hayek believes in a free market economy with some government intervention. Adam Smith believes only in the free market.
FALSE Adam Smith believes in the free market but wirth minimal government intervention---a regulatory role when required. Hayek belives all government intervention inevitably bad.
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02
Consumer surplus may be defined as...
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The difference between the price a consumer is willing to pay and the actual price they pay.
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Lorem ipsum dolor sit amet consecteteur adisciping
EXTENSION SHEET
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Define the term opportunity cost.
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The cost of an activity in terms of the next best alternative foregone.
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02
A good has a Y.E.D. of +2.1. What type of good is this?
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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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The cross elasticity of demand for two goods is +.1.8. What does this imply?
The goods are substitutes.
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02
Who is rational consumer?
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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?
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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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02
State THREE factors that often bring about irrational consumer behaviour
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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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02
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What does this diagram represent?
Ad Valorem Tax For eg. VAT
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EXTENSION SHEET
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Are substitutes
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