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A2 JANUARY MOCK EXAM REVISION

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Name the three major economic agents in microeconomics.

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ConsumersGovernmentFirms

Name three advantages of a free market economy.

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1. Efficient use of resources due to competition2. Innovation due incentives3. Wider variety of goods/ increased consumer choice.4. Greater flexibility/adaptability5. Lower prices due to competition

List the THREE functions of the price mechanism

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1. Signalling2. Incentive3. Rationing

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

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

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Define the concept of opportunity cost

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

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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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

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

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

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

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.

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.

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 knowledge3. Influenced by others, rather than acting independently.

Name the two types of indirect taxes

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Ad valorem and Specific Tax

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ANSWER IS BThe 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.

Define the term external benefit.

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Why is a negative externality considered a market failure?

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

Why is monopoly/monopoly power considered a market failure?

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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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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.

Draw a diagram illustrating third degree price discirmination

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LIST FIVE FACTORS THAT COULD INFLUENCE THE SUPPLY OF LABOUR

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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 costs8. 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. TTo 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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