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Microeconomics Core Concepts
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1
Question
What are the four types of markets listed where buyers and sellers carry out economic transactions?
Page 1
Answer
Product market; Factor market; Stock market; International finance market
2
Question
Provide the definition of 'demand' as given in the notes.
Page 1
Answer
Demand is the quantity of a good or service that consumers are willing and able to purchase at different prices in a given time period; if consumers are actually able to buy what they want this is called effective demand.
3
Question
State the Law of Demand as presented in the material.
Page 1
Answer
As the price of a product falls, the quantity demanded of the product increases (ceteris paribus).
4
Question
How does a demand curve slope and what does that slope represent?
Page 1
Answer
The demand curve slopes downwards, representing that higher prices correspond to lower quantity demanded and lower prices correspond to higher quantity demanded.
5
Question
Differentiate 'movement along the demand curve' from a 'shift of the demand curve'.
Page 1
Answer
A movement along the demand curve is caused by a change in the good's own price and changes quantity demanded; a shift of the demand curve occurs when a non-price determinant changes and alters demand at every price (demand increases or decreases).
6
Question
What is a 'normal good' and how does income changes affect its demand according to the notes?
Page 1
Answer
A normal good is one for which an increase in income increases demand; the magnitude of the increase depends on the product (e.g., small increase for salt, large increase for cinema tickets).
7
Question
What is an 'inferior good' and how does rising income affect its demand?
Page 1
Answer
An inferior good is one whose demand falls as income rises because consumers buy higher-priced substitutes instead (e.g., cheap wine).
8
Question
Define 'substitutes' in the context of related goods and give the effect of a price fall in one substitute on the other good's demand.
Page 1
Answer
Substitutes are goods where a change in the price of one changes the demand for the other; a fall in the price of chicken increases its demand and decreases demand for beef (consumers switch to the cheaper substitute).
9
Question
How do complements affect demand when the price of one complement changes?
Page 1
Answer
Complements are goods purchased together; if the price of one falls, demand for both goods tends to increase (e.g., lower game prices can increase sales of games and game consoles).
10
Question
What are 'unrelated goods' and what effect does a price change in one have on the other?
Page 1
Answer
Unrelated goods are goods where a change in the price of one has no effect on the demand of the other (e.g., increase in toilet paper price has no effect on demand for pencils).
11
Question
Explain how tastes and preferences influence quantity demanded.
Page 1
Answer
Tastes and preferences influence quantity demanded because if a product becomes less popular demand decreases; marketing, media, and peer pressure can change tastes and thus demand (e.g., televised skateboarding can increase demand for skateboards).
12
Question
What effect do consumers' future price expectations have on current demand?
Page 1
Answer
If consumers expect prices to rise in the future, current demand will increase as buyers purchase now; conversely, expectation of future price decreases can lower current demand.
13
Question
How does a change in the number of consumers affect market demand?
Page 1
Answer
An increase in the number of consumers raises market demand; firms may tailor strategies (e.g., advertising) to demographic changes like a rising number of senior citizens.
14
Question
What is the difference between 'default choice' and 'mandated choice' as described in the notes?
Page 3
Answer
Default choice is a pre-set option that is effectively selected unless changed (e.g., default search engine or opt-out organ donation); mandated choice is a requirement by law to make a known choice in advance (e.g., being required to register organ donation preference).
15
Question
Describe 'nudge theory' and its main goal according to the notes.
Page 3
Answer
Nudge theory is choice architecture that nudges or encourages people to voluntarily choose better options for themselves while maintaining their right to choose; the goal is to make better choices easier without removing freedom of choice.
16
Question
Give two concrete examples from the notes of how nudges are implemented.
Page 3
Answer
Placing healthy food more accessibly to encourage consumption; pension schemes using private saving options (e.g., Save More Tomorrow program) to help young workers save money.
17
Question
What key ethical element must be present when using nudge theory according to the notes?
Page 3
Answer
Sovereignty must be present: people should have the right to choose (nudges must preserve individuals' freedom to opt out or decide otherwise).
18
Question
Define 'producer surplus' as given in the lecture notes.
Page 12
Answer
Producer surplus is the actual earnings a producer makes from a given quantity of output that exceed the minimum amount the producer would have been prepared to accept for that output.
19
Question
Explain 'allocative efficiency' as presented in the notes.
Page 12
Answer
Allocative efficiency is when the market is in equilibrium with no external influences, meaning resources are allocated in the most efficient way from society’s point of view and the sum of consumer and producer surplus is maximized.
20
Question
How do the notes define 'social surplus' (community surplus)?
Page 12
Answer
Social surplus is the sum of consumer surplus and producer surplus; it represents community surplus and is maximized at market equilibrium.
21
Question
What is the Marginal Social Cost (MSC) according to the lecture notes?
Page 12
Answer
Marginal Social Cost (MSC) is when the costs of the industry are equal to the costs borne by society—i.e., the marginal cost that includes private and external costs.
22
Question
What is the Marginal Social Benefit (MSB) as stated in the notes?
Page 12
Answer
Marginal Social Benefit (MSB) is when benefits in the market are equal to benefits to society—i.e., the marginal benefit including private and social benefits.
23
Question
List the steps provided for calculating consumer and producer surplus.
Page 12
Answer
1) Identify equilibrium price; 2) Calculate consumer surplus using area formula 1/2 × base × height; 3) Calculate producer surplus using area formula 1/2 × base × height.
24
Question
How would a fall in the price of chicken affect the demand for beef and what curve movement or shift does this represent?
Page 1
Answer
A fall in the price of chicken would increase demand for chicken and decrease demand for beef; this represents a movement along the chicken demand curve (due to chicken’s own price change) and a leftward shift of the beef demand curve (non-price effect for beef).
25
Question
According to the notes, why might taxes announcements (e.g., on cigarettes) affect demand during events like Black Friday?
Page 1
Answer
Tax announcements that suggest future price increases can raise current demand as consumers buy before the tax takes effect; alternatively, announcement effects can decrease demand during sale events like Black Friday if consumers anticipate lower prices then.
26
Question
What behavioral problem do pension saving nudges (like Save More Tomorrow) aim to overcome, according to the notes?
Page 3
Answer
They aim to overcome problems of saving that result from hyperbolic discounting and loss aversion by structuring choices to encourage long-term saving behavior.
27
Question
When is social surplus maximized in a market according to the lecture notes?
Page 12
Answer
Social surplus is maximized at the market equilibrium where consumer and producer surplus together reach their largest combined value, and there are no uncorrected externalities.
28
Question
Name three main reasons governments may intervene in markets.
Page 13
Answer
To support households; to support firms; to influence consumption and production.
29
Question
Give three additional reasons governments intervene beyond supporting households, firms, and influencing consumption/production.
Page 13
Answer
To protect consumers from monopoly; to promote well‑being and equity; to earn government revenue.
30
Question
What is an indirect tax?
Page 13
Answer
An indirect tax is a tax imposed on expenditure — on goods and services — such as GST, VAT, sales tax, or excise tax, collected when consumers buy products.