Economics Micro set 1 Revision

Process:
a. Find relevant video on youtube, by searching ‘Econplusdal microeconomics year1’
b. Before the video starts, get a new piece of paper, write the video title and copy what you
can see on the board so far. This should be neat, and I advise using colour
c. Watch the video, adding any additional notes to your paper
d. If the board changes, pause the video and, again, copy what you see
e. If he says anything you don’t understand, make a note of questions to ask
f. Tick off any Essential Knowledge questions answered within the video
g. Ensure Essential Knowledge has been added to revision notes

Video Watched? Notes Understood? If not, note Revision notes updated?

copied? questions to ask
1. The economic
problem: scarcity and
choice
2. Production
possibility curves
3. Demand and the
demand curve
4. Supply and the
supply curve
5. Market and
disequilibrium
6. Microeconomic
equilibrium shifts
7. Price Mechanism-
the 4 functions
8. Consumer and
producer surplus
9. Interrelated
markets
10. Price Elasticity of
Demand (PED)
11. PED and Total
revenue
11b) Elasticity along the
demand curve
12. Price Elasticity of
Supply (PES)
13. Cross Elasticity of
Demand (XED)
14. Income Elasticity of
Demand (YED)
15. Elasticity –
Business use and
 limitations
16. Indirect taxation –
Market impact
17. Subsidy – Market
impact
18. Minimum price
(Price floor) – Market
impact*
19. Maximum price
(price ceiling) – Market
impact*
20. What is allocative
efficiency?**
21. Types of Market
Failure
21b) Market failure stats
and questions *
22. Negative
Externalities in
production and
consumption
23. Positive
Externalities in
production and
consumption
24. Merit and Demerit
goods*
25. Public goods

26. Common Access

Resources **
27. Government
Failure *
28. Indirect tax and
market failure
29. Subsidy and
market failure
30. Regulation and
market failure*
31. State (Direct)
Provision*
32. Tradable Pollution
Permits*
33. Price control and
market failure*
34. Property rights and
market failure*
35. Economic system:
 market, command and
mixed economies
Positive and normative
statements and Economic
methodology
Specialisation

Division of labour

Micro examples for literally

everything**
Year 1 Micro ESSENTIAL KNOWLEDGE
Nature of Economics
Economics as a Social Science
i. What is a Social Science?
ii. What is an Economic Model?
iii. Why do Economists use Models?
iv. What does ceteris paribus mean?
v. Why is it difficult for Economists conduct scientific experiments?
Positive and Normative statements
i. What is the difference between a positive and a normative statement?
ii. Give 3 words or phrases which might suggest a normative statement
iii. Give 3 words or phrases which might suggest a positive statement
iv. Give an example of where a value judgement may be made in Economics
The Economic Problem
i. Which 3 questions does the study of economics seek to answer?
ii. What does ‘scarcity’ mean?
iii. What is meant by a ‘renewable resource’?
iv. Give an example of a renewable resource
v. What is meant by a ‘non-renewable resource’?
vi. Give an example of a non-renewable resource
vii. What are the 4 factors of production?
viii. What are the rewards for each factor of production?
ix. What is an opportunity cost?
x. Why do opportunity costs exist?
xi. Give an example of an opportunity cost for a consumer
xii. Give an example of an opportunity cost for a worker
xiii. Give an example of an opportunity cost for a firm
xiv. Give an example of an opportunity cost for a Government
Production Possibility Frontiers
i. What is a PPF?
ii. Draw a PPF using the most typical labels for the axes
iii. Illustrate a point on the PPF at which the productive potential of the economy is maximised
iv. Illustrate a point on the PPF which is unattainable at the current level of technology
v. Illustrate a point on the PPF where the allocation of resources is efficient
vi. Illustrate a point on the PPF where the allocation of resources is inefficient
vii. Illustrate actual economic growth on a PPF diagram
viii. Illustrate potential economic growth on a PPF diagram
ix. Explain 3 causes of an outward shift in the PPF
x. Explain 2 causes of an inward shift in the PPF
xi. Illustrate opportunity cost on a PPF
 xii. What is the difference between capital and consumer goods?
xiii. What is the difference between actual and potential growth?
xiv. Explain why we would not want 100% of our production to be on capital goods
xv. Explain why we would not want 100% of our production to be on consumer goods
Specialisation and the division of labour
i. Which Economist observed the division of labour in a pin factory?
ii. What is specialisation?
iii. How does the division of labour result in higher output?
iv. How might the division of labour result in higher quality?
v. How might specialisation result in lower costs?
vi. Give 4 disadvantages of specialisation in a firm
vii. Explain each of the 5 functions of money
Free market, mixed and command economies
i. Which economist is associated with free market economies?
ii. What is a free market economy?
iii. How are the 3 fundamental questions of economics answered in a free market?
iv. Give 3 advantages of a free market economies
v. Give 4 disadvantages of free market economies
vi. Which economist is associated with command economies?
vii. What is a command economy?
viii. How are the 3 fundamental questions of economics answered in a command
economy?
ix. Give 4 advantages of command economies
x. Give 3 disadvantages of command economies
xi. Which economist is associated with mixed economies?
xii. What is a mixed economy?
xiii. How are the 3 fundamental questions of economics answered in a mixed economy?
xiv. What is the role of the state in a mixed economy?
How Markets Work: Demand, Supply and Price
Rational and Irrational Decision Making
i. What is utility?
ii. What do consumers seek to maximise?
iii. What do firms seek to maximise?
iv. What is irrational behaviour?
v. Explain 3 reasons why agents may behave irrationally
vi. What is bounded rationality
Demand
i. What is demand?
ii. Explain 3 reasons the demand curve is downward sloping
iii. Illustrate an extension in demand
iv. What could cause such an extension
v. Illustrate a contraction in demand
vi. What could cause such a contraction?
vii. What are the 7 conditions of demand?
viii. What is the law of diminishing marginal utility?
ix. Why do governments need to know the various elasticities of demand for various products?

Supply
i. What is supply?
ii. Explain 3 reasons why supply curves are upward sloping
iii. Illustrate an extension in supply
 iv. What could cause such an extension?
v. Illustrate a contraction in supply
vi. What could cause such a contraction?
vii. What are the 5 conditions of supply?
Price Determination and Price Mechanism
i. What is equilibrium price?
ii. What is equilibrium quantity?
iii. Illustrate equilibrium price and quantity of a product
iv. What is a shortage?
v. Illustrate how a price below equilibrium can cause a shortage
vi. Referring to extension and contraction, explain how shortages are resolved.
vii. What is a surplus?
viii. Illustrate how a price above equilibrium can cause a surplus (or ‘glut’)
ix. Referring to extension and contraction, explain how surpluses are resolved.
x. Explain the 3 functions of the price mechanism
Consumer and Producer Surplus
i. What is consumer surplus?
ii. Illustrate consumer surplus on a diagram
iii. What is producer surplus?
iv. Illustrate producer surplus on a diagram
v. What is total economic welfare?
vi. Illustrate economic welfare on a diagram
PED
i. What is the definition of price elasticity of demand?
ii. Give the formula for PED
iii. What is meant by ‘price elastic demand’?
iv. What values would constitute ‘price elastic demand’?
v. Draw a price elastic demand curve
vi. What is meant by ‘perfectly price elastic demand’?
vii. What values would constitute ‘perfectly elastic demand’?
viii. Draw a perfectly elastic demand curve
ix. What is meant by ‘price inelastic demand’?
x. What values would constitute ‘price inelastic demand’?
xi. Draw a price inelastic demand curve
xii. What is meant by ‘unit elastic demand’?
xiii. What value would constitute ‘unit elastic demand’?
xiv. Draw a unit elastic demand curve
xv. Give 4 factors which influence the PED of a product
XED
i. What is the definition of cross price elasticity of demand?
ii. Give the formula for XED
iii. What is the definition of substitute goods?
iv. What values of XED would constitute a substitute?
v. What is the definition of complementary goods?
vi. What values of XED would constitute complementary goods?
vii. What would an XED of 0 indicate?
YED
i. What is the definition of income elasticity of demand?
ii. Give the formula for YED
iii. What is the definition of an inferior good?
iv. What values of YED would constitute an inferior good?
 v. What is a normal good?
vi. What values of YED would constitute a normal good?
vii. What is the definition of a luxury good?
viii. What values of YED would constitute a luxury good?
ix. What is another term for a luxury good?
x. What is the term for a normal good which is not a luxury good?
Significance of Elasticities
i. Why do firms need to know the price elasticity of demand for their products?
ii. Under what circumstances would an increase in price increase the revenue gained from a
product?
iii. Under what circumstances would an increase in price decrease the revenue gained from a
product?
iv. Under what circumstances would an increase in price leave revenue unchanged?
v. Why do firms need to know the cross price elasticity of demand for their products?
vi. Why do firms need to know the income price elasticity of demand for their products?
vii. Under what circumstances would a recession increase the revenue gained from a product?
PES
i. What is the definition of price elasticity of supply?
ii. Give the formula for PES
iii. What is meant by ‘price elastic supply’?
iv. What values would constitute ‘price elastic supply’?
v. Draw a price elastic supply curve
vi. What is meant by ‘perfectly price elastic supply’?
vii. What values would constitute ‘perfectly elastic supply’?
viii. Draw a perfectly elastic supply curve
ix. What is meant by ‘price inelastic supply’?
x. What values would constitute ‘price inelastic supply’?
xi. Draw a price inelastic supply curve
xii. Give 3 factors which influence the PES of a product
xiii. What is meant by ‘perfectly price inelastic demand’?
xiv. What values would constitute ‘perfectly inelastic demand’?
xv. Draw a perfectly inelastic demand curve
xvi. What is the economic definition of the long run?
xvii. Why is PES more elastic in the long run?
Market Failure
Market Failure
i. What is the definition of market failure?
ii. Name 3 types of market failure
Externalities
i. What is an external benefit?
ii. What is an external cost?
iii. What is a social benefit?
iv. What is a social cost?
v. Draw a negative externality diagram. Using letter notation, indicate:
a. Socially optimum equilibrium
b. Private equilibrium
c. Under/over consumption
d. Under/over valuation
e. Welfare loss
vi. Draw a positive externality diagram. Using letter notation, indicate:
a. Social equilibrium
 b. Private equilibrium
c. Under/over consumption
d. Under/over valuation
e. Welfare loss
Public goods
i. What are the 2 necessary conditions for public goods?
ii. What is the name for a good which displays only one condition?
iii. What is non-excludability? Use an example in your answer
iv. What is non-rivalry? Use an example in your answer
v. What is the free rider problem?
vi. Are public goods under- or over-consumed in the free market? Why?
vii. Give a reason why governments may choose not to provide public goods
viii. Give an alternative to full state provision
Information failure
i. What is information asymmetry?
ii. Why is this a form of market failure?
iii. What is adverse selection?
iv. How can independent reviews help information failure?
v. How can independent reviews help moral hazard?
vi. What are the disadvantages of independent reviews?
vii. How does group insurance help solve problems in the private medical insurance market?
Government Intervention and Government Failure
Indirect taxes
i. What is a tax?
ii. What is the difference between an indirect and a direct tax?
iii. What are the two types of indirect tax?
iv. Give 3 reasons why government might want to tax a product
v. What is the difference between the two types of indirect tax?
vi. Draw a specific tax. Using letter notation, show:
a. Original price
b. Original quantity consumed
c. New price to consumers
d. New price to producers
e. Tax per unit at new equilibrium
f. producer tax incidence
g. consumer tax incidence
h. new consumer welfare
i. new producer welfare
j. government revenue
k. deadweight loss
vii. Draw an ad valorem tax diagram. Using letter notation, show:
a. Original price
b. Original quantity consumed
c. New price to consumers
d. New price to producers
e. Tax per unit
f. producer tax incidence
g. consumer tax incidence
h. new consumer welfare
i. new producer welfare
j. government revenue
 k. deadweight loss
viii. Explain in words why taxes result in deadweight loss
ix. Explain how taxes can be used to ‘internalise an externality’
x. Give 2 benefits of indirect taxes over other forms of intervention to correct a market failure
xi. Give 2 disadvantages of indirect taxes over other forms of intervention to correct a market
failure
Subsidies
i. What is a subsidy?
ii. Give 2 reasons why governments may wish to subsidise a product
iii. Draw a subsidy diagram. Using letter notation, show:
a. Original price
b. Original quantity consumed
c. New price to consumers
d. New price to producers Subsidy per unit
e. Producer benefit
f. Consumer benefit
g. government cost
h. deadweight loss
iv. Explain in words why subsidies result in deadweight loss
v. Give 2 benefits of subsidies over other forms of intervention to correct a market failure
vi. Give 2 disadvantages of subsidies over other forms of intervention to correct a market
failure
Government intervention and elasticities
i. What is a ‘tax incidence’?
ii. Under what circumstances would the burden of a tax fall more heavily on a consumer?
iii. Under what circumstances would the burden of a tax fall more heavily on a producer?
iv. Under what circumstances would a tax generate a lot of government revenue?
v. Under what circumstances would a tax result in a significant decrease in the quantity of the
good consumed?
vi. Under what circumstances would a subsidy result in a significant fall in price for the
consumer?
vii. Under what circumstances would a subsidy result in a significant increase in price for the
producer?
viii. Under what circumstances would a subsidy result in a significant increase in the quantity of a
good consumed?
Minimum Prices
i. What is a minimum price?
ii. What is a guaranteed minimum price?
iii. Give 2 reasons why a government may wish to put a minimum price on a product
iv. Draw an unguaranteed minimum price diagram. Using letter notation, show:
a. Original price
b. Original quantity consumed
c. Original consumer welfare
d. Original producer welfare
e. Original revenue
f. New price
g. New quantity demanded
h. New quantity supplied
i. Surplus/Shortage
j. New consumer welfare
k. New producer welfare
 l. New revenue
v. Give 2 benefits of (unguaranteed) minimum prices over other forms of intervention to
correct a market failure
vi. Give 2 disadvantages of (unguaranteed) minimum prices over other forms of intervention to
correct a market failure
vii. Draw a guaranteed minimum price diagram. Using letter notation, show:
a. Original price
b. Original quantity consumed
c. Original consumer welfare
d. Original producer welfare
e. Original revenue
f. New price
g. New quantity demanded by consumer
h. Quantity bought by government
i. New quantity supplied
j. Surplus/Shortage
k. New consumer welfare
l. New producer welfare
m. New revenue from consumers
n. New total revenue
o. Cost to government
viii. Give a benefit of guaranteed minimum prices over unguaranteed minimum prices
ix. Give a disadvantage of guaranteed minimum prices over unguaranteed minimum prices
Maximum Prices
i. What is a maximum price?
ii. Give 2 reasons why a government may wish to put a maximum price on a product
iii. Draw a maximum price diagram. Using letter notation, show:
a. Original price
b. Original quantity consumed
c. Original consumer welfare
d. Original producer welfare
e. Original revenue
f. New price
g. New quantity demanded
h. New quantity supplied
i. Surplus/Shortage
j. New consumer welfare
k. New producer welfare
l. New revenue
iv. Give 2 benefits of maximum prices over other forms of intervention to correct a market
failure
v. Give 2 disadvantages of maximum prices over other forms of intervention to correct a
market failure
Tradeable Pollution Permits
i. What is a tradeable pollution permit?
ii. Explain how tradeable pollution permits can tackle negative externalities
iii. Explain 3 benefits of tradeable pollution permits
iv. Explain 3 disadvantages of tradable pollution permits
State Provision
i. How is state provision funded?
ii. Explain 3 reasons why the government might want to provide goods
 iii. Explain 2 benefits of state provision
iv. Explain 2 disadvantages of state provision
Information Provision
i. In what forms might the government provide information?
ii. Explain a benefit of information provision
iii. Explain 2 disadvantages of information provision
Regulation
i. What is (‘command and control’) regulation?
ii. What forms might regulation take?
iii. Explain a benefit of regulation
iv. Explain 2 disadvantages of regulation
Government Failure
i. What is meant by ‘government failure’?
ii. What are 4 types of government failure?
iii. Give an example of government failure in agriculture/dairy industry policies
iv. Give an example of government failure in transport policies
v. Give an example of government failure in housing policies
vi. Give an example of government failure in recreational drug policies