11 Questions
What is a characteristic of a perfectly competitive market structure?
There are many firms producing identical products
What is an example of a positive externality?
The benefit of education to society
What is the primary purpose of taxation in the context of externalities?
To internalize externalities
What is a characteristic of public goods?
They are non-rivalrous and non-excludable
What is the purpose of subsidies in the context of merit goods?
To encourage the production of merit goods
What is the fundamental economic problem that microeconomics seeks to address?
Unlimited wants and needs, but limited resources
What is the term for the value of the next best alternative forgone when making a choice?
Opportunity Cost
In a market economy, how are resources allocated?
Based on market forces of supply and demand
What is the point at which the marginal utility of a good equals its price?
Consumer Equilibrium
What is the term for the process of transforming inputs into outputs?
Production
What is the characteristic of a market that includes the number of firms, barriers to entry, and product differentiation?
Market Structure
Study Notes
Microeconomics
Definition
Microeconomics is the study of individual economic units such as households, firms, and markets.
Key Concepts
- Scarcity: The fundamental economic problem of unlimited wants and needs, but limited resources.
- Opportunity Cost: The value of the next best alternative forgone when making a choice.
- Economic Efficiency: The optimal allocation of resources to maximize satisfaction.
Economic Systems
- Market Economy: A system where resources are allocated based on market forces of supply and demand.
- Command Economy: A system where resources are allocated by the government.
Consumer Behavior
- Demand: The quantity of a good or service that consumers are willing and able to buy at a given price.
- Law of Demand: As the price of a good increases, the quantity demanded decreases, ceteris paribus.
- Consumer Equilibrium: The point at which the marginal utility of a good equals its price.
Firm Behavior
- Production: The process of transforming inputs into outputs.
- Cost Minimization: Firms aim to minimize costs to maximize profits.
- Profit Maximization: Firms aim to maximize profits by producing at the level where marginal revenue equals marginal cost.
Theme 1: Markets and Market Failure (Edexcel A Level Economics)
Markets
- Market Structure: The characteristics of a market, including the number of firms, barriers to entry, and product differentiation.
- Perfect Competition: A market structure where there are many firms, free entry and exit, and identical products.
Market Failure
- Externalities: The unintended consequences of economic activity that affect third parties.
- Positive Externality: A benefit that affects third parties, e.g. education.
- Negative Externality: A cost that affects third parties, e.g. pollution.
- Public Goods: Goods and services that are non-rivalrous and non-excludable, e.g. national defense.
- Merit Goods: Goods and services that are deemed desirable by the government, e.g. healthcare.
Government Intervention
- Market Failure: The government may intervene to correct market failures, e.g. regulating pollution.
- Taxation: A way to internalize externalities, e.g. carbon tax.
- Subsidies: A way to encourage the production of merit goods, e.g. education subsidies.
Test your understanding of microeconomics, including scarcity, opportunity cost, and economic efficiency, as well as markets, market failure, and government intervention. This quiz covers key concepts and terms for Edexcel A Level Economics.
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