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A-level Economics Year 12 · Topic 1

Microeconomics

This topic sets out the core ideas of microeconomics: scarcity, choice and how markets allocate resources.

We will cover economics as a social science, opportunity cost and production possibility frontiers, factors of production, specialisation and money.

Then we compare economic systems, and see how behavioural economics challenges the idea that people always act rationally.

In this topic

  1. 1.1The economic problem and price determinationFree below · 13 questions
  2. 1.2Production, costs and market failureOpen in Full Marks · 37 questions
  3. 1.3Economics as a social science: positive and normative statements, ceteris paribus and the scientific methodOpen in Full Marks · 21 questions
  4. 1.4Scarcity, choice, opportunity cost and production possibility frontiersOpen in Full Marks · 43 questions
  5. 1.5Factors of production, specialisation, division of labour, trade and moneyOpen in Full Marks · 27 questions
  6. 1.6Economic systems: free market, mixed and command economies and the allocation of resourcesOpen in Full Marks · 24 questions
  7. 1.7Rational decision making and behavioural economics (bounded rationality, nudge, heuristics)Open in Full Marks · 37 questions

1.1 · Free notes

The economic problem and price determination

Diagram: The economic problem and price determination

Key points

In more detail

Practice

The economic problem and price determination: 7 questions

Pick an answer to check it, or open the answer for the explanation.

1. PED is −2. Demand is:

  1. Inelastic
  2. Unit elastic
  3. Price elastic
  4. Perfectly inelastic
Show answer

C: Price elastic. The absolute value is greater than 1.

2. If demand is price inelastic, raising price will:

  1. Reduce total revenue
  2. Increase total revenue
  3. Leave revenue unchanged
  4. Eliminate demand
Show answer

B: Increase total revenue. Quantity falls proportionally less than price rises.

3. A good with negative income elasticity of demand is:

  1. A normal good
  2. A luxury
  3. An inferior good
  4. A complement
Show answer

C: An inferior good. Demand falls as income rises.

4. Which is a normative statement?

  1. Inflation was 3% last year
  2. The government should reduce inequality
  3. Unemployment rose in June
  4. GDP grew by 1%
Show answer

B: The government should reduce inequality. Normative statements involve value judgements.

5. What is consumer surplus?

  1. The amount firms earn above costs
  2. The difference between what consumers are willing to pay and what they actually pay
  3. Total spending
  4. Excess supply
Show answer

B: The difference between what consumers are willing to pay and what they actually pay. It measures consumer welfare from a transaction.

6. If income elasticity of demand is positive, the good is:

  1. An inferior good
  2. A normal good
  3. A public good
  4. A merit good
Show answer

B: A normal good. Demand rises as income rises for a normal good.

7. What does producer surplus measure?

  1. The amount consumers overpay
  2. The difference between the price producers receive and the minimum they would accept
  3. Total revenue
  4. Total cost of production
Show answer

B: The difference between the price producers receive and the minimum they would accept. It represents a welfare gain to producers from market exchange.

Keep going in Full Marks

Full Marks has 13 questions on The economic problem and price determination (6 more than here), set out in practice levels. You also get notes and 3D models for all 7 subtopics of Microeconomics, plus games, timed exams and past papers.

Practise 1.1 in Full MarksOpen Microeconomics

On your exam board

All A-level Economics Year 12 topics