EXAMINATION REVISION QUESTIONS

TO BE PREPARED FOR THE EXAMINATION STUDENTS MUST BE ABLE TO ANSWER THE FOLLOWING
QUESTIONS.

WEEK 4: PRODUCTION AND COST

 Explain the difference between implicit and explicit cost.

 How does economic and accounting profit differ?
 Explain the difference between the short run and long run.
 Define Marginal cost.
 Define Marginal Product.
 Define increasing and decreasing marginal product of labor.
 Define Marginal Returns.
 Define diminishing marginal returns
 Assume Labor is the only variable input. Explain the relationship between Marginal Product
of Labor, Marginal Returns and Marginal cost.
 Explain the relationship between marginal cost and average total and variable cost.
 What is the shape of the total fixed cost curve and why?
 Why does total variable cost initially increase at a decreasing rate and later at an increasing
rate?
 How is average total cost calculated?
 When quantity is zero, how are total fixed and total cost related.
 Explain the shape of the long run average cost curve
 Use the long run average cost curve and explain the difference between economies,
diseconomies and constant returns to scale. Provide examples.
WEEK 5: PERFECT COMPETITION AND MONOPOLY.

 Define the characteristics of a Perfect Competitive and Monopoly market structure.

 What is the difference between a Price Maker and Price Taker?
 Diagrammatically show and explain the demand, total, marginal and average revenue curves
of a price taker.
 Diagrammatically show and explain the demand, total, marginal and average revenue curves
of a price maker.
 Diagrammatically show and explain a firm’s profit maximising position using both total and
marginal analysis
 Diagrammatically show and explain an economic profit, normal profit and economic loss of
both a perfect competitive and monopoly market structure.
 If a firm is making an economic loss, what are the 2 options it has to minimise the loss?
 Using diagrams, explain why a PC firm can only make normal profit in the long run.

WEEK 6: MONOPOLISTIC COMPETITION AND OLIGOPOLY

 Explain the characteristics of a monopolistic competitive market structure.

 Compare price and output decisions of a perfect competitive and monopolistic competitive
market structure
 Compare price and output decisions of a monopolistic competitive and monopoly market
structure
 What are the similarities and differences between a monopolistic competitive market
structure and a perfect competitive market structure?
 What are the similarities and differences between a monopolistic competitive market
structure and an Oligopoly market structure?
 What are the characteristics of an oligopolistic firm?
 Define Mutual Interdependency and its implication.
 What is game theory?
 Using a numerical game theory matrix with the appropriate assumptions, explain why price
competition is uncommon in an oligopoly. If firms colluded will they be able to maintain
higher profit.
WEEK 7: GDP

 Define GDP and explain the difference between a final and intermediate good.
 What problem will occur if intermediate and final goods are both counted when measuring
GDP?
 Explain the difference between Nominal and Real GDP. What is Real GDP used for?
 Explain the 3 approaches used to measure GDP.
 What are the shortcomings of GDP as a measure of economic welfare? Discuss 3 other
social indicators that can be used with GDP to measure welfare.

WEEK 8 BUS CYCLE AND ECONOMIC GROWTH

 What is a Business Cycle?

 Explain the phases of the Business Cycle. In your explanation highlight how the variables of
unemployment, business confidence, interest rate, consumer confidence and retail sales will
change during the different phases
 What are durable and non-durable goods? How are they affected by the business cycle?
 What is the difference between leading, coincident and lagging indicators? Provide examples
 Define economic growth?
 What are the determinants of economic growth?
 Using a diagram and relevant assumptions explain the production possibility frontier.
 What is the GDP gap?
 How is change in the size of the economy measured?
 How is change in the standard of living measured?

WEEK 9: UNEMPLOYMENT AND INFLATION

 Define employed, unemployed and the labour force.

 How is the unemployment rate and participation rate calculated?
 What are the criticisms associated with the unemployment rate.
 Define the participation rate.
 How is the participation rate calculated?
 Why is the participation rate important?
 Explain the three types of unemployment.
 What is full employment?
 Define Inflation.
 What is the relationship between real income, nominal income and inflation?
 What is the relationship between real interest rate, nominal interest rate and inflation?
 Define and explain the criticisms of the CPI measure
 Using a numerical example, explain how a change in the inflation rate is measured.
  Unanticipated inflation will result in winners and losers in the labour and financial market.
Who will win/lose if actual inflation is greater than anticipated inflation? WHY?
 What is aggregate demand?
 What is aggregate supply?
 Using the aggregate demand and supply diagrams, explain the difference between demand
pull and supply push inflation

WEEK 10: MONETARY POLICY

 What are the three functions of money?

 Why do people demand money?
 How is money demand related to interest rate?
 What is Money Supply?
 How is money supply related to interest rate?
 Explain money market equilibrium
 Explain what is meant by Open Market Operations
 Explain the cash rate
 Explain the exchange settlement account.
 What is the RBA aim in regards to inflation?
 Using the correct terminology and diagram(s), explain how the RBA can use MP to prevent a
recession from occurring.
 Using the correct terminology and diagram(s), explain how the RBA can use MP to control
inflation.
 Explain the time lag problems of MP.

WEEK 11: FISCAL POLICY

 What is meant by a balance budget, a budget deficit and a budget surplus?

 What is Fiscal Policy?
 What are discretionary measures?
 Explain how automatic stabilisers can affect the federal budget’s deficit or surplus?
 What is meant by the crowding out effect?
 Using the correct terminology and diagram(s), explain how the Federal Government can use
FP to prevent a recession from occurring. Will the “crowding out effect” impact on such a
policy.
 Using the correct terminology and diagram(s), explain how the Federal Government can use
FP to control inflation.
 What are the time lags associated with FP?