1.1.2-1.2.3

Question 1

What are positive statements

Answer 1

Positive statements are objective statements which can be tested, amended or rejected by referring to available evidence. E.g falling price of oil will lead to increased demand for fuel cars

Question 2

What are normative statements

Answer 2

Subjective statements which carry a value judgement on what ought to be e.g high level of unemployment is worse for the economy than high inflation

Question 3

What is the economic problem

Answer 3

How to allocate scarce resources given unlimited human wants

Question 4

What are the factors of production

Answer 4

Capital,enterprise,land,labour

Question 5

What does a PPF show.

Answer 5

1. Opportunity cost
   2.the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
2. Various output combinations of two goods/services that can be produced within given factors of production

Question 6

What is the formula to calculate opportunity cost?

Answer 6

Goods given up
———————-
Goods gained

Question 7

Explain the law of diminishing returns

Answer 7

The amount we get back becomes less and less the more we give up

Question 8

What is ceteris paribus

Answer 8

When all conditions
remain constant apart from the one being tested.

Question 9

What are the advantages of division of labour

Answer 9

1. Improved skills through task repetition
   2.save time by not switching tools between process
   3.faster production through task repetition-finding fastest way to do it

Question 10

Disadvantages of division of labour

Answer 10

1.repetition bores workers - unmotivated - unproductive.
2.reduction in craftsmanship due to mechanisation
3. Could suffer from structural unemployment
4. Mass produced standardised goods lack variety for consumers

Question 11

What is the theory of comparative advantage

Answer 11

Countries should specialise in goods which have a lower opportunity cost so they’re the best at producing it

Question 12

Disadvantage of specialisation

Answer 12

Countries can become over dependant on one particular export and if it fails then their economy may collapse

Question 13

What are the function of money

Answer 13

1. Medium of exchange
2. Store of value
3. Method of deferred payment
4. Method of value

Question 14

Money works best when it is:

Answer 14

Durable
Divisible
Consistent
Convenient
Generally accepted

Question 15

Factors required to make a rational decision

Answer 15

1. Carefully weigh choices
2. Make decisions individually
3. Consider all readily available information

Question 16

What is consumer rational decision making

Answer 16

Consumers aim to maximise utility (satisfaction with their purchase)

Question 17

What is a firms rational decision making

Answer 17

To maximise profit

Question 18

What is the definition of demand

Answer 18

The quantity that purchasers are willing and able to buy at a given price in a given period of time.

Question 19

What is the basic law of demand

Answer 19

It varies inversely with price - lower prices make products available for consumers

Question 20

What is the law of demand

Answer 20

As prices fall, demand expands

As price rises, demand contracts

Question 21

Why does demand curve slope downwards - income effect

Answer 21

1. Decreased price increases customer purchasing power
2. Allows people to get more with the same budget
3. For normal goods, demand rises with an increase in real income

Question 22

Why does demand curve slope downwards - substitution effect

Answer 22

1. A fall in price of good x will make it cheaper compared to substitutes
2. Some consumers will switch to good x - increasing demand
3. Much depends on whether products are close substitutes

Question 23

What are normal and luxury goods

Answer 23

Where the quantity demanded increases in response to an increase in consumer incomes

Question 24

What are inferior goods

Answer 24

Products which decrease in demand as consumer incomes increase

Question 25

What are the causes of shifts in demand

Answer 25

Complementary
Advertising
Trends
Price
Income
Seasonality
Substitutes
External shocks
Demographics

Question 26

What is market equilibrium

Answer 26

Where market demand and supply meet.

Where there is no excess demand or supply

Question 27

When might there be excess supply

Answer 27

When there is more being produced than demanded

Question 28

What is disequilibrium?

Answer 28

When supply is at a different level/ quantity to demand

Question 29

When might there be excess demand

Answer 29

If there are more buyers than products supplied. - lower price attracts more buyers

Question 30

How to calculate ped

Answer 30

% change in quantity demanded
———————————————-
% change in price

Question 31

What does ped measure

Answer 31

The extent to which the quantity of a product demanded is affected by a change in price

Question 32

What are the ped values

Answer 32

More than 1
= price elastic = change in demand is more than the change in price

Less than 1 = price inelastic = change in demand is less than the change in price

Exactly 1 = Unitary price elasticity = change in demand is equal to the change in price

Question 33

What can affect the PED of a product

Answer 33

Price of product in relation to total income

Number of close substitutes available for consumers

Degree of necessity

Brand loyalty