as level

Question 1

what is the economic problem?

Answer 1

how to allocate scarce resources given that there are unlimited wants

Question 2

factors of production?

Answer 2

capital- man made aids to production

land - natural land that can produce goods/resources

labour - human resources (workers)

enterprise- innovative risk takers

Question 3

choices to allocate resources

Answer 3

what to produce

how to produce

for whom to produce

Question 4

what is opportunity costs?

Answer 4

the cost of the next best alternative (value of what we didnt do)

Question 5

what ppf shows?

Answer 5

maximum production of 2 goods with given factors of production

combinations of 2 goods that can be produced with given factors of production

Question 6

why is ppf concave

Answer 6

represents law of increasing opportunity costs

Question 7

why is ppf linear

Answer 7

constant opportunity costs

Question 8

on a macro ppf what does below the line mean

Answer 8

unemployment

Question 9

what factor of production fixed in short term?

Answer 9

capital

Question 10

how do you shift ppf?

Answer 10

increase factors of production

Question 11

what is demand?

Answer 11

the amount consumers are willing and able to buy at any given price point

Question 12

law of demand

Answer 12

inverse relationship between price and quantity

Question 13

why demand downslope?

Answer 13

income effect- prices go up purchasing power drops

substitution effect- other goods/services prices become more competitive

Question 14

factors of demand

Answer 14

population- more people to demand shifts right

advertising- good then shifts right

substitute price- sub price increases demand shifts right

income - normal and inferior

fashion- if in fashion demand shift right

interest rates- borrowed money is cheaper so shifts right

compliment price- is complement cheaper shifts right

Question 15

inferior good and normal good

Answer 15

inferior - demand drops as income rise (tesco brand food)

normal- demand rises as incomes rise

Question 16

law of supply

Answer 16

direct relationship

Question 17

why supply upwards slope?

Answer 17

costs of production ( more profit as price is up)

Question 18

factors of supply

Answer 18

productivity - more shifts right as cheaper costs

indirect tax - less means cheaper to produce shifts left

number of firms- more firms means more supply

technology- better tech less costs

subsidy- cheaper costs if more

weather- allows more supply (growing stuff)

costs of production

Question 19

what is a free market?

Answer 19

a market without govt intervention

Question 20

equilibrium

Answer 20

when demand = supply so no excess ( allocative efficiency)

Question 21

price mechanism

Answer 21

eve if free market is not in equilibrium the market self corrects with its forces

Question 22

functions of free market

Answer 22

prices…

allocate scarce resources efficiently

ration scarce resources by encouraging or discouraging consumption

signal excess demand/supply and need to adjust allocation of resources

incentivise producers to increase or decrease output for profit max

Question 23

consumer surplus

Answer 23

difference between the price consumers are willing and able to pay and how much they do

Question 24

producer surplus

Answer 24

the difference between the price producers are willing and able to pay and how much they do pay

Question 25

society surplus

Answer 25

CS + PS

Question 26

joint demand

Answer 26

product / services that are bought together ( printer and ink)

Question 27

competitive demand

Answer 27

substitute goods (coke and pepsi)

Question 28

derived demand

Answer 28

when demand for one thing increases demand for its inputs increases

Question 29

composite demand

Answer 29

2 goods require the same input so when the production of 1 increases the others supply decreases (cheese and butter )

Question 30

joint supply

Answer 30

increase in production for 1 good increases the supply of another (steak and leather)

Question 31

ped formula and values

Answer 31

ped = %changeQd / %changeP ped > 1 elastic ped < 1 inelastic ped = 0 perfectly inelastic ped = 1 unit elastic ped = infinity perfectly price elastic

Question 32

determinants of ped

Answer 32

substitutes (number) percentage of income luxury / necessity Addictive time period (short run inelastic as cant look for subs)

Question 33

pes equation

Answer 33

pes = %changeQs / %changeP

Question 34

determinants of pes

Answer 34

production lag ( more means inelastic as longer to react) stocks (more stock means more elastic as can react to change in price) spare capacity ( if more then more elastic can react to changes more) substitutability of FOP (more = more elastic can react) time( can react better in long run)

Question 35

xed formula

Answer 35

%changeQda / %changePb

Question 36

xed figures

Answer 36

+ sub -compliment xed > 1 strong relation xed < 1 weak relation xed = 0 no relation

Question 37

yed formula

Answer 37

yed = %changeQd / %changeY

Question 38

yed figures

Answer 38

+ Normal good - inferior good NORMAL yed>1 income elastic (normal luxury) yed< income inelastic (Normal necessity INFERIOR >1 income elastic 1

Question 39

business uses of PED

Answer 39

pricing decisions to maximise total revenue prepare for increase in quantity for if elastic

Question 40

business use of PES

Answer 40

find ways to make supply price elastic so they can react to changes in price/demand

Question 41

business use of XED

Answer 41

pricing decisions such reducing price of first good and decreasing price of the second (reduce printer price increase printer ink price) or price against competitors. cutting prices may cause price war so may show you to compete non price if substitute don't follow your price cut then you must be able to increase output and vice versa

Question 42

business use of YED

Answer 42

tells both responsiveness and type of good plan for booms by knowing the effect of more income be able to increase output if boom and demand increases

Question 43

limitations of elasticity

Answer 43

only ever estimates (sources of the data: surveys competitors and past data) assumes ceteris paribus ( only one factor effects demand as demand may be effected by all elastticities) ped varies along demand curve

Question 44

what is allocative efficiency (graphically)

Answer 44

allocative efficiency is at the social optimum ( msb = msc )

Question 45

where is the private optimum

Answer 45

mpc = mpb

Question 46

social costs (sc)? private costs (pc)? private benefits (pb)? social benefits (sb)?

Answer 46

1. SC = PC + EC 2. Private costs are the producers costs of production 3. Private benefit is the benefits of consumption 4. SB = PB + EB

Question 47

maximisation of society surplus ? maximisation of net social benefit?

Answer 47

demand = supply MSB = MSC

Question 48

what is government failure

Answer 48

when the cost of a policy out weighs the benefits of it causing worse allocation of resources