Basic Economic Concepts

Question 1

define economics

Answer 1

economics is the study of how individuals and groups make decisions with limited resources so as to best satisfy their wants and needs. economics deals with the production, distribution and consumption of goods and services.

Question 2

define market

Answer 2

a market is created when potential sellers are brought into contact with potential buyers. this doesn’t have to be direct contact. they come together to have a potential exchange for the seller (money) and for the buyer (the product)

Question 3

define consumer sovereighnty

Answer 3

when people claim they are ‘working for themselves’ they actually mean they are working for the consumer. the consumer is the decider in which resources are allocated in a market economy. this is called consumer sovereignty

Question 4

concept of opportunity cost

Answer 4

the opportunity cost is the loss of other alternatives when one alternative is chosen. it is what a person sacrifices when they choose one option over another.

Question 5

what are the 3 economic questions

Answer 5

1. what to produce
2. how to produce
3. for whom to produce

Question 6

what are the economic resources

Answer 6

land
labour
capital
enterprise

Question 7

land

Answer 7

natural resources from the earth such as

Question 8

labour

Answer 8

human effort

Question 9

capital

Answer 9

machinery and equipment

Question 10

enterprise

Answer 10

the person/group who has the skill and ability tom combine economic resources to produce a good or service.

Question 11

law of demand (consumer)

Answer 11

as the price of a good or service increases the demand for that good or service decreases. as the price decreases, the demand increases. (opposite relationship)

Question 12

law of supply

Answer 12

as the price of a good or service increases the supply will also increase. as the price of a good or service decreases, supply will also decrease. (direct relationship)

Question 13

capabilities of enterprise

Answer 13

decision making
financial skills
people skills
innovative

Question 14

wants and needs are

Answer 14

unlimited

Question 15

what to produce

Answer 15

customer demand guides the producer in making decisions to produce goods and services (consumer sovereignty : customer is king

Question 16

how to produce

Answer 16

what combination of resources will be used to maximise efficiency therefore profit (revenue-expenses) (revenue is what you earn; expenses is the cost

Question 17

for whom to produce

Answer 17

who will benefit from the good and service.

Question 18

opportunity cost

Answer 18

economic decisions have economic consequences. when we decide to allocate resources in one area we miss out on something else. this is an opportunity cost, we miss out on these lost benefits

Question 19

cost/benefit analysis

Answer 19

this is the process of weighing up positives and negatives on an economic decision 
pros / cons
part time job / studying 
earning money / lose time for study
experience
new shoes

Question 20

scarcity

Answer 20

limited resources

Question 21

what is a want

Answer 21

it is a desire that people have for a particular good or service. these goods and services are not required for survival. a want is having a new Ferrari which isn’t required for survival.

Question 22

distinguish between need and want

Answer 22

the difference between a need and a want is the necessity of the product to survive. with a need you require that g or s to survive whereas for that want it is something that you desire but don’t need for survival.

Question 23

non price factor of demand

Answer 23

quality- consumer preference
complimentary products
substitute products

Question 24

non price factor of supply

Answer 24

labour costs have increased therefore the cos of production increased

Question 25

complimentary products

Answer 25

complimentary products complement each other-coffee machine and pods

Question 26

substitute products

Answer 26

(something that replaces another product)