Definitions

Question 1

The economic problem

Answer 1

We have infinitive wants but scarce resources

Question 2

Opportunity cost

Answer 2

The benefits of the next best alternative forgone

Question 3

Division of labour

Answer 3

When firms split up production into smaller tasks and assigns workers to each of these tasks

Question 4

Specialisation

Answer 4

When a worker, a firm or an economy concentrated on producing a limited range of goods/services

Question 5

Production Possibility Frontier (PPF)

Answer 5

Shows all possible combinations of two goods we can produce when using all resources efficiently

Question 6

Supply

Answer 6

The quantity at which a firm is willing and able to sell a good at a given price

Question 7

Demand

Answer 7

The quantity at which a consumer is willing and able to buy a good at a given price

Question 8

Complementary good

Answer 8

Two goods that are brought together- in joint demand

Question 9

Substitute good

Answer 9

Alternative for another good- competitive demand

Question 10

Supply shift factors

Answer 10

Productivity
Indirect tax
New entrants
Technology
Subsidy
Weather
Cost of production

Question 11

Demand shift factors

Answer 11

Population
Advertising
City speculators
Income
Fashion
Interest rates
Complements
Substitutes

Question 12

Why demand curve downward sloping

Answer 12

Diminishing marginal utility
Substitution effect
Income effect

Question 13

Why supply curve upward sloping

Answer 13

Profit incentive
Production cost
New entrants

Question 14

Functions of price mechanism (3)

Answer 14

Signals
Incentives
Rations

Question 15

Economic agents

Answer 15

Consumers
Firms
Government
Owners
Labour

Question 16

Price mechanism

Answer 16

The means by which supply and demand determine the allocation of scarce resources

Question 17

Marginal Utility

Answer 17

The additional satisfaction a consumer recieves from each additional unit of a good or service consumed

Question 18

Rational decision

Answer 18

When consumers compare costs and benefits and makes a decision based on which option maximises their utility

Question 19

Advantages of division of labour

Answer 19

Increases quality
Increases quantity
Unit cost decreases
Training cost reduces

Question 20

Disadvantages of division of labour

Answer 20

demotivates workers
If someone leaves, whole production line breaks down
Difficult for workers to find new jobs

Question 21

Problem with bartering

Answer 21

Finding someone who wants your good and you want their good

Question 22

Uses of money

Answer 22

Medium exchange
Unit of account
Store of value
Deferred payment

Question 23

How choices are manipulated

Answer 23

Habitual behaviour
Social norms
Rule of thumb
Lack of self control

Question 24

Behavioural economics

Answer 24

Models how consumers really make decisions by carrying out experiments

Question 25

Behavioural economics influences

Answer 25

Firms pricing | Government policy

Question 26

PED

Answer 26

Measures the responsiveness of Qd given a change in price

Question 27

YED

Answer 27

Measures responsiveness of Qd given a change in income

Question 28

PES

Answer 28

Measures responsiveness of Qs given a change in price

Question 29

XED

Answer 29

Measures the responsiveness of Qd of one good given a change in price of another good

Question 30

Factors effecting PED

Answer 30

``` Substitutes Proportion of income Luxury/necessity Addiction/habit Time period ```

Question 31

Factors effecting PES

Answer 31

``` Barriers to entry Inventory levels Time lag Ease of substitution of FoPs Raw material availability Spare capacity ```

Question 32

Consumer surplus

Answer 32

Difference between what consumers are willing to pay and what they actually pay

Question 33

Producer surplus

Answer 33

Difference between what producers are willing to sell for and what they actually sell for

Question 34

Specific tax

Answer 34

A fixed amount of tax paid on each unit sold

Question 35

Ad Valorem Tax

Answer 35

A tax as a % of the price of a good

Question 36

Market in equilibrium

Answer 36

No excess demand or supply

Question 37

Allocative efficiency

Answer 37

Resources are allocated at a price which is optimal for society

Question 38

Market failure

Answer 38

When the price mechanism leads to a misallocation of resources and leads to a price or quantity that is not best for society

Question 39

Reasons for market failure (4)

Answer 39

Negative externalities Positive externalities Public good Information failure

Question 40

Negative externalities (external cost)

Answer 40

Costs which effect 3rd parties outside price mechanism

Question 41

Positive externalities (external benefits)

Answer 41

Benefits which effect 3rd parties outside the price mechanism

Question 42

Government intervention

Answer 42

When governments enter the market to try and fix market failure

Question 43

Government failure

Answer 43

When governments enter the market to fix market failure but only leads to a further misallocation of resources

Question 44

Purpose of indirect tax

Answer 44

Makes production more costly for producers

Question 45

Minimum pricing

Answer 45

The lowest price suppliers can sell a good for

Question 46

Regulation

Answer 46

A rule or law that puts a limit or a complete ban on the production or consumption of a product

Question 47

Subsidy

Answer 47

Decreases cost of production so firms can supply more

Question 48

Max pricing

Answer 48

The highest possible price firms can sell a good for - helps low income consumers

Question 49

Public goods

Answer 49

Non excludable (can’t exclude someone else consuming your good) and non rivalrous (your consumption doesn’t reduce the amount available to others)

Question 50

Problem with public good

Answer 50

Free rider problem

Question 51

Information gaps

Answer 51

When consumers/producers lack information needed to make an informed decision

Question 52

Indirect tax

Answer 52

A tax on goods and services

Question 53

Advantages of specialisation (in an economy)

Answer 53

More variety More output More trade

Question 54

Disadvantages of specialisation (in an economy)

Answer 54

Overspecialisation Depleting natural resources Vulnerable to halt in production