ECO Unit 3 - Outcome 1

Question 1

Allocative Efficiency

Answer 1

Allocative efficiency is where resources are used in ways that maximise society’s satisfaction of needs and wants and general well being. Resources are diverted to where they are most wanted.

Question 2

Asymmetric Information

Answer 2

Asymmetric information exists in a market where buyers lack complete and accurate information required to make rational decisions about how to use their resources. There is an imbalance in knowledge where sellers often have more information than buyers.

Question 3

Budget

Answer 3

A document that sets out the government’s planned income and expenses for the next financial year. Spending on public goods and services in the budget mostly comes out of government taxes.

Question 4

Capital Resources

Answer 4

Are physical plant and equipment used by firms to help make other goods and services.

Question 5

Common Access Resources

Answer 5

Include the environmental natural resources such as air, minerals, oil, forests that we all depend on for survival. They are typically seen as free and non-excludable but yet are rivalrous, so over time, their quality tends to deteriorate, reducing society’s wellbeing.

Question 6

Conditions of Demand

Answer 6

Are non-price factors that affect the quantity of a good or service that buyers are prepared to purchase or demand at a given price. They shift the position of the whole demand curve horizontally to the left or right of the original curve. Examples include: change in fashions and tastes, disposable income and the price of substitutes.

Question 7

Conditions of Supply

Answer 7

Are the non-price factors that affect the quantity of a good or service that producers are willing to make available at a given price. They shift the position of the whole supply curve horizontally to the left or right of the original curve. Examples include: changes in growing conditions for farmers, production costs and government tax rates.

Question 8

Consumer Sovereignty

Answer 8

Exists when consumers of goods or services, not governments, dictate how resources will be used through their purchases

Question 9

Demand

Answer 9

Refers to the quantity of a good or service that consumers are willing to purchase at any given price. This can be shown by a demand curve or line.

Question 10

Demand-Supply Diagrams

Answer 10

Illustrate the behaviour of buyers and sellers of a particular good or service in a market, and how prices are determined at equilibrium.

Question 11

Economic Efficiency

Answer 11

Exists when there is maximum output gained from a given volume of productive inputs, thereby affecting productive capacity and helping to maximise society’s general wellbeing and material living standards. It can mean allocative, dynamic, productive and intertemporal efficiency.

Question 12

Economic System

Answer 12

Or an economy, is an institution designed to help organise the production and distribution of the nation’s goods, services and incomes.

Question 13

Economics

Answer 13

Examines choices or decisions whereby limited resources are used to produce goods and services to help satisfy needs and wants, and improve living standards.

Question 14

Elasticity

Answer 14

Measures the responsiveness or sensitivity of the quantity of a good or service demanded or supplied when there is a change in price

Question 15

Equilibrium

Answer 15

Is the natural situation or point towards which all free and competitive markets tend to move. It exists only when the quantity demanded exactly equals the quantity supplied, and there is neither a market glut nor market shortage.