Economic concepts and systems

Question 1

outline the choices that had to be made as a result of the COVID-19 pandemic by individuals

Answer 1

Individuals had to choose whether to follow the rules or bend/break them (e.g. facemasks).

Question 2

outline the choices that had to be made as a result of the COVID-19 pandemic by governments

Answer 2

Governments had to choose how to support those affected by job losses caused by the pandemic.

Question 3

What choices were firms exposed to during the covid pandemic

Answer 3

Firms had to choose whether to accept low in person sales or move to an online based retailer.

Question 4

outline the choices that had to be made as a result of the COVID-19 pandemic by central banks.

Answer 4

Central banks chose to create more electronic money through quantitative easing, encouraging people to borrow and spend more. The choice came from deciding how much money to create as too little won’t affect the recession while too much will drive inflation too much

Question 5

state two major areas in which individuals can make decisions to help address the global climate emergency

Answer 5

○ Individuals can choose to more ‘green’ with commuting and home heating. i.e. using EVs or electric heating over gas heating
○ Individuals can also choose where they get their food and other shopping from - they can get locally made items using local materials rather than foreign items that are transported on high emission plans and ships.

Question 6

suggest how the government might encourage individuals and firms to make ‘green’ choices

Answer 6

The government may encourage peoples decisions through subsidies and green taxes.

Question 7

outline possible winners and losers relating to the global climate emergency and the actions being taken to deal with it.

Answer 7

If more investment was made in renewable energy for example, winners would be those hired into roles relating to this new industry while the losers will be those losing their fossil fuel jobs due to less demand for this industry.

Question 8

Define production

Answer 8

The transformation of inputs into outputs in order to earn profit.

Question 9

Define consumption

Answer 9

The act of using goods and services to satisfy wants. Normally involves purchasing the good or service

Question 10

define factors of production (or resources)

Answer 10

The inputs into production of goods and services: Labour, Land, raw materials, and capital.

Question 11

Define labour

Answer 11

All forms of human input, both physical and mental, into production

Question 12

Define land and raw materials

Answer 12

Inputs into production that are provided by nature

Question 13

Define capital

Answer 13

All inputs into production that themselves have been produced

Question 14

Define scarcity

Answer 14

The excess of human wants over what can actually be produced

Question 15

Define macroeconomics

Answer 15

The branch of economics that studies economic aggregates (grand totals) - the overall prices, output and employment across the economy.

Question 16

Define Microeconomics

Answer 16

The branch of economics that studies individual units (households, firms, and industries). It studies the interrelationships between these units.

Question 17

Define aggregate demand

Answer 17

The total level of spending in the economy

Question 18

Define aggregate supply

Answer 18

The total level of output in the economy

Question 19

Define inflation

Answer 19

The general rise of prices throughout the economy

Question 20

Define balance of trade

Answer 20

Exports of goods and services - Inputs of goods and services

Question 21

Define recession

Answer 21

A period where national output falls for two successive quarters

Question 22

Define unemployment

Answer 22

The number of people who are of working age, who are actively looking for a job, who are unemployed

Question 23

Define demand-side policy

Answer 23

Government policy designed to alter the level of aggregate demand and then thereby the level output, employment and prices.

Question 24

Define supply-side policy

Answer 24

Government policy designed to alter the level of aggregate demand and then thereby the level output, employment and prices.

Question 25

Define opportunity cost

Answer 25

The cost of any activity measured in terms of the best alternative forgone.

Question 26

define rational choices

Answer 26

Choices that involve weighing up the benefit of any activity against its opportunity cost so that the decision maker successfully maximises their objectives.

Question 27

define marginal costs

Answer 27

The additional benefit of doing a little more of an activity

Question 28

define marginal benefits

Answer 28

The additional benefit of doing a little more of an activity

Question 29

define productive efficiency

Answer 29

A situation where firms are producing the max output for a given amount of inputs, or producing a given output a min cost.

Question 30

define allocative efficiency

Answer 30

A situation where the current combination of goods produced and sold gives the maximums level of satisfaction for each consumer at their current level of income

Question 31

Define the production possibility curve

Answer 31

A curve showing all the possible combinations of two goods that a country can produce during a specified time period with all of its resources fully and efficiently employed.

Question 32

What is increasing opportunity costs of production?

Answer 32

When increasing production of one good involves ever increasing sacrifices of another.

Question 33

describe the three main microeconomic choices that have to be made by an economy because resources are scarce

Answer 33

○ What goods/services are going to be produced, and in what quantities?
○ How are things going to be produced? What resources used and what quantities?
○ For whom are things being produced for?

Question 34

Why is the production possibility curve not a straight line

Answer 34

It is not a straight line due to the opportunity cost - there is a cost in making a decision of how much of one output to produce.

Question 35

Define centrally planned or command economy

Answer 35

An economy where all economic decisions are taken by the central authorities

Question 36

Define a free market economy

Answer 36

An economy where all economic decisions are made by individual households and firms with no government intervention

Question 37

Define a mixed economy

Answer 37

An economy where all economic decisions are made partly by the government and partly by the market

Question 38

Define economic equilibrium

Answer 38

A position of balance - there is no inherent tendency to move away

Question 38

Describe how a command economy allocates resources and distributes output

Answer 38

Plans the allocation of resources between current consumption and investment for the future.
Distributes output according to its judgement of people’s needs - or may give more to those who produce more.

Question 39

Define a price mechanism

Answer 39

The system in a market economy whereby changes in price in response to changes in demand and supply have the effect of making demand equal to supply

Question 39

Define the economic equilibrium price

Answer 39

A price where supply equals demand - the price where there is no shortage or surplus

Question 39

Describe how a free market economy allocates resources and distributes output

Answer 39

Resources are allocated as each individual likes
Outputs are distributed as each individual likes

Question 39

Discuss the advantages and disadvantages of a command economy

Answer 39

Advantages:
□ Allows government to align resources in accordance to specific goals
□ High growth rates can be achieved if government direct resources into investment

Disadvantages:
□ If the economy is large it is very difficult to collect information on needs of the population
□ Lack of individual liberty

Question 39

Explain the interdependence of the goods and factors markets

Answer 39

○ Goods market
Demand for good rises
Shortage created
Price of good rises
Eliminates shortage as price increases and demand decreases
○ Factor market
Increased supply of goods causes increase in demand for factors of production (inputs)
Shortage of inputs
Prices of inputs rise
Eliminates shortage as demand as decreased and also encourages suppliers of inputs to supply more.

Question 39

Discuss the advantages and disadvantages of a free-market economy

Answer 39

Advantages:
□ No need for costly decision makers to co-ordinate economic decisions.
□ There will be greater competition, hence providing better service and costs to consumers

Disadvantages:
□ Power and property will likely be unequally distributed
□ Some socially desirable goods would not be produced by private firms - eg counter terrorism