Economics

Question 1

What is the economic problem?

Answer 1

Our wants and needs are unlimited, but resources to make goods & services to satisfy them are limited.

Question 2

What is opportunity cost?

Answer 2

• The foregoing of one product in order to get another product.
• The next best alternative foregone.

Question 3

What does PPC show? What do points within the curve, on the curve, and beyond the curve mean?

Answer 3

PPC is an economic model that shows the opportunity cost involved when maximising the use of resources in the production of 2 goods or services.

Question 4

Define “demand” & “law of demand”.

Answer 4

Demand: The quantity of goods & services the consumers are willing to buy at a given price.

Law of Demand: When price increases, quantity demanded will decrease.

Question 5

What are the factors affecting demand?

Answer 5

• Income levels – income levels of workers increases, greater demands for goods & services (vice versa)
• Trends – if popularity of good/service goes up, the demand for it will also go up.
• Population – if population is large, greater demand for goods & services.
• Seasons – summer there will be more demand for thongs, bathers, etc.
   

Question 6

Define “supply” & “law of supply”.

Answer 6

Supply: The quantity of goods & services firms are willing to produce at a given price.
Law of Supply: When price increases, quantity supplied will increase.

Question 7

What are the factors affecting supply?

Answer 7

• Price of resources – if raw materials cost more, can only supply less.
• Technology – more technology allows for mass production, leading to more supply.
• Natural disasters – droughts or floods will decrease the supply of crops.
• Weather – strawberries grown in cold weather, supply will be limited or none in Summer.

Question 8

What is equilibrium?

Answer 8

The state when supply and demand balance each other. (S=D)

Question 9

What is a shortage? What is a surplus?

Answer 9

Shortage: when quantity demanded is greater than quantity supplied (D>S)

Surplus: when quantity demanded is less than quantity supplied (S>D)

Question 10

What is price mechanism and its role in an economy?

Answer 10

• The way in which prices are determined in a market economy.
• Raising/lowering prices in demand.
• It guides businesses in what to produce more or less of, keeping the economy balanced.

Question 11

Explain what economic growth is.

Answer 11

Economic growth is an increase in the number of goods & services produced per person of a population over a period of time, usually one year.

Question 12

Define “Gross Domestic Product”.

Answer 12

Gross Domestic Product (GDP) is the value of all final goods & services produced in an economy over a given period of time, usually annually.

Question 13

Is GDP the best indicator of economic performance?

Answer 13

GDP may not be the best indicator:
* Calculations is only based on counting final goods and services.
* Doesn’t take into work-life balance:
* Society safe from high crime rate
* Environmental protests
* Sense of well-being