Economics

Question 0

Describe the 3 basic economic questions used to deal with relative scarcity.

Answer 0

What to produce:
Producers who manufacture and offer goods for sale want to make as much money from selling their goods.

How to produce:
Producers want to produce their goods as cheaply as possible, they have to decide which resources they will use to get the best result.

For whom to produce:
Economic decisions about who to produce are influenced by the people who demand the goods. (Types of goods - prices people prepared to pay)

Question 1

Define the term ‘relative scarcity’

Answer 1

Worldwide economic problem where we cannot satisfy all our wants as there is not enough resources.

Question 2

Differentiate between planned and market economies.

Answer 2

Planned economy: a government plans and decides what, how and for who, to produce their goods. Free enterprise is not encouraged

Market economy: a business plans and decides what, how and for whom to produce their goods on the principle of the consumer sovereignty.

Question 3

Explain the 3 major stages of production.

Answer 3

Primary: extraction stage - the use of raw materials

Secondary: fabrication stage: manufacture of finished or intermediate goods

Tertiary: distribution stage: finished product - able to sell

Question 4

Describe the factors of production with use of examples.

Answer 4

Natural resources: raw materials provided by our environment. This includes our physical environment and the weather. (Minerals, land, oil, rainfall, trees, wind)

Human resources: (labour) include all the skills, competencies and physical and mental effort that people contribute when producing goods and services. (Labour of a miner, social worker)

Manufactured resources (capital): are physical resources produced by humans. (Human-made goods) (photocopiers, machinery, robots)

Management resources (enterprise): are all the various skills and talents required for good management.

Question 5

Define the term complementary good.

Answer 5

An item that compliments the item you are buying

DVD - dvd player

Question 6

Define the term substitute good

Answer 6

The relationship of the demand schedules when the price of one good changes

Question 7

Explain what is meant by ‘opportunity cost’

Answer 7

A decision to have one thing results in the loss of another, that is production in one area is sacrificed to gain an advantage in another area of production

Question 8

Define ‘economy’

Answer 8

Made up of factors such as environmental, social and political elements as well as goods/services, needs/wants and relative scarcity

Question 9

Explain how economic activity is measured

Answer 9

Measured by GDP

GDP - measures the value of all the goods and services produced by a nation in a year

Question 10

Describe the relationship between at least two of the participants within the economy. (Businesses, consumers, governments, financial institutions)

Answer 10

Governments: levy taxes, spend on goods and services and pay wages

Consumers: buy goods and services, earn wages and salaries.

They are related because consumers pay tax which goes to the government and thats how they receive their money which they spend on goods and services.

Question 11

Explain the law of demand and supply

Answer 11

(Consumers) - the quantity that buyers are prepared to purchase at a given price.
⬆️ prices = ⬇️ demand
⬇️ prices = ⬆️ demand

(Producers) - the quantity of a good that producers are willing to produce and sell
⬆️ prices = ⬆️ supply
⬇️ prices = ⬇️ supply

Question 12

Define the term equilibrium

Answer 12

When consumers and producers are both satisfied

Question 13

Outline 2 factors that may cause a shift in demand

Answer 13

1. Taste & Fashion - depends what is ‘in’ at the moment so what people will demand more of
2. Advertising & Marketing - promotion of a product (articles, on the tv)

Question 14

Outline 2 factors that may cause a shift in supply

Answer 14

Seasonal - depending on climate will depend on products that are supplied

New technology - always new models of computers, phones with the most recent updates and applications

Question 15

Describe two benefits of economic growth

Answer 15

Less poverty - more people are employed which lowers the unemployment rate and poverty

Higher incomes and wealth - more money available to pay for more employment positions - creates a better standard of living

Question 16

Describe negative consequences of economic growth

Answer 16

Rise inflation: upward movement of prices in goods/services - more expensive

Increased pollution: creating a poor standard of living and ruining the environment

Not enough goods and services to reach demand (companies will be out of stock)

Question 17

The government has a major role of managing the economy. Explain in detail how it can manage the economy using macroeconomic policy.

Answer 17

Macroeconomic policy deals with the whole of the economy through budgetary and monetary policies.

Budgetary: the government uses the money collected from taxes to spend on education, transport etc.

Monetary: it focuses on controlling the level of official interest rates within the economy. ⬆️ interest rates - not much spending -greater investment, ⬇️ interest rates - encouraged to spend more - less investment

Question 18

Describe how microeconomic policy can assist the management of the economy

Answer 18

If you can improve the microeconomic policy then these improvements were eventually flow to the macroeconomic economy, because if they start in small areas then the larger quarters of the economy begin to use these policies.

Question 19

Define the term ‘globalisation’

Answer 19

The trend towards integrating the world markets for goods, services and money.

Question 20

Describe 3 advantages and 3 disadvantages of global trade

Answer 20

Advantages:

1. Enables a country to consume things which either cannot be produced within its borders or production may cost very high. Therefore it becomes cost cheaper to import from other countries through foreign trade.
2. Imports and exports of different countries provide opportunities to the consumer to buy and consume those goods which cannot be produced in their own country. They therefore get a diversity in choices
3. Lowers inflation rates

Disadvantages:

1. Imports of harmful goods which may run the health of the residents of the country
2. Weakens our national defence
3. Increases economic instability

Question 21

Differentiate between imports and exports

Answer 21

Imports: goods/services brought into the country
over an international boundary

Exports: goods/services shipped out of the country over an international boundary

Question 22

Define employment

Answer 22

Involves those members of the Labour force with paid jobs who work for more than one hour per week

Question 23

Define labour force

Answer 23

The number of people aged 15 and over who are either employed or actively seeking work

Question 24

What does the balance of trade show

Answer 24

Whether Australia is exporting more goods and services than it is importing.

Question 25

Explain the difference between a budget deficit and a budget surplus

Answer 25

Budget deficit: when government spending exceeds government revenue which means that it is spending more than it is collecting from tax and other sources

Budget surplus: the government is spending less than it is collecting is revenue

Question 26

How can the value of currency go up and down

Answer 26

Down:

• a country is buying a lot of imports
• a country is selling fewer exports

Up:

• a country is selling a lot of exports
• a country is buying fewer imports

Question 27

What is a mixed economy?

Answer 27

When both a business and government decide on what is produced how and for whom. Enterprise is emcourgaed

Question 28

What is inflation?

Answer 28

Is the overall general upward price movement of goods and services in an economy. (Measured by the consumer price index) (CPI)

Question 29

Causes of inflation

Answer 29

Not enough goods and services to meet demand
The cost of producing goods increasing
Higher supply of money in the economy

Question 30

What is global downturns?

Answer 30

When all economies experience fluctuating levels of economic activity moving from periods of stronger growth through to weaker growth

Question 31

What is a foreign exchange

Answer 31

Exchanging one currency for another

Question 32

What is sustainable development

Answer 32

The ability of an economy to produce goods and services without causing harm to the environment