Economics B Paper 1

Question 1

Ceteris paribus

Answer 1

The assumption that all other variables within the model remain constant whilst one change is being considered.

Question 2

Basic economic problem

Answer 2

Wants are infinite whilst resources are scarce so choices have to be made on how to allocate resources.

Question 3

Scarcity

Answer 3

There are not enough resources to satisfy all wants.

Question 4

Opportunity cost

Answer 4

The value of the next best alternative foregone (given up) when making a decision.

Question 5

Trade off

Answer 5

What is given up when making a choice.

Question 6

Business objectives

Answer 6

What a business is trying to achieve e.g. profit, growth, survival, helping the community etc.

Question 7

Stakeholder

Answer 7

Anyone interested in the activities or success of a business.

Question 8

Corporate Social Responsibility

Answer 8

Where a firm does ‘more’ than the basic minimal legal requirement e.g. uses recycled packaging, plants trees to replace those lost etc.

Question 9

Entrepreneur

Answer 9

Someone who has the skills and traits required (in particular the willingness to take calculated risks) to set up a business.

Question 10

Creative destruction

Answer 10

Occurs when businesses innovate (something new, better, cheaper) and introduce strong competition. This threatens existing producers that have failed to adapt.

Question 11

Factors of production / resources

Answer 11

The inputs to the production process: Land, which is all natural resources; labour, which is the workforce; capital, which is the stock of manufactured resources used in the production of goods and services; entrepreneurs, individuals who seek out profitable opportunities for production and take risk in attempt to exploit these.

Question 12

Non-renewable resources

Answer 12

Resources, such as coal or oil, which once exploited cannot be replaced.

Question 13

Renewable resources

Answer 13

Resources, such as fish stocks or forests, which can be exploited over and over again because they have the potential to renew themselves.

Question 14

Specialisation

Answer 14

When a firm asks workers to do a specific task repeatedly (division of labour) so workers become specialist. This means that for a given amount of input (labour) more is produced. This has close links to productivity.

Question 15

Market

Answer 15

A place where buyers and sellers communicate to agree prices for goods and services.

Question 16

Free market economy

Answer 16

An economic system which resolves the basic economic problem through the market mechanism aka the invisible hand. The outcome is that the market reaches the natural equilibrium where supply meets demand at a certain price.

Question 17

Demand

Answer 17

The quantity that buyers are willing and able to purchase of a good at any given price over a period of time.

Question 18

Consumer surplus

Answer 18

The difference between how much buyers are prepared to pay for a good and what they actually pay.

Question 19

Supply

Answer 19

The quantity of goods that suppliers are willing and able to sell at any given price over a period of time.

Question 20

Producer surplus

Answer 20

The difference between the market price which firms receive and the price which they are prepared to supply.

Question 21

Complement

Answer 21

A good which is purchased with other goods to satisfy a want.

Question 22

Substitute

Answer 22

A good which can be replaced by another to satisfy a want.

Question 23

Price elasticity

Answer 23

The responsiveness of demand to a change in price.

Question 24

Price inelastic demand

Answer 24

Where the price elasticity of demand is less than 0. The responsiveness of demand is proportionally less than the change in price. Demand is infinitely inelastic if price elasticity of demand is zero.

Question 25

Price elastic demand

Answer 25

Where the price elasticity of demand is less than -1. The responsiveness of demand is proportionally greater than the chance in price.

Question 26

Cross elasticity of demand

Answer 26

A measure of the responsiveness of quantity demanded on one good to a change in price of another good. It is measured by dividing the percentage change in quantity demanded for one good by the percentage change in price of another good.

Question 27

Income elasticity

Answer 27

The responsiveness of demand to a change in income.

Question 28

Income elasticity of demand

Answer 28

A measure of the responsiveness of quantity demanded to a change in income. It is measured by dividing the percentage change in quantity demanded by the percentage change in income.

Question 29

Inferior good

Answer 29

A good where demand falls when income increases.

Question 30

Normal good

Answer 30

A good where demand increases when income increases.

Question 31

Luxury good

Answer 31

A good where demand increases rapidly when income increases.

Question 32

Price elasticity of supply

Answer 32

A measure of the responsiveness of quantity supplied to a change in price. It is measured by dividing the percentage change in quantity supplied by the percentage change in price.