Economics paper 1

Question 1

What is the role of consumers, producers and government and explain how they’re all interdependent?

Answer 1

Consumers - Pay to consume goods and services
Producers - Supplies goods and services
Government - An organisation deciding how to distribute goods and services produced

Consumers need goods and services while producers want to earn money from these products and services, and government Government also transfers money to the economy. Governments act as buyers of goods and services and as producers. Governments can affect the economy through their chosen policies (taxation, interest rates).

Question 2

What is land, labour, capital and enterprise and how can they be combined?

Answer 2

Land - all natural resources
Labour - comprises all those who work for gain within the labor market, whether as employees, employers, or as self-employed,
Capital - All those man-made goods used to produce wealth further.” Thus, capital is a man-made resource of production.
Enterprise - The risk and willingness to take on a new project, an undertaking or business venture

All of the factors of production contribute to economic growth. No product can be made without raw materials (land). Those materials can’t be extracted, refined, and transformed without people working (labor). That labour cannot be improved without capital, and the risk of starting a new market with this labour needs enterprise.

Question 3

What is a scarce resource and unlimited wants?

Answer 3

Scarcity refers to a basic economics problem with limited resources and theoretically limitless wants - allocated by the market forces of supply and demand

Question 4

Explain what is meant by “What goods and services should be produced”

Answer 4

What should be produced, how should it be produced and to whom should it be produced to?

Question 5

Explain the impact of economic choices on economic sustainability

Answer 5

If the costs are greater than the benefits - the best use of resources

Question 6

Explain the impact of economic choices on social sustainability

Answer 6

Support growth and poverty reduction

Question 7

Explain the impact of economic choices on environmental sustainability

Answer 7

Resource depletion and loss of biodiversity

Question 8

A market?

Answer 8

An opportunity for buyers and sellers to meet and determine
the price of a good or service

Question 9

Tell the difference between primary, secondary and tertiary sectors

Answer 9

The primary sector includes providing basic materials to other industries. The secondary sector includes industries that use basic materials to form new and improved materials. The tertiary sector supplies the materials made by the secondary industries to the consumers.

Advantages and Disadvantages for primary - abundant, but may have less value

Ad and Dis for secondary - Can export more products, but pollution

Ad and Dis for tertiary - Sign for a highly developed economy, dependant on other countries for goods

Question 10

Goods and services?

Answer 10

Goods are the tangible product that has been farmed, mined, or created by a production process. They can be transferred
from buyer to seller. Can be refunded.

Services are intangible products that cannot be weighed or
touched. They are activities of performing work for
customers. Cannot be refunded.

Question 11

Explain the difference between factor and product markets

Answer 11

A factor market is a market in which the services of the
factors of production (land, labor, capital & enterprise)
are bought and sold

A product market is a market in which finals goods or
services are offered to consumers, businesses & the public
sector.

Question 12

Evaluate the costs and benefits of specialisation and exchange for producers, worker, regions, and countries

Answer 12

Producers - The more they focus on one task, the more efficient they become at this task, which means that less time and less money is involved in producing a good. More goods. Higher quality. But, worker alienation. Risk of disruptions to the production process. Risk of structural unemployment due to occupational immobility.

Worker - increased boredom, overreliance, finite resources, and changing tastes. Higher productivity and efficiency. Lower unit costs leading to higher profits. Encourages investment in specific capital.

Regions/Countries - Allows a country to make full use of their economic resources. Increases the scale of production – leads to lower costs and prices. Surplus can be exported, an injection into the circular flow of income. World prices for a product might fall leading to declining revenues. Risk of over-specializing and structural unemployment. Might lead to over-extraction of a country’s natural resources. MORE JOBS.

Question 13

Demand and supply?

Answer 13

Demand - economic concept that relates to a consumer’s desire to purchase goods and services and willingness to pay a specific price at a specific price

Supply - the total amount of a specific good or service that is available to consumers

Question 14

Shifts and movements of a graph?

Answer 14

MOVEMENT IS PRICE
SHIFT IS ANYTHING OTHER THAN PRICE

Question 15

Elastic and inelastic? What do they look like on a graph?

Answer 15

Elastic - if the quantity demand of the product changes more than proportionally when its price increases or decreases. GRAPH IS HORIZONTAL

Inelastic - the opposite - vertical

Question 16

What is PED/PES and how to calc it?

Answer 16

deltaq divided by delta p
percentage change - diff divided by orig x100

Question 17

Why is PED important for producers and consumers?

Answer 17

Producers - maximises revenue. For instance, by changing his prices according to the elasticity of demand for his products.
It helps predict the behaviour of shoppers and identify whether a price change will have a positive or negative effect on your sales.

Question 18

Why is PED important for producers and consumers?

Answer 18

(PES) measures the responsiveness of quantity supplied to a change in price. It is necessary for a firm to know how quickly, and effectively, it can respond to changing market conditions, especially to price changes.

cons - inel - gov tax, can make substitute choices

Question 19

Is price a reflection of worth?

Answer 19

Price is the sum of money needed to pay for a good or service and worth is how much a consumer values something

Question 20

Explain the role of markets in determining an efficient distribution of resources

Answer 20

Markets use prices as signals to allocate resources to their highest valued uses. Consumers will pay higher prices for goods and services that they value more highly. Producers will devote more resources to the production of goods and services that have higher prices, other things being equal.

Question 21

What is equlibrium price and quantity? And what do markets contribute to the determination price, and the allocation of resources?

Answer 21

Demand and supply represent the willingness of consumers and producers to engage in buying and selling. An exchange of a product takes place when buyers and sellers can agree upon a price. It is dependent on the interaction between demand and supply components of a market.

Markets use prices as signals to allocate resources to their highest valued uses.

The equilibrium price is the only price where the plans of consumers and the plans of producers agree—that is, where the amount consumers want to buy of the product, quantity demanded, is equal to the amount producers want to sell, quantity supplied.

Question 22

Analyse how the markets forces of demand and supply affect equilibrium price and quantity

Answer 22

Inverse relationship between the supply and prices of goods and services when demand is unchanged. If there is an increase in supply for goods and services while demand remains the same, prices tend to fall to a lower equilibrium price and a higher equilibrium quantity of goods and services.

Question 23

Explain competition between producers in a market economy

Answer 23

A large number of producers are trying to sell similar goods/services to a consumer. A large number of producers compete with one another to satisfy the needs of consumers.

Competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.

Question 24

Evaluate the economic impact of competition on producers and consumers

Answer 24

Producers - higher quality goods and services, greater variety, and more innovation but decreases your market share and shrinks your customer base, and less profit risk

Consumers - cheaper prices, more selection, quality is high, but can harm customer loyalty, overwhelming choice, quality can be compromised

Question 25

Monopolies and oligopolies?

Answer 25

Monopoly is a situation where there is a single seller in the market. - high barries to entry, can dictate price
An oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies. (3-4)

Question 26

What are producers, production, productivity and economies of scale?

Answer 26

Producer - supplies goods and services

Production - an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital, and goods and services to produce outputs of goods or services.

Productivity - input per unit of output

Economies of scale - the advantages that can sometimes occur as a result of increasing the size of a business. For example, a business might enjoy an economy of scale concerning its bulk purchasing

Question 27

What is the importance for production and productivity?

Answer 27

Production - It creates value in the economy because it applies labor to land. Production also improves the quality and standard of living through the availability of goods and services, which translates to improved utility.

Productivity - With growth in productivity, an economy is able to produce—and consume—increasingly more goods and services for the same amount of work

Question 28

What is total cost and average cost? Total revenue? Profit?

Answer 28

Total revenue - quantity sold x selling price
Profit - Total costs - total revenue
Average costs - Total costs divided by units produced
Total cost - fixed costs + variable costs

Question 29

Evaluate the importance of cost for producers

Answer 29

an important factor for businesses to consider when assessing their financial health. If a product’s cost of production is consistently higher than the profits it earns, the company may cease production to stay within budget.

Question 30

Evaluate the importance of revenue for producers

Answer 30

Beyond being a lifeline, revenue can give you key insights into your business. If you want to increase your business profits, you need to increase your revenue

Question 31

Evaluate the importance of profit and loss for producers

Answer 31

It helps a businessman evaluate the performance of an enterprise and provides a basis for forecasting future performance.

Question 32

Explain the role and operation of the labour market

Answer 32

The labor market refers to the supply of and demand for labor, in which employees provide the supply and employers provide the demand.

Question 33

Explain the interaction between workers and employers

Answer 33

The employer is relying upon the employee to perform the job and, in doing so, keep the business running smoothly. Mutual Reliance Relationship - labour market

Question 34

Analyse the factors affecting the supply and demand of labour, as well as the determination of wages through supply and demand?

Answer 34

labour supply are influenced by non-monetary (non-pecuniary) advantages, such as changes in working conditions, job security, holiday entitlement, promotion prospects, and other pyschological benefits of work.

If wages are determined by demand and supply, then changes in demand and supply should affect wages. An increase in demand or a reduction in supply will raise wages

Question 35

Explain and calculate gross pay and net pay

Answer 35

Gross pay - total pay before deductions
Net pay - take home pay after deductions
Use common sense.
Statutory - you HAVE to pay it eg income tax/national insurance
Voluntary - what we CHOOSE to pay eg pension contribution

Question 36

What is money, how does it play it’s role as a medium of exchange?

Answer 36

Money is a medium of exchange
A medium of exchange should be accepted by everyone, reliable and can maintain it’s value

Question 37

Explain what is meant by the financial sector

Answer 37

Institutions that allow transactions to be made by incurring and settling debts

Question 38

The role of the central bank?

Answer 38

Issues bank notes, acts as bank for gov and comm bank, provides financial stability

Question 39

Explain the role of building societies and insurance companies?.

Answer 39

BS - Finances home ownership and represent longstanding, responsible means of financing home ownership.

Insurance companies can be important for the stability of financial systems

Question 40

Explain the role of the financial sector for the economy, and the importance of the financial sector for consumers, producers and gov?

Answer 40

It provides the free flow of capital and liquidity in the marketplace.

Consumers - Financial markets enable banks to borrow money, helping them to make loans to people wishing to borrow

Producers - Producers can borrow money to enable them to grow without first having to save the money.

Government - The proper management of public finance ensures the growth of the nation.

Question 41

Analyse how different interest rates affect the levels of saving

Analyse how different interest rates affect the levels of borrowing

Answer 41

Interest rates affect the cost of borrowing money over time, and so lower interest rates make borrowing cheaper - allowing people to spend and invest more freely

The higher the percentage, the more you have to pay back, for a loan of a given size.

Question 42

Analyse how different interest rates affect the levels of investment

Answer 42

Rise in interest, risen cost of borrowing, less investment

Question 43

Importance of financial sector

Answer 43

Credit provision - can buy now, pay later - budget deficit
Liquidity provision - can borrow to pay later, overdraft facilities
Risk management - putting money into a range of companies, vital expenditure

Question 44

Role of commercial banks?

Answer 44

• Accepts deposits, accept cheques, issue loans