How Markets Work?

Question 1

What are the Factors of Production?

Answer 1

Land, Labour, Capital and Enterprise.

Question 2

Describe Production Possibility Diagrams.

Answer 2

Curve shows point where all resources are used. Closer to each side more of that good made. Below curve is recession and beyond is impossible.

Question 3

Define Opportunity Costs.

Answer 3

By taking one item, you lose the ability to have alternative. If you have 50p and buy Mars then no longer have money for Twix.

Question 4

Define Demand.

Answer 4

Inverse relationship between price and quantity.

Question 5

Fill out this ‘I Sell Tacky Condoms With AIDS’

Answer 5

Income, substitutes, technology/trends, compliments, weather and advertising.

Question 6

What is Effective Demand?

Answer 6

Demand backed by ability to pay.

Question 7

Define Supply

Answer 7

High price attracts firms into the market, giving increased quantity. As price fall inefficient producers force out, decreased quantity.

Question 8

Fill out ‘Peter Tickles Tom’s Sausage’

Answer 8

Production, Technology, Taxes and Subsidy.

Question 9

How do the curves shift curve shift?

Answer 9

Increase is right and decrease is left.

Question 10

How does price affect the curve?

Answer 10

Movement along the curve.

Question 11

What is Equilibrium?

Answer 11

Price consumers are willing to pay and producers willing to sell. Is also where supply and demand curve crosses.

Question 12

Equation for Elasticity of Supply.

Answer 12

% difference of Quantity Supplied / % difference of Price

Question 13

What are the outcomes of elasticity of supply?

Answer 13

Less than one is in elastic and greater than one is elastic.

Question 14

Factors that effect elasticity of supply.

Answer 14

Space Capacity, Time Period, Materials, Ease of Switching and Capital Intensive.

Question 15

What are the outcomes for Price Elasticity of Demand?

Answer 15

Greater than one is elastic and less than one is in elastic.

Question 16

Equation for Cross Elasticity of Demand.

Answer 16

% difference of Quantity Demand / % difference of Price

Question 17

What are the outcomes for Cross Elasticity of Demand?

Answer 17

Positive is a Substitute product and Negative is a Complementary product.

Question 18

Equation for Elasticity of Demand

Answer 18

% difference of Quantity Demand / % difference of Income

Question 19

What are the outcomes for Income Elasticity of Demand?

Answer 19

Negative is Inferior, positive (0-1) is normal and positive (1+) is superior.

Question 20

Define an Inferior Good.

Answer 20

Income goes down, more low cost items bought e.g. rice and primarks Clothes

Question 21

Define a Normal Good.

Answer 21

Income goes up, demand goes up e.g. olives.

Question 22

Define Superior Goods.

Answer 22

Income goes up, demand goes up a lot e.g. luxury goods.

Question 23

Factors that effect Elasticity of Demand.

Answer 23

Availability of Substitutes, Cost of Switching, Breadth of Definition, Degree of Necessity, Time Frame, Brand Loyalty, Percentage of Income, Habit Forming.

Question 24

What is a Positive statement?

Answer 24

Statement that can be tested by fact e.g. Earth is round.

Question 25

Define Fixed Costs.

Answer 25

Costs that don't change no matter the output e.g. rent.

Question 26

Define Variable Costs.

Answer 26

Costs that change depending on the output e.g. materials.

Question 27

Define Total Costs.

Answer 27

Fixed Costs + Variable Costs

Question 28

Equation for Average Fixed Costs.

Answer 28

Fixed Costs / Units of Output

Question 29

Equation for Average Variable Costs.

Answer 29

Total Variable Cost / Units of Output

Question 30

What is Normative statement?

Answer 30

Statement that is based on opinion e.g. Roses are a better flower then Tulips.

Question 31

Equation for Total Revenue.

Answer 31

Price x Quantity Sold

Question 32

Equation for Average Revenue.

Answer 32

Total Revenue / Quantity Sold

Question 34

Equation for Average Costs.

Answer 34

Total Costs / Units of Output

Question 35

Define Production.

Answer 35

Conversion of Factors of Production into finished good or services.

Question 36

Define Productivity.

Answer 36

Measures efficiency that production occurs.

Question 37

Equation for Labour productivity.

Answer 37

Output / Number of Employees

Question 38

Define Specialisation.

Answer 38

Individual or firm that focuses on specific area.

Question 39

Define Division of Labour.

Answer 39

Break down of production into tasks that groups specialise it.

Question 40

What is an Internal Economies of Scale?

Answer 40

Factors leading to lower costs as output increases - purchasing economics (bulk buys means lower costs). Encourages growth.

Question 41

What is an Internal Diseconomies of Scale?

Answer 41

Factors leading to higher costs as output increases - poor customer service. Discourages growth.

Question 42

Define Economies of Scale.

Answer 42

Advantage of Large Scale Production, bigger output less unit cost.

Question 43

What are the 5 types of economies of scale?

Answer 43

Technical, marketing, purchasing, managerial and financial economies.

Question 45

What is the price mechanism?

Answer 45

Interaction of supply and demand to create equilibrium - allocating, signalling and rationing

Question 46

What is Market Forces another term for?

Answer 46

Price Mechanism

Question 47

What are the objectives of firms?

Answer 47

Profit, market share, environment, ethical issues, consumer and employment satisfaction

Question 48

What are the external benefits of education?

Answer 48

Rising incomes and productivity for future, increase in occupational mobility and reduce unemployment