Introduction of Economics - Unit 1

Question 1

What is the basic Economic Problem?

Answer 1

There are unlimited wants and scarce resources

Question 2

What always results with an opportunity cost?

Answer 2

Choices made

Question 3

Give 3 examples of maximising behaviour:

Answer 3

Businesses maximising profit/government maximising welfare/students maximising grades

Question 4

Define opportunity cost:

Answer 4

The benefit lost from the next best alternative choice, which has been foregone

Question 5

What is Economics?

Answer 5

The study of the allocation of scarce resources between alternative means.

Question 6

What are Goods?

Answer 6

Tangible products e.g. cars

Question 7

What are services?

Answer 7

non-tangible products e.g. taxis

Question 8

Define Consumer Goods:

Answer 8

Products purchased for final consumption (use) eg TVs and food

Question 9

Define Capital Goods:

Answer 9

Products used to produce other goods and services eg machinery

Question 10

What are Factors of Production?

Answer 10

Resources used as inputs into the production process = land (natural resources); labour; capital & enterprise (CELL)

Question 11

Define Specialisation:

Answer 11

Individuals, firms, countries focus on producing a narrow range of goods and/or services.

Question 12

What are the Sectors of an economy?

Answer 12

Primary (extract natural resources); secondary (transform natural resources into manufactured products); tertiary (provides services).

Question 13

What is Division of Labour?

Answer 13

An example of specialisation, whereby individuals or groups within a business concentrate on performing one or a limited range of tasks.

Question 14

What is interdependence?

Answer 14

Where individuals, firms and countries are reliant on others in order to undertake their activities and/or for survival.

Question 15

What is a Market?

Answer 15

A place where buyers and sellers come together in order to exchange goods and services

Question 16

Define Effective Demand:

Answer 16

the quantity a buyer is WILLING and ABLE to purchase at a given price

Question 17

Define Effective Supply:

Answer 17

the quantity a supplier is willing and able to offer for sale at a given price

Question 18

What is another phrase meaning Market Economy?

Answer 18

A Free Market

Question 19

What happens in a Market Economy?

Answer 19

Resources are privately owned and are allocated by the forces of demand and supply.

Question 20

What is a Mixed Economy?

Answer 20

A mixed economy allows businesses to supply goods and services to overcome the problems associated with planned economies; It uses government intervention to overcome the problems of market economies such as using laws, fines or taxes so for example, pollution is taken into account, and harmful goods are made illegal; It may provide itself those goods and services that it believes may be undersupplied in the market eg education and health care.

Question 21

Pros of the Free Market:

Answer 21

It responds quickly to people’s wants; The market provides a wide variety of goods and services to meet consumers’ wants; It encourages the use of new and better methods of production; It relies on producers and consumers to decide what, how and for whom to produce – so no one needs to be employed for this purpose!

Question 22

Cons of the Free Market:

Answer 22

Factors of production will be employed only if it is profitable to do so – this could result in unemployment; It may fail to provide certain goods and services eg street lights; policing; It may encourage the consumption of harmful goods; The social effects of production may be ignored eg pollution, global warming; More goods and services may be allocated to those with more money

Question 23

What are 4 main functions of money?

Answer 23

A medium of exchange (ie acceptable); A store of value (ie must keep its value); A unit of account (ie can be used to set a price for all products); A means of deferred payment (ie can delay payment).

Question 24

Name 5 characteristics of Good Money:

Answer 24

acceptable; durable; portable; divisible; limited in supply.