Introduction to economics

Question 1

Scarcity

Answer 1

The basic economic problem – unlimited wants in face of limited resources

Question 2

Economic goods

Answer 2

Goods that are scarce

Question 3

Free goods

Answer 3

Goods that are not scarce e.g. the atmosphere

Question 4

poverty

Answer 4

A situation in which people lack the basic necessities of life

Question 5

rationality

Answer 5

Economic agents acting in their own best intrests

Question 6

Factors of production

Answer 6

Resources used in the production process – Land, Labour, Capital and Enterprise

Question 7

Oppertunity cost

Answer 7

The value of the next-best alternative

Question 8

PPC

Answer 8

Production possibility curve - Used to show the maximum combinations of goods or services that can be produced in a set time

Question 9

Capital goods

Answer 9

Goods used as part of the production process

Question 10

Consumer goods

Answer 10

Goods produced for consumption

Question 11

Resource allocation

Answer 11

The way in which a societies productive assets are deployed

Question 12

Market economy

Answer 12

Where market forces are responsible for resource allocation

Question 13

Centrally planned economy

Answer 13

Where the government is responsible for resource allocation

Question 14

Mixed economy

Answer 14

A combination of market forces and government intervention are used to allocate resources

Question 15

Capitalism

Answer 15

A system of production in which productive resources are privately owned

Question 16

Invisible hand

Answer 16

A term used to describe market forces within an economy

Question 17

GDP

Answer 17

The value of all goods and services produced in an economy in a year

Question 18

What is the role of prices in a market economy

Answer 18

They act as incentives for economic agents

Question 19

How do consumers express their preference in a market economy

Answer 19

By either buying or not buying

Question 20

Advantages of a market economy

Answer 20

Households and firms can use all of their income to achieve their objectives
Invisible hand guides decision-making therefore there is efficient allocation of resources

Question 21

Advantages of a centrally planned economy

Answer 21

The government can ensure that important areas get the resources that they need

Question 22

Advantages of a mixed economy

Answer 22

Has the advantages of both centrally planned and market economies
Limited the issues that are caused by market economies over providing demerit goods

Question 23

Disadvantages of a market economy

Answer 23

Overprovides demerit goods and underprovides merit goods

Question 24

Disadvantages of a centrally planned economy

Answer 24

Due to the complexity of modern economies means that it is not logistically possible to have the government be responsible for resource allocation

Question 25

Specialisation

Answer 25

The process of concentrating on a task to become an expert in it

Question 26

Division of labour

Answer 26

A process by which the stages of production are broken down into a sequence of stages

Question 27

Barter system

Answer 27

An economy without money

Question 28

Labour productivity

Answer 28

Output per worker per unit of input

Question 29

Benefits of the division of labour

Answer 29

More production
Tackles scarcity
Allows for trade

Question 30

Disadvantages of the division of labour

Answer 30

Dull for workers
Inflexible
Overspecialisation creates risk for countries if circumstances change

Question 31

Marginal principle

Answer 31

The idea that economic agents make decisions based on small changes from the existing

Question 32

Rational decision-making

Answer 32

A decision that allows economic objectives to maximise their objectives

Question 33

Utility

Answer 33

The satisfaction received from consumption

Question 34

Marginal utility

Answer 34

The additional utility gained from consuming an extra unit of a good or service

Question 35

law of diminishing marginal utility

Answer 35

The more units of a good are consumed, the lower the utility from consumption

Question 36

What is a normative statement

Answer 36

A statement based on opinions that cannot be proven