Key Terms

Question 1

What is the Economic problem

Answer 1

The economic problem arises due to scarcity. People have unlimited wants but there are insufficient resources to provide these goods and services. People must therefore make choices, and if they act rationally, they choose the choice which provides the lowest opportunity cost.

Question 2

What is opportunity cost

Answer 2

Opportunity cost measures the cost of any choice in terms of the next best alternative foregone.

Question 3

What’s the difference between a free market and a command economy?

Answer 3

The free market is an economic system based on supply and demand with little or no government control. Whereas In a command economy government controls all major aspects of a nation’s economy and production.

Question 4

Are Free goods in limited or unlimited supply?

Answer 4

unlimited supply

Question 5

Are economic good in limited or unlimted supply?

Answer 5

limited supply

Question 6

Difference between normative and positive statements

Answer 6

normative statements are those that are subjective and very difficult to test, whereas positive statements are objective , factually based comments that can be tested.

Question 7

List the four factors of production

Answer 7

Labour, capital, land and enterprise

Question 8

What is maximisation?

Answer 8

Maximisation occurs when an economic agent tries to obtain the most that they can from the economic activity that they undertake.

Question 9

What is specialisation?

Answer 9

specialisation occurs when indivisuals or firms concentrate on a specific goods and services.

Question 10

List the economic objectives of the government

Answer 10

full employment, price stability 2.0% inflation each year, balance of payment equilibrium, equitable distribution of income and wealth, Competition in the marketplace

Question 11

What is meant by a market?

Answer 11

A market is where buyers and sellers come together to exchange goods and sservices usually for a price.

Question 12

What is demand?

Answer 12

Demand is how willing and able a consumer is to buy your product at any given price

Question 13

List the determinants of supply

Answer 13

new technology
Price of the good
Costs of production
government policy, i.e. taxes and subsides

Question 14

List the determinants of demand

Answer 14

consumer income
Trends and fashion
Price of other products
Price of the good

Question 15

Give an example of joint demand

Answer 15

e.g. Tennis rackets and tennis balls

Question 16

Name the Economic agents

Answer 16

Government
Households
Businesses

Question 17

What is competitive demand?

Answer 17

Competitive demand Markets where a number of substitutes exist and one good can be purchased instead of another good.

Question 18

What is and give an example of composite demand?

Answer 18

Composite demand is where goods have more than one use. An increase in the demand for one product leads to a fall in the supply of the other. An example is milk which can be used for cheese, yogurts, cream, butter, and other products including fertilizer.

Question 19

define a barter system

Answer 19

A barter system is defined as the exchange of goods for other goods without the use of any medium of exchange.