Meaning

Question 1

Basic economic problem

Answer 1

Working out how to allocate limited resources as effectively as possible to satisfy people’s unlimited wants and needs

Question 2

Foundation of economic decisions

Answer 2

What goods/services produced
How the goods/services are produced
Who we produce the goods/services for

Question 3

Economic agents

Answer 3

Producers
Consumers
Governments eshtablish rules for economies

Question 4

What does the renewablility of resources depend on

Answer 4

Rate of extraction

If the rate we consume is larger than the natural rate of production

Question 5

Ppf

Answer 5

Shows economy at its maximum productive potential

Question 6

Allocative efficiency

Answer 6

When a specific combination of goods is efficient for society

Question 7

If there is a fixed amount of resources what does shifts along the PPF represent

Answer 7

Reallocation of resources

Question 8

Division of labour

Answer 8

Dividing the workforce and allocating specific individuals to specific tasks

Question 9

Criteris paribus

Answer 9

Isolating the relationship between 2 variables , all other influencing factors kept constant
All other things remaining equal

Question 10

Positive statements

Answer 10

Objective statements
Facts
Can be tested

Question 11

Normative statement

Answer 11

Subjective statements

Can carry VALUE JUDGEMENTS

Question 12

Value judgement

Answer 12

Subjective statement of opinion

Question 13

Functions of money

Answer 13

Medium of exchange
Measure of value
Store of value
Method of deferred payment

Question 14

Advantages of specialisation

Answer 14

Higher output - quality can be improved
Competition and lower prices
Increased competition acts as an incentive to minimise costs

Question 15

Disadvantage of specialisation

Answer 15

Unrewarding repetitive work can bring quality down
Problem of high worker turnover for businesses
May find it hard to do alternative jobs - structural unemployment

Question 16

Asymmetric information

Answer 16

Inaccurate information

Occurs when one party has more information than the other in a transaction

Question 17

Bounded rationality

Answer 17

Limit on decision making

Question 18

How are individuals influenced

Answer 18

Rules of thumb - useful tools that help an individual

Availability bias - judgements made about the probability of the event occurring

Question 19

Choice architecture

Answer 19

Individuals choice influenced by adapting the way choice is presented

Question 20

Mandated choices

Answer 20

Having to make a decision

Question 21

Anchoring

Answer 21

Placing too much emphasis on one piece of info

Question 22

Habitual behaviour

Answer 22

Doing the same thing again and again

Question 23

Framing

Answer 23

Context in which info is presented

Question 24

Nudges

Answer 24

Alternatives that are easier to choose from

Question 25

Demand

Answer 25

Quantity of goods/services that consumers are willing at able to buy at a given price and particular time

Question 26

Substitution effect

Answer 26

Fall in price Cheaper than other goods Consumers increase demand Reduce demand for more expensive good

Question 27

Income effect

Answer 27

Assuming fixed level of income Price falls Amount consumers buy with their income increases Demand increases

Question 28

Price elasticity or demand

Answer 28

How the quantity demanded for a good response to a change in price

Question 29

Perfectly elastic demand

Answer 29

Increase in price means demand will fall to 0

Question 30

Unit elasticity

Answer 30

PED = +-1 | Size of percentage change in price equal of percentage change in demand

Question 31

Income elasticity of demand

Answer 31

Shows how demand for a good changes with change in real income

Question 32

Cross elasticity is demand

Answer 32

Measure of how the quantity demanded of an good responds to a change in price of another

Question 33

Markets

Answer 33

Method for allocating scare resources. Doesn’t have to be a place or involve exchange of physical objects

Question 34

Tax

Answer 34

compulsory contribution to state revenue, levied by the government

Question 35

Indirect tax

Answer 35

Taxes on goods eg VAT , increases firms cost of production but can be transferred.

Question 36

Direct tax

Answer 36

taxes on income, profits and wealth, paid directly by the bearer