Micro LS1- LS6

Question 1

Factors of production

Answer 1

Capital
Enterprise
Land
Labour

Question 2

The economic problem

Answer 2

How to use the available scarce resources to satisfy people’s infinite needs and wants as effectively as possible

Question 3

Three key questions

Answer 3

What to produce?
How to produce it?
For whom to produce it?

Question 4

What are economic agents

Answer 4

Groups that participate in the economy

Question 5

Producers

Answer 5

Aka firms, create goods or services

Question 6

Consumers

Answer 6

Buy goods and services made by firms. Firms and individuals can be consumers.

Question 7

Government

Answer 7

Sets the rules that other economic agents must follow, also produces some goods and services like roads and health care.

Question 8

Models in economics

Answer 8

Economists explain how the economy works by developing models.
These can be used to predict the impact of economic change.

Question 9

Ceteris Paribus

Answer 9

Assuming other variables remain constant

Question 10

Opportunity cost

Answer 10

The opportunity cost of a decision is the value of the next best alternative forgone (as a result of the choice made).

Question 11

What do they use opportunity cost for

Answer 11

Consumers- to decide what to spend incomes on
Firms - to decide what and how to produce goods and services
Government - to decide what policies to choose

Question 12

PPF

Answer 12

Production Possibility Frontier

Question 13

What does a PPF show

Answer 13

The maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully and efficiently employed, given the current level of technology

Question 14

Economic growth

Answer 14

An increase in the production of goods and services in an economy.

Question 15

Negative economic growth

Answer 15

A decrease in the production of goods and services in an economy.

Question 16

Consumer goods

Answer 16

Goods which do not produce other goods. They are used by people to satisfy their wants and needs.

Question 17

Capital goods

Answer 17

Goods which are used to produce other goods and services.

Question 18

If an economy is at any point on its PPF

Answer 18

there is an efficient allocation of goods and services.

Question 19

Why might an economy not be at a point on its PPF

Answer 19

1. An inefficient use of resources
2. Underutilised/unemployed resources

Question 20

Positive economic statements

Answer 20

can be proved true or false. They are objective.

Question 21

Normative economic statements

Answer 21

express opinions and cannot be proven true or false. They are subjective statements.

Question 22

In decision making, governments:

Answer 22

• make value judgements on economic issues
• use positive analysis to help them make decisions

Question 23

Specialisation

Answer 23

occurs when an individual, firm, region or country concentrates on the production of a limited range of goods and services

Question 24

Division of labour

Answer 24

is the specialisation of workers on specific tasks in the production process.

Question 25

Productivity

Answer 25

The effectiveness of productive effort- usually measured in terms of the rate of output per unit of input.

Question 26

Benefits of increased productivity

Answer 26

It leads to:
- Higher output and higher quality
- Higher standard of living
- More efficient use of resources

Question 27

Advantages of division of labour

Answer 27

Workers become more skilled through repetition of tasks.
The productivity of workers rises so output increases.
Workers are easier and cheaper to train.

Question 28

Benefit for firms (DOL)

Answer 28

Greater quantity and higher quality of output

Question 29

Benefit for workers (DOL)

Answer 29

Higher skill levels and potentially higher wages

Question 30

Disadvantages of division of labour

Answer 30

Repetition of tasks can lead to boredom thereby causing quality and morale to drop.
Simplified job roles can reduce the pride workers feel in their jobs.

Question 31

Specialisation advantages

Answer 31

Better quality and higher quantity of products.
More efficient use of scarce resources.
Higher trade with other countries.
Higher economic growth-> higher living standards.

Question 32

Specialisation disadvantages

Answer 32

Over-reliance on a few industries is risky
Increased interdependence reduces self sufficiency .

Question 33

Two methods of trading

Answer 33

Barter and money

Question 34

Medium of exchange-

Answer 34

something commonly accepted in exchange for goods

Question 35

Measure of value-

Answer 35

price of a good reveals its value

Question 36

Store of value

Answer 36

Value is maintained and can be kept for a long time

Question 37

Method of deferred payment

Answer 37

Allows debt to be created

Question 38

Economic systems- planning

Answer 38

The process by which a government allocates resources. Funded through taxation.

Question 39

Market

Answer 39

Anywhere buyers and sellers exchange goods and services. This can be physical or digital.

Question 40

Price mechanism

Answer 40

The process by which the market allocates resources.

Question 41

Command economy

Answer 41

An economy in which resources are allocated solely by the state (government)

Question 42

Mixed economy

Answer 42

In which resources are allocated by the state and the price mechanism

Question 43

Free market economy

Answer 43

In which resources are allocated solely by price mechanism

Question 44

Public sector

Answer 44

Part of an economy controlled or owned by government

Question 45

Private sector

Answer 45

Part of an economy which is not controlled or owned by government.
Individuals or groups of individuals looking to profit maximise.

Question 46

Choice free market and mixed

Answer 46

Profit motive in free market and mixed economies. Wider choice bc this incentivises them to 1. develop new products and 2. meet consumer demand
Concentrated market and monopolies can limit choice.

Question 47

Choice command economies

Answer 47

Profit motive is absent in command. Told what to produce. Limited choice for consumers.

Question 48

Concentrated markets and monopolies

Answer 48

Conc- where there are a few large sellers e.g. Boeing and Airbus
Monop- 25% or more is a legal monopoly
Natural monop- one sole supplier in market e.g. water

Question 49

Quality and innovation

Answer 49

Higher in mixed and free market because both competition and profit motive are present in these types of economy.

Question 50

Efficiency

Answer 50

-Concerned with the optimal production and distribution of these scarce resources.

Mixed and free are more efficient than command bc command lacks competition and profit motive.

Question 51

Equity - free and mixed

Answer 51

Free and mixed have less equitable distribution of income and wealth than command bc owners of cap and land accumulate wealth over time and pass privilege to children through property, private education and social networks.

Question 52

Equity - command

Answer 52

May still lack equitability in terms of opportunity and access to public services.

Question 53

State in economy

Answer 53

Made up of 1. territory 2. citizen 3. government
A government rules over a state at a given time.
State is permanent, government is not. State is made up of all citizens, government is not.