Microeconomics (4.1.1.2)

Question 1

Define The central purpose of economic activity

Answer 1

The production of goods and services to satisfy the needs and wants of consumers.

Question 2

List the 3 basic economic problems

Answer 2

• What to produce
• How to produce
• For whom to produce

Question 3

List the two types of general production methods

Answer 3

• Labour intensive techniques (LIT)

- Capital intensive techniques (CIT)

Question 4

Define Labour intensive techniques

Answer 4

Used with the help of more labour and less involvement of capital (goods used to produce other goods)

Question 5

Define Capital intensive techniques

Answer 5

Involves more capital involvement (machinery)

Question 6

What factors determine whether CIT or LIT is used?

Answer 6

• LIT is used in countries where there is an abundance of labour such as China or Bangladesh.
• CIT is used in countries where there is a good availability of capital but a lack of labour such as the UK.

Question 7

Define Effective demand

Answer 7

Refers to the willingness and ability of consumers to purchase goods at different prices.

Question 8

What factors affect effective demand?

Answer 8

• Price
• Income (A rise in income = A rise in demand)
• Availability of credit (loans)
• Interest rates (Higher rates = less spending)
• SPICED

Question 9

Define “SPICED”

Answer 9

S trong
P ound
I mports
C heap 
E xports
D ear