outcome one

Question 1

what is relative scarcity

Answer 1

the basic economic problem that arises due to infinite needs and wants are far greater than the finite resources for production

Question 2

define opportunity cost

Answer 2

the value of the next best alternative that is foregone whenever a choice is made

Question 3

define production possibility frontier and what it illustrates

Answer 3

illustrates the choices available when deciding how to allocate scarce resources

illustrates opportunity cost

Question 4

define allocative efficiency + relationship to PPF

Answer 4

market allocates resources to the needs and wants of society (no one can be more satisfied without making someone else worse off)

• spot on ppf where it is equal production of each product

Question 5

define productive/technical efficiency + relationship to PPF

Answer 5

when it is not possible to increase output without increasing inputs

• any spot on ppf, productive efficiency is achieved

Question 6

define dynamic efficiency + relationship to PPF

Answer 6

how quickly an economy can reallocate resources when consumer needs/wants change
- can move from one point to another on the ppf quickly

Question 7

define inter-temporal efficiency + relationship to PPF

Answer 7

balancing the allocation of resources and consumption between different time periods
- not linked to ppf

Question 8

define perfectly competitive market + relationship with efficiency

Answer 8

all economic agents are price takers and no individual buyer or seller has the market power to influence prices

• high allocative efficiency due to maximised utility as consumers can access what they desire

Question 9

5 conditions and 4 assumptions of perfectly competitive market

Answer 9

conditions:

• many sellers/sellers
• price-taking (price set by market)
• selling homogenous goods
• little to no barriers to entry or exit
• limite government intervention

assumptions:

• all participants are price takers
• economic agents act rationally
• perfect market knowledge/full information
• resources are mobile

Question 10

price mechanism

Answer 10

how the forces of demand and supply determine the relative prices of goods and services.

Question 11

factors that affect demand

Answer 11

disposable income: income received by a household in exchange for their participation in production
price of substitutes/complimentary goods
preferences and tastes
population demographics
consumer confidence
interest rates

Question 11

factors that affect supply

Answer 11

cost of production
number of suppliers
technological advancements
productivity
climatic conditions

Question 12

market equilibrium + two words

Answer 12

the price at which the quantity demanded is equal to the quantity supplied
shortage
surplus

Question 13

explain price elasticity of demand

Answer 13

refers to how responsive quantity demanded of a good or services is to a change in price
of the good or service.

Question 14

explain price elasticity of supply

Answer 14

refers to how responsive quantity supplied of a good or services is to a change in price of
the good or service

Question 15

factors affecting price elasticity of demand

Answer 15

degree of necessity
availability of substitutes
proportion of income

Question 16

factors affecting price elasticity of supply

Answer 16

spare capacity
durability of goods

Question 17

relative prices

Answer 17

price of one product in terms of another product

Question 18

market failure

Answer 18

the price mechanism does not deliver the
most desirable/efficient outcome.

Question 19

types of market failure

Answer 19

public goods: goods and services that produce positive externalities to society. (police and roads) – non-rivalrous: consumption by one person doesnt prevent consumption of another – non-excludable: nobody can be prevented from using product

common access resources: when consumption of resources prevents future generations from consuming them

asymmetric information

Question 20

government failure + price ceiling/floor

Answer 20

government intervention in a market makes resource allocation less efficient

price ceiling: government sets maximum price below equilibrium, this makes product more affordable but supply will decrease (profit motive) - e.g. rent control

price floor: government sets minimum price above the free market equilibrium (e.g. minimum wage), decline in labour because firms will hire less