Section A

Question 1

Microeconomics =

Answer 1

The study of economic decisions taken by individual economic agents, including households and firms

Question 2

Scarcity=

Answer 2

A situation that arises when people have unlimited wants in the fact of limited resources.

Question 3

3 Key Questions =

Answer 3

1) What? (should be produced) 2) How? (Should the resources be used) 3) For Whom? (How should they be allocated

Question 4

3 Economic agents=

Answer 4

1)Consumers 2) Firms 3) Government

Question 5

Factors of Production=

Answer 5

Resources used in the production process including Land, Labour, Capital, Entrepreneurship. (CELL)

Question 6

Renewable Resources= Non Renewable Resources=

Answer 6

Natural resources that can be replenished such as forests that can be replanted, or solar energy that does not get used up Natural resources that are used that cannot be replenished i.e Coal

Question 7

Economic Model=

Answer 7

A simplified representation of reality used to provide insight into economic decisions and events

Question 8

Marginal analysis=

Answer 8

An approach to economic decision making based on considering the additional marginal costs or benefits of the change in behaviour

Question 9

Ceteris Paribus=

Answer 9

Other things being equal

Question 10

Positive statement Normative statement=

Answer 10

Objective statements that can be verified by referring to data A statement that involves value judgement about what ought to be

Question 11

Opportunity cost

Answer 11

The value or the next best oppurtunity forgone

Question 12

PPF=

Answer 12

A curve showing the maximum combinations of goods or services that can be produced given a certain period with available resources.

Question 13

What can PPF’s be used for?

Answer 13

1) Measuring Opp Cost 2) Resource allocation 3) Consumption and Investment 4) Productive efficiency

Question 14

Economic Growth=

Answer 14

An expansion in the productive capacity of the economy

Question 15

GDP=

Answer 15

A measure of the economic activity carried out in an economy over a period

Question 16

Division of labour=

Answer 16

A Process whereby the production process is broken down into a sequence of stages, and workers are assigned to a particular stage.

Question 17

Advantages of DoL

Answer 17

1)Higher Output (more repetition-more skilled) 2)Quality improved 3)Lower training costs 4) Fewer resources used

Question 18

Disadvantages of DoL

Answer 18

1)Lower Output (arguments-strike) 2) More resources used (bored) 3) Production stops if one specialist is away

Question 19

Specialisation=

Answer 19

Concentration on a single/ narrow range of goods or tasks. DoL is a type of specialisation

Question 20

Specialisation: Advantages= Disadvantages=

Answer 20

‘Practise makes perfect’ ‘All your eggs in one basket’ - what happens if there is a fall in demand for the one good produced

Question 21

Market=

Answer 21

A set of arrangements that allows transactions to take place between the buyer and seller

Question 22

Function of the price mechanism

Answer 22

The interaction of buyers and sellers in markets enables goods and resources to be allocated prices. Changes in prices reflect forces of demand and supply.

Question 23

3 Functions of the price Mechanism?

Answer 23

1) Rationing - Greater the scarcity, higher the price and the more it is rationed. 2) Signalling - Firms receive signals from consumers about changing preferences through price changes. 3)Incentive - higher prices provide an incentive to produce more.

Question 24

Barter economy=

Answer 24

Where goods are traded directly for other goods

Question 25

Barter economy problem=

Answer 25

Problem with barter economy is that you need a double coincidence of wants (someone wants what you have and you want what they have)

Question 26

Function of money=

Answer 26

Money is needed as a: 1) Medium of exchange 2) Measure of Value 3) Store of value 3) Standard of deferred payment

Question 27

Market economy=

Answer 27

An economy in which market forces are allowed to guide the allocation of resources

Question 28

Advantages of free market economy:

Answer 28

1) Competition (lower prices, better quality) 2) Less costly for Govt 3) Lower taxes 4) Efficiently allocates resources

Question 29

Disadvantages of Free Market economy:

Answer 29

1) Open to abuse by powerful firms 2) Pollution and negative side 3) Information failure 4) Unfair distribution of income

Question 30

Command Economy=

Answer 30

An Economy in which decisions on resource allocation are divided by the state

Question 31

Advantages of command economy:

Answer 31

1) Fairer distribution of wealth 2) More likely to take into account all costs and benefits 3) Profit incentive not the over-riding goal

Question 32

Disadvantages of Command Economy:

Answer 32

1) Open to abuse by Govt 2) Slow to respond to market changes 3) Costly for govt (More tax) 4)Lack if innovation because not driven to win consumers to gain profit

Question 33

Mixed Economy=

Answer 33

An economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state

Answer 34