THEME 1

Question 1

positive economic statement

Answer 1

statements based on facts

Question 2

normative economic statements

Answer 2

based on opinion or judgement

Question 3

opportunity cost

Answer 3

this is the next best alternative for example spending on education cannot be spent on healthcare making healthcare the OC.

Question 4

consumer goods

Answer 4

these are goods that are used and can be enjoyed such as food and clothes

Question 5

capital goods

Answer 5

goods used in the productive process for example machinery

Question 6

specialisation

Answer 6

when a nation or firm concentrates on producing one particular good or service

Question 7

comparative advantage

Answer 7

occurs when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries

Question 8

division of labour

Answer 8

this is when workers within a firm focus on different sub tasks to break down the process of production and increase productivity. means workers can master one part of production rather than learn the whole process.

Question 9

free market economy

Answer 9

no gov intervention in the economy

Question 10

command economy

Answer 10

when a gov owns the means of production and controls what and how to produce

Question 11

mixed economy

Answer 11

this is when there is partial gov intervention but many firms stays privately owned. these are most common for example UK

Question 12

diminishing marginal utility

Answer 12

this is when the utility of each product decreases and every unit consumed increases

Question 13

Price elasticity of Demand PED

Answer 13

responsiveness in demand when there is a change in price

= % change in QD / % change in P

Question 14

price elastic demand

Answer 14

when a change in price causes a larger percentage change in QD

Question 15

price inelastic demand

Answer 15

when a change in price leads to a smaller percentage change in QD

Question 16

income elasticity of demand YED

Answer 16

responsiveness of demand to a change in income

= % change in QD / % change in income

Question 17

inferior good

Answer 17

a cheaper and lower quality product on the market

increased income leads to a fall in demand for inferior goods as people buy the more expensive better quality products

Question 18

normal good

Answer 18

increase in income leads to a increase in demand for the good, most goods are normal goods

Question 19

luxury goods

Answer 19

increase in income causes a bigger percentage increase in demand so demand is income elastic, these goods are luxury such as high end cars and jewlery

Question 20

income elastic

Answer 20

increase in income leads to a smaller percentage increase in demand so 0>YED<1

Question 21

cross elasticity of demand XED

Answer 21

how the demand for one good is affected by the price of another

= % change in QD for good A / % change in price for good B

Question 22

substitute goods

Answer 22

these are goods that can be used instead of other goods for the same or similar utility

Question 23

complements goods

Answer 23

goods that when used together increase utility

Question 24

joint supply

Answer 24

when two goods are supplied together from the same source

Question 25

price elasticity of supply PES

Answer 25

% change in quantity supplied after a change in price

= % change in QS / % change in P

Question 26

price mechanism

Answer 26

rationaling, incentive and signalling

Question 27

consumer surplus

Answer 27

this is the difference between the price consumers pay and the price they are willing to pay

Question 28

producer surplus

Answer 28

this is the difference between the price suppliers receive and the price that they would have been willing to supply the good at