Theme 1

Question 1

ceteris paribus

Answer 1

all other things being equal

Question 2

normative statements

Answer 2

those which are value based and involve opinions

Question 3

positive statements

Answer 3

a statement which can be supported with experience and fact

Question 4

absolute advantage

Answer 4

being able to produce more of something than another country

Question 5

comparative advantage

Answer 5

being able to produce something at a much lower opportunity cost than another country

Question 6

advantages of specialisation

Answer 6

-increased output
-less wastage
-lower unit costs
-encourage investment

Question 7

disadvantages of specialisation

Answer 7

-increased boredom
-finite recourses
-political
-overreliance

Question 8

advantages of division of labour

Answer 8

-best quality
-efficient
-wide range of expert

Question 9

disadvantage of division of labour

Answer 9

-boredom
-overreliance

Question 10

positive of Adam Smith

Answer 10

a free exchange should be created because both countries are better for exchange

Question 11

negative of Adam Smith

Answer 11

over-emphasised the material aspects of well being and ignored non-material aspects

Question 12

reasons why karl
marx is right

Answer 12

-much less poverty
-helps explain conflict and change
-prevents exploitation

Question 13

reasons why karl marx is wrong

Answer 13

-class struggle is not as important as marx suggests
-overlooks alternative ideas that might shape behaviour
-too much focus on class conflict, other issues affecting behaviour like gender, race and individuals are not given attention

Question 14

functions of money

Answer 14

-a medium of exchange (between suppliers and customers)
-a measure of value (price tags)
-a store of value (weekly wages)
-a method of settling debts

Question 15

total utility

Answer 15

the total satisfaction from a given level of consumption

Question 16

marginal utility

Answer 16

the change in satisfaction from consuming an extra unit. standard economic theory believes in the idea of diminishing returns

Question 17

shifts in demand curve

Answer 17

-trends
-interest rates
-change in price of substitute
-wealth
-change in price of complementary goods
-social+emotional factors
-advertising
-population

Question 18

shifts in supply curve

Answer 18

-technology
-cost of production
-raw materials
-government
-taxes
-wages
-flood

Question 19

excess supply

Answer 19

more supply than demand

Question 20

excess demand

Answer 20

more demand than supply

Question 21

derived demand

Answer 21

this is where the demand for one item is related to the demand for another item

Question 22

ped calculation

Answer 22

% change in quantity demanded / % change in price

Question 23

determinants of elasticity of demand

Answer 23

-time period
-number of substitutes
-the proportion of income taken up by the product
-luxury or necessity
-habit forming

Question 24

determinants of elasticity of supply

Answer 24

-4 factors of production (land,labour,capital,enterprise)
-time
-spare capacity
-spare stock and components

Question 25

Pes calculation

Answer 25

% change in quantity supplied / % change in price

Question 26

Yed

Answer 26

Income elasticity of demand. % change in quantity demanded / % change in income

Question 27

Normal good

Answer 27

Demand rises as income rises and vice versa

Question 28

Inferior good

Answer 28

Demand falls as income rises and vice versa

Question 29

Cross elasticity of demand

Answer 29

The responsiveness of demand of one good to changes in the price of a related good - either a substitute or a complement

Question 30

Price mechanism

Answer 30

Interaction of buyers and sellers in free markets, enables goods, services and recourses to be allocated by prices.

Question 31

The rationing function

Answer 31

Whenever resources are particularly scarce, demand exceeds supply and prices are driven up. The effect of such a price rise is to discourage demand and conserve recourses

Question 32

The signalling function

Answer 32

Price changes send contrasting messages to consumers and producers about whether to enter / leave a market

Question 33

The incentive function

Answer 33

Motivates a producer to follow a course of action or to change behaviour. Higher prices provide incentive to existing producers to supply more so they get more revenue and profit.

Question 34

Complete market failure

Answer 34

Occurs when the market simply doesn’t supply products

Question 35

Partial market failure

Answer 35

Occurs when market does actually function but produces either a wrong quantity of a product or at the wrong price

Question 36

Public goods

Answer 36

an example of market failure resulting from missing markets

Question 37

Non excludability

Answer 37

The benefits derived from pure public goods can’t be confined solely to those who have paid for it

Question 38

Non rival consumption

Answer 38

Consumption by one does not restrict consumption by another consumer

Question 39

Non rejectable

Answer 39

The collective supply of a public good for all means it can’t be rejected by people

Question 40

Free rider problem

Answer 40

Because public goods are non excludable it is difficult to charter people for benefitting from a good once it is provided

Question 41

Quasi public good

Answer 41

Semi non rival and semi non excludable

Question 42

Merit good

Answer 42

Those goods and services that the government believe people will under consume

Question 43

De merit goods

Answer 43

Thought to be bad for you. They are over consumed, bad for you, bad for negative externalities

Question 44

The principal agent

Answer 44

Arrangement in which one entity legally appoints another to act on its behalf

Question 45

The principal agent problem

Answer 45

Asymmetric information

Question 46

Negative externalities

Answer 46

A product which has a negative impact on the third party

Question 47

Positive externalities

Answer 47

A product which has a positive impact on a third party

Question 48

Regressive tax

Answer 48

Low income person is affected more than a high income tax

Question 49

London contesting charging

Answer 49

Paying to be able to drive through central London to reduce traffic in central London

Question 50

Asymmetric information

Answer 50

Producer and consumer don’t know the same info. Producer may have more detailed info than consumer