theme 1

Question 1

opportunity cost

Answer 1

the cost of something in terms of the thing you’ve given up

Question 2

consumer good

Answer 2

goods demanded by individuals

Question 3

capital goods

Answer 3

goods produced in aid of consumer goods

Question 4

specialisation

Answer 4

production of a limited range of goods

Question 5

division of labour

Answer 5

labour specialises in a certain point of the production process

Question 6

disadvantages of division of labour

Answer 6

work may become boring so a poor quality of work is completed

Question 7

functions of money

Answer 7

medium of exchange, measure of value, store of value, method for deferred payment

Question 8

free market economy

Answer 8

free to make their own choices without government intervention, resources allocated by the price mechanism

Question 9

command economy

Answer 9

all factors of production apart from labour is owned by the government, products are standardized

Question 10

rational decision making

Answer 10

consumers aim to maximise utility, firms aim to maximise profit

Question 11

shifts of demand curve

Answer 11

population, income, substitute/complementary goods, advertising, seasons, trends

Question 12

diminishing marginal utility

Answer 12

satisfaction derived from the consumption of an extra unit of good will decrease

Question 13

price elasticity of demand

Answer 13

%change in quantity demanded/% change in price

Question 14

perfectly inelastic

Answer 14

ped=0

Question 15

perfectly elastic

Answer 15

ped is over 2

Question 16

unitary elastic

Answer 16

ped=1

Question 17

factors influencing ped

Answer 17

substitutes, addiction, necessity

Question 18

cross elasticity of demand

Answer 18

the change in demand of one good when the price changes for another

Question 19

shifts in supply curve

Answer 19

cost of production, price of other goods, technology, taxes and subsidies

Question 20

the rationing function

Answer 20

when price increases some people may not be able to afford the good or others may not have the desire to buy the good

Question 21

the signalling function

Answer 21

when price rises producers move resources into manufacturing that good

Question 22

the incentive function

Answer 22

incentive to produce more to make more money and buyers to buy more products

Question 23

consumer surplus

Answer 23

the difference between the price the consumer is willing to pay and what they actually play

Question 24

producer surplus

Answer 24

the difference between what price the producer is willing to produce at and what the actually produce at

Question 25

indirect tax

Answer 25

a tax on expenditure e.g. VAT and sugar tax

Question 26

subsidies

Answer 26

an grant given by the government to encourage production

Question 27

externalities

Answer 27

the cost or benefit a third party receives

Question 28

market failure

Answer 28

under-provision of goods, information gaps

Question 29

merit good

Answer 29

positive external benefitsne

Question 30

negative externalities of production

Answer 30

social costs are greater than private costs

Question 31

government intervention on externalities

Answer 31

taxes and subsidies, regulation, provision of good

Question 32

public goods

Answer 32

non-rivalrous- one persons use doesn't stop another, non-excludable- cannot stop someone from using the good provided by the government

Question 33

quasi-public good

Answer 33

aren't perfectly rivalry or excludable or vice versa e.g beach, roads

Question 34

free rider problem

Answer 34

cannot charge for the provision of a non excludable good e.g. a streetlight

Question 35

asymmetric information

Answer 35

one party has more knowledge than another

Question 36

principle agent problem

Answer 36

the goals of the owner are different to the manager so will have conflicting objectives

Question 37

advantages of taxation

Answer 37

social welfare is maximized, raises government revenue

Question 38

disadvantages of taxation

Answer 38

difficult to target tax

Question 39

maximum price

Answer 39

imposed price for goods with positive externalities e.g food

Question 40

minimum price

Answer 40

imposed price for goods with negative externalities e.g. cigarettes