Theme 1

Question 1

Define External Benefits

Answer 1

External Benefits are where third parties not involved in a transaction benefit from a good

Question 2

Define PPF

Answer 2

Curve showing maximum potential output assuming all available resources are used fully

Question 3

Define a Public good

Answer 3

Goods which are non-excludable and non-rivalrous

Question 4

What are goods which have a negative YED?

Answer 4

Inferior

Question 5

What are goods which have a YED of 0-1?

Answer 5

Normal and income inelastic

Question 6

What are goods which have a YED of >1?

Answer 6

Luxury

Question 7

What are goods which have a negative XED?

Answer 7

Complimentary

Question 8

What are goods which have a positive XED?

Answer 8

Substitutes

Question 9

Define division of labour

Answer 9

Production of a good is broken down into different tasks and labour allocated to each task

Question 10

How does division of labour increase productivity?

Answer 10

Workers become more skilled in particular tasks through repetition / less time wasted moving from one task to another

Question 11

What are goods which have a negative XED?

Answer 11

Complimentary

Question 12

What are goods which have a positive XED?

Answer 12

Substitutes

Question 13

Define specialisation?

Answer 13

When labour allocate all their time to producing just one good or service

Question 14

Define subsidy

Answer 14

Government grant to firms to increase production or lower price

Question 15

Define ad valorem tax

Answer 15

Tax set as a percentage of a good

Question 16

Define specific tax and what do they do on a diagram?

Answer 16

Tax which is a fixed amount per unit of good and it causes a parallel shift in the supply curve

Question 17

Define excess supply

Answer 17

When QS exceeds QD

Question 18

Outline one advantage of specialisation

Answer 18

High productivity as workers most skilled at producing goods, increased efficiency and output so higher profits for domestic firms

Question 19

Outline one disadvantage of specialisation

Answer 19

Creates reliance on one export if they become uncompetitive, profits of domestic firms will decrease leading to unemployment and lower living standards

Question 20

Outline one disadvantage of division of labour

Answer 20

Worker boredom increases due to repetition, workers may not be focussed, absenteeism increases leading to reduced productivity

Question 21

Explain the function of money in improving specialisation?

Answer 21

Money acts as a medium of exchange, meaning it allows workers to be paid in exchange for their high skilled work, which they can use to buy goods and services

Question 22

Explain one reason why house prices fall

Answer 22

High unemployment, consumers have low disposable income so can not afford to buy a house, demand falls price drops

Question 23

How do tradable pollution permit lead to reduced usage of coal?

Answer 23

Firms making lots of pollution will have to buy many permits, incentivising them to look for cleaner ways to generate electricity so they can sell permits and lower costs

Question 24

Give examples of land as a factor of production

Answer 24

All natural resources such as raw materials, fossil fuels, fertile soil and wind

Question 25

Give examples of labour as a factor of production

Answer 25

All those involved in the production of goods and services

Question 26

Give examples of capital as a factor of production

Answer 26

Any man made aid to production e.g. factory buildings, machinery

Question 27

Explain enterprise as a factor of production

Answer 27

Brings together the other factors of production so goods and services can be produced and takes risks involved in production

Question 28

Explain the rationing function of the price mechanism

Answer 28

It will ensure quantity demanded exactly equals quantity supplied

Question 29

Explain the incentive function of the price mechanism

Answer 29

Prospect of making a profit acts as an incentive to firms to produce goods and services

Question 30

Explain the signalling function of the price mechanism

Answer 30

Signals to producers to increase or decrease amount supplied

Question 31

Explain the ‘change in wants’ function of the price mechanism

Answer 31

A change in demand will be reflected by a change in price