Theme 1: basic key terms

Question 1

four factors of production?

examples?

Answer 1

• land - diamonds
• labour - immigration
• capital - farm machinery
• enterprise - universities

Question 2

sectors of the economy

Answer 2

• primary - raw material production
• secondary - manufacturing
• tertiary - services

Question 3

What’s division of labour?
Benefit?
Problem?

Answer 3

assigning different parts of the production process to different people

• improves efficiency
• only trained for one job

Question 4

International division of labour.

- examples?

Answer 4

• different countries specialise in certain products

- france- wine and cheese

Question 5

International specialism

- 2 benefits

Answer 5

• able to produce more goods and can do so at a cheaper amount
• able to produce a good at lower opportunity cost

Question 6

specialisation

Answer 6

• worker trained in a specified area of work

Question 7

PPF - production possibility frontier

Answer 7

• maximise output by using all factors of production available

Question 8

• if inside the ppf?
• outside?
• if you move along the line?

Answer 8

inside - underusing resources, recession
outside - unsustainable
move - opportunity cost

Question 9

a shift in the PPF line can be caused by…?

- four factors of production?

Answer 9

• discovery of natural resources (e.g.oil)
• population of workers, need young able labourers
• better equipment/machinery
• education

Question 10

pivotal shift in PPF is caused when…

Answer 10

one factor changes and the other remains the same

Question 11

positive statement

Answer 11

• can be backed up

- based on evidence

Question 12

normative statements

Answer 12

• subjective statements
• they’re value judgements
• based on opinion

Question 13

functions of money

Answer 13

• buy goods
• invest
• value
• exchange
• payment/ settling debts

Question 14

what might cause people to demand british goods?

Answer 14

• quality
• price
• exchange rates
• reputation
• brand name

Question 15

• 3 types of market

- examples of products in each market

Answer 15

• Free Market - house/ car/ food
• Mixed Economy - alcohol/ cigarettes
• Black market - drugs/ narcotics

Question 16

price mechanism functions

Answer 16

• allocates resources effectively
• clears any surplus
• sends signals to suppliers to supply more/less

Question 17

command economy

- examples?

Answer 17

• when the government allocate all resources

- Korea, Cuba, Venezuela

Question 18

command economy benefits

Answer 18

• can prevent mass unemployment
• can adjust production of goods according to demand
• prices easily managed
• low levels of inequality

Question 19

command economy drawbacks

Answer 19

• decisions can be made by people who have little experience of what is actually occurring
• unable to respond to consumer preferences

Question 20

what are subsidies ?

Answer 20

a payment made to suppliers by the government to encourage production

Question 21

where are the government likely to give subsidies?

Answer 21

• university
• agriculture (necessities)
• sustainable projects that help economy

Question 22

• direct tax

- indirect tax

Answer 22

• tax on income or profits

- tax on purchases (ad velorem, flat tax)

Question 23

• Ad Valorem tax

- Flat tax

Answer 23

• percentage of price

- certain amount per product

Question 24

why does taxing cigarettes fail to stop people smoking?

Answer 24

• inelastic product
• people are addicted
• people buy them anyway

Question 25

externality

Answer 25

an affect on a third party as a result of a market transaction

Question 26

alcohol/pub market externality

Answer 26

• people get aggressive
• NHS pressure
• hungover, less productive at work
• police time
• drink driving