Unit 1

Question 1

Describe the basic economic problem (4)

Answer 1

The basic economic problem is scarcity. Human wants for goods and services are unlimited for example advertising and fashion trends. People are always wanting the next best thing, however the resources required to produce these in the factors of production used to produce these goods and services are limited e.g. oil. It affects both rich and poor

Question 2

What is land and the return
What is labour and the return
What is capital and the return
What is enterprise and the return

Answer 2

The natural resources used to make a good. Return for land is rent

The physical effort by people used to make a good. Labour return is wages

The man made resources used to make goods e.g. machinery. The return is interest

The entrepreneurs who take risks to set up firms. Return is profit

Question 3

Define opportunity cost

Answer 3

Opportunity cost is the risk of sacrificing the next best alternative e.g. having a mars bar but not a twin

Question 4

Why do individuals make choices ?

Answer 4

Individuals choose in order to maximise their utility, because they have limited income. Therefore they have make choices to maximise their utility e,g, a computer or tablet

Question 5

Why do firms have to make choices?

Answer 5

Firms choose in order to maximise profit. They have limited factors for production (resources) therefore they have to decide what to produce in order to maximise profit. E.g. tablets or computers

Question 6

Why do governments have to make choices?

Answer 6

Governments choose in order to improve as many peoples welfare as they can, however they have a limited amount of tax revenue. They have to decide what goods and services to provide to maximise welfare of society e.g. to build a school or increase spending on defence

Question 7

Disposable income

Answer 7

InCome left after taxes have been deducted

Question 8

Discretionary income

Answer 8

Income after tax and bills (mortgage)

Question 9

Name 4 types of saving

Answer 9

Cash ISAS
instant acces savings account
Treasury bond
Premium bonds

Question 10

What is a cash ISA

Answer 10

An account that pays interest tax free as opposed to an account where you pay tax

Question 11

Instant access savings account

Answer 11

A savings account where you can take money out of the bank at any point in time

Question 12

A treasury bond

Answer 12

A treasury bond is a bond issued by the national government generally with a promise to pay periodic interest payments and repay the face value on maturity date. This method is low risk

Question 13

What are premium bonds

Answer 13

A premium bond is a government security that offers no interest or capital gain but is entered in regular draws for cash prizes. Usually used for kids accounts with extra excitement

Question 14

Reasons why people borrow

Answer 14

To buy assets (e.g. a house
To pay for day to day expenses
To cover unexpected repairs

Question 15

Name r types of borrowing

Answer 15

Mortgage
Credit card
Payday loans
Hire purchase

Question 16

What’s a mortgage

Answer 16

Helps you to buy a property of which you pay back in monthly instalments. The bank gains possession of the house if full amount is not payed

Question 17

What’s a credit card

Answer 17

A credit card let’s you pay for items and repay the provider at a later date

Question 18

Payday loans

Answer 18

Quick money however very high interest. Given if running low before pay day

Question 19

Hire purchase

Answer 19

A way of paying for goods overtime if can’t afford it. An initial desposeí is made followed by regular payments. An individual doesn’t own the asset until the last payment is made

Question 20

Define demand

Answer 20

The ability and willingness to buy a product

Question 21

Define effective demand

Answer 21

The actual demand purchasers are buying in the market

Question 22

Name 2 reasons why the supply curve slopes downwards

Answer 22

The law of diminishing marginal utility ( as consumers purchase more of a good there satisfaction becomes less for each extra unit of that good they consumer. Therefore they are less willing to purchase an extra unit of that goods

The income effect ( as the price of a good rises the consumers income buys them less units of the good.this means that there purchasing power has fallen. This explains why as price rises demand falls

Question 23

Factors of demand

Answer 23

Weather
Price of substitute goods
Incomes 
Fashionable
Advertising

Question 24

Define supply

Answer 24

The amount of goods producers are willing to supply at a price

Question 25

Name some Factors of supply

Answer 25

Productivity (how fast can make a good)
Number of other firms
Technology (how advanced
Weather (can improve crops)

Question 26

What is a market

Answer 26

Where buyers and sellers come together to determine a price of a good

Question 27

Practice supply and demand curves with surpluses

Answer 27

Yesi