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Economics Unit 1
| Question | Answer |
|---|---|
| Why do people spend? | To satisfy needs and wants. To show how wealthy they are. To gain more income. |
| Why do people save? | To pay for expensive goods. "For a rainy day" For retirement. Habit. |
| Why do people borrow? | In order to buy goods and services which are too expensive. |
| What are the 5 types of saving? | Cash Isas - Interest is earned tax free. Regular savings account - good for developing a savings habit. Instant access savings account - High interest rates. Notice accounts - High interest rates. National savings account - safe. |
| What are the 7 types of borrowing? | Friends and Family, Banks, Credit Cards, Store cards, Charge cards, Mortgage, Payday loans |
| What does surplus mean? | There is an excess of supply / demand. |
| What does deficit mean? | There is not enough supply / demand. |
| What is The Basic Economic Problem? | Wants are unlimited, the resources needed to manufacture these are limited. |
| What is the difference between scarcity and a shortage? | A shortage is when the demand for a product is higher than the supply. Scarcity is when wants for a product is higher than the supply |
| What is effective demand? | People are willing and able to buy a product. |
| What is a "Free good"? | Goods that do not have a price because there is enough to satisfy everyone. (fresh air) |
| What is an Opportunity cost? | The benefit you lose as a result of making a decision. Can also be known as "real cost" |
| What choice do consumers have to make? | What to buy. |
| What choice do Producers have to make? | What to produce. |
| What choice do the government have to make? | What services to provide. |
| What is an Economy? | Where people make/produce goods and services. It can be local, regional, national or international. |
| What is a Market? | Where buyers and sellers come together in order to agree a price and exchange. |
| What are the 4 types of resources? | Land, Labour, Capital and Enterprise. |
| What is Land? | Natural resources, (land, minerals, sea) |
| What is Labour? | The human effort that is directed towards producing goods and services, (manual, mental) |
| What is Capital? | Man-made resources, (Factories, machinery) |
| What is Enterprise? | The decision making / risk taking by an entrepreneur. |
| What is Geographical mobility? | Resources can change place. |
| What is occupational mobility? | Resources can change use. |
| What is Demand? | The willingness of consumers to buy goods. |
| What is Effective Demand? | The quantity of goods and services that people are willing and able to buy. |
| What is Quantity demanded? | Effective demand at a given price |
| What is individual demand? | The demand of 1 consumer |
| What is Market demand? | The demand of all consumers in a given market |
| What is a demand schedule? | A table showing quantity demanded. |
| What is a demand curve? | A graph plotting data from the demand schedule. |
| What is utility? | The satisfaction of consuming a good. |
| What is marginal utility? | The extra satisfaction that you get as a result of consuming 1 extra unit. |
| What happens to the demand curve when demand rises? | The graph moves right. |
| What happens to the demand curve when demand falls? | The graph moves left |
| What are the non-price determinants of demand? | Disposable income, Prices of other goods, Trends and Fashion, Number of consumers (age distribution), weather, Interest rates. |
| What is Supply? | The quantity of goods and services that firms are able and willing to produce at a given price. |
| What causes a movement along the supply curve? | A change in supply as a result of a change in price. |
| How does competitive supply effect supply? | A firm deciding to change what they supply. |
| How does joint supply effect supply? | A rise in price of a good might increase the supply of joint products. |
| How do costs of production effect supply? | A fall in the cost of any factor of production will lead to an increase in the supply. |
| How does Government Intervention effect supply? | The government intervene in markets through indirect taxes - VAT. |
| How does technology effect supply. | As technology improves production can become more efficient. |
| What causes a shift in the supply curve? | A non price determinant |
| What would an increase in price effect supply? | An extension of supply. |
| What would cause a contraction on the supply curve? | A decrease in price. |
| What is specialisation? | Resources are used for their best suited productive activity. |
| What are the benefits of using specialisation? | It increases productivity. Reduced unit costs of production. Efficient use of scarce resources. |
| What are the advantages of 'Division of labour"? | Increased productivity - increased income Workers work in the job they are best at - most satisfaction |
| What are the disadvantages of "Division of Labour"? | Increased risk of unemployment, interdependence, monotony. |
| What is the short run? | The period of time when the capacity of the firm is fixed. |
| What is a worldwide market? | When a single world price can be established. For example (oil, wheat, cotton, copper) |
| What is a localised market? | Prices will vary from area to area. For example (The housing market) |
| What do markets have in common with each other? | There is something to be exchanged, buyers, sellers, and a price. |
| What is a free market? | When there are no barriers to firms competing with each other. The price is set by the total demand and supply. There is no government intervention. |
| What is the equilibrium price? | When both the quantity demanded and supplied are the same. The market is cleared (no shortage.. unsatisfied customers, no unsold supplies.) |
| How will suppliers react to unsold stock? | By cutting production and reducing price |
| What happens when there is a shortage? | Consumers will compete with each other by offering to pay a higher price. |
| What would cause a rise in the equilibrium price? | A rise in demand or a fall in supply. (supply curve shifts to the left) (also a contraction of supply) |
| Why do governments intervene in markets? | To alter the price / quantity exchanged. |
| How do governments intervene? | Imposing a tax, setting a maximum price below the equilibrium, or offering a subsidy |
| What is a subsidy? | A sum of money paid out by the government in order to help an industry keep prices low. |
| Why would the government set a maximum price below equilibrium? | They feel the equilibrium price is too high. To help low income consumers. |
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