Definitions

Question 1

Opportunity Cost

Answer 1

The loss of other alternatives when one option is chosen

Question 2

Factors of Production

Answer 2

1. Land
2. Labour
3. Capital
4. Enterprise

Question 3

Land

Answer 3

Everything in nature that is ready-made

Question 4

Labour

Answer 4

Human resources, the ability to put something into production

Question 5

Capital

Answer 5

Anything that is man-made

Question 6

Enterprise

Answer 6

Organiser of production, to bring the factors of production together and take the risks.

Question 7

Law of Demand

Answer 7

If a price of a good or service increases, the consumer demand for that good or service will decrease.

Question 8

Demand

Answer 8

The want, need or desire for a product backed by the money to purchase it. Always based on willingness and ability to pay for a product, not merely the want or need for the product.

Question 9

Marginal Utility

Answer 9

The increase in satisfaction a consumer derives from the use of consumption of one more unit of a good or service over a particular time period.

Question 10

Non-price Determinants of Demand

Answer 10

1. Income and number of buyers
2. Preference of consumers
3. Alternatives
4. Expectations

Question 11

Ceteris Paribus

Answer 11

‘Other things being equal’. Allows us to isolate the relationship between two variables, and assumes that other factors remain unchanged.

Question 12

Entrepreneurship

Answer 12

The capacity and willingness to develop, organise and manage a business venture along with any of its risks in order to make a profit.

Question 13

Free Good

Answer 13

Goods which are abundant and thus not regarded as scarce economic goods e.g air and water

Question 14

Wages

Answer 14

The price paid to labour for its contribution to the process of production.

Question 15

Supply

Answer 15

The total amount of a specific good made available for sale by firms.

Question 16

Non-price determinants of supply

Answer 16

1. Number of sellers
2. Price of other products
3. Taxes and subsidies
4. Technology
5. Expectations and resources

Question 17

Rationality

Answer 17

We pick the best decision (most useful or beneficial) with the lowest cost

Question 18

Bonded rationality

Answer 18

The understanding that we have limited knowledge and we have to make rational decisions based on this

Question 19

Consumer surplus

Answer 19

When a consumer pays less for something that they think is worth more e.g if I buy an apple for £20, but I would have paid £30, then the consumer surplus is £10.
Like profit without companies

Question 20

Producer surplus

Answer 20

The excess of actual earnings that a producer makes from a given quantity or output, over and above the amount the producer would be prepared to accept for that output.

Question 21

Cross elasticity of Demand

Answer 21

The responsiveness of quantity demanded to a change in price.
Also percentage change of quantity/percentage change of price

Question 22

Substitute good

Answer 22

Goods which may replace each other in use/consumption.

Question 23

Complementary good

Answer 23

A good’s demand that increases when the price of another good is decreased. Products that are in joint supply.

Question 24

Examples of complementary goods

Answer 24

1. DVD Player and a DVD
2. Beef and Potatoes
3. Bread and Butter

Question 25

Examples of substitute goods

Answer 25

1. Margerine for butter 2. Soy milk for dairy milk 3. Pepsi for Coca-Cola

Question 26

What is YED?

Answer 26

Income elasticity of demand: the responsiveness of demand for a particular good to changes in consumer income.

Question 27

Equation for YED

Answer 27

Percentage change in quantity demanded/percentage change in income

Question 28

What is the primary sector?

Answer 28

Extraction sector - involves taking raw materials. | - Can be renewable or non-renewable resources.

Question 29

Examples of primary sector products

Answer 29

Fish, wood, wind power, coal, oil (any raw material)

Question 30

What is the secondary sector?

Answer 30

Manufacturing sector - combining raw materials to produce a higher value finished product.

Question 31

Examples of secondary sector products

Answer 31

Small workshops producing pots, factories producing steel/chemicals/plastic

Question 32

What is the tertiary sector?

Answer 32

Service sector - retail of the manufactured goods and providing services. In a developed economy, the service sector is the biggest component.

Question 33

What is price elasticity of supply?

Answer 33

The responsiveness of quantity supplied to a change in price.

Question 34

What are indirect taxes?

Answer 34

Taxes that are imposed on producers (suppliers) by the government.

Question 35

Examples of goods that are indirectly taxed

Answer 35

Cigarettes, alcohol, fuel

Question 36

Why would the government apply an indirect tax?

Answer 36

1. If the government needs revenue for something (maybe to provide services) 2. If the government don't want consumers to buy that product so they tax it.

Question 37

What is a stakeholder?

Answer 37

A party that has a particular interest in a company and can either affect or be affected by the business.

Question 38

What does it mean when we say incidence of a tax?

Answer 38

The incidence of a tax indicates to the extent to which someone is made worse off by the tax e.g if the government puts an extra tax of £1.00 on each cigarette packet, the legal incidence is on the cigarette smoker.

Question 39

What is a deadweight loss?

Answer 39

A deficiency caused by inefficient allocation of resources/a cost to society created by market inefficiency.

Question 40

What is a subsidy?

Answer 40

An indirect tax - money supplied by the government to keep the price of a product or commodity low. Lowers the supply curve vertically (increases real life supply)

Question 41

What is a specific tax?

Answer 41

Defined as a fixed amount for each unit of a good or service sold. Shifts the supply curve up by the full amount of the tax.

Question 42

What is an ad valorem tax?

Answer 42

A percentage tax based on the value of the product that is being taxed. VAT is an example. Shifts supply curve up by a certain percentage.