Module 1

Question 1

Choices faced by individuals during Covid-19 (4)

Answer 1

Whether to:
1. Follow rules/advice on behaviour, e.g. social distancing.
2. Stockpile food or other supplies.
3. Work - e.g. ability to wfh / extra childcare responsibilities / changed liabilities.
4. Receive vaccines.

Question 2

Choices faced by firms during Covid-19 (5)

Answer 2

Whether to:
1. Continue operating or shut down.
2. Retain staff or let them go.
3. Change prices, e.g. response to panic buying/falling costs
4. Change sales methods, e.g. moving to online sales.
5. (How to) respond to offers of gov’t assistance, e.g. furloughing staff.

Question 3

Choices faced by government during Covid-19 (6)

Answer 3

1. When/how to lock down country.
2. Government spending to:
   - Support individuals/businesses
   - Support public services - health & education
   - Recovery - physical infrastructure, green energy.
3. Financing costs:
   - Short term - how much to borrow.
   - Long term - how/when to increase tax / reduce spending.

Question 4

Choices faced by central banks during Covid-19 (2)

Answer 4

1. Interest rates - What to change them to and when
2. Quantitative easing - How much and for how long

Question 5

Define quantitative easing:

Answer 5

Monetary policy action:
Central bank purchases a predetermined amount of gov’t bonds / financial assets in order to stimulate economic activity.

Basically injecting cash into the economy to stimulate economic activity.

Question 6

What is a monetary policy?

Answer 6

Action by country’s central bank or government to influence how much money is in the economy and its costs to borrow.

Question 7

Two major areas an individual can make decisions to help address global climate emergency:

Answer 7

1. Energy used - e.g. burning fossil fuels in boilers / cars vs using renewable energy
2. Goods and services - i.e. buying locally vs imoprted from around the world (or using sustainable products).

Question 8

How government might encourage individuals and firms to make “green” choices? (4)

Answer 8

1. Education
2. Developing greater social responsibility
3. Pricing - e.g. subsidies to make renewable energy cheaper / taxes to make fossil fuels more expensive.
4. Use of emissions trading permit - permit issued to grant company/entity to release specific amount of greenhouse gas emissions.

Question 9

Who are Winners and Losers relating to the global climate emergency (4)

Answer 9

1. People - Old vs Young
2. Employees - New vs Old energy sectors
3. Countries - Rich vs Poor
4. Multinationals vs Inhabitants

Question 10

Global climate energy Winners/Losers (+ why)

In terms of people

Answer 10

Winners: Older generation who were partially responsible for causing it
Losers: Young people who face environment crisis

Question 11

Global climate energy Winners/Losers (+ why)

In terms of employees

Answer 11

Winners: Employees with newly created jobs in renewable/alternative energy sectors
Losers: Employees losing jobs in coal mining/heavy industry

Question 12

Global climate energy Winners/Losers (+ why)

In terms of countries

Answer 12

Winners: Rich countries benefit from income made whilst being big carbon emitters.
Losers: Poor countries that suffer the impacts of climate change on weather/harvests.

Question 13

Global climate energy Winners/Losers (+ why)

In terms of multinationals vs inhabitants

Multinational = company operating in several countries

Answer 13

Winner: Multinationals that have undertaken intensive farming and mining.
Losers: Inhabitants that duffer the effects of these actions on their local environment.
And global community that suffers effects of climate change.

Question 14

Define scarcity:

Answer 14

The excess of what human demands over what can be produced to meet those demands. (Lack of production to meet the wants/wants more than can be produced).

Question 15

Define consumption:

Answer 15

Act of using goods and services to satisfy wants.
Normally involves purchase of goods and services.

Question 16

Define production:

Answer 16

Process of transforming inputs into outputs by firms in order to earn profit (or meet some other objective).

Question 17

What are the three categories of inputs/factors of production?

Answer 17

1. Labour - all forms (mental/physical) human input.
2. Land and raw materials - unimproved land, oil, minerals, all provided by nature.
3. Capital - Inputs that have been produced, e.g. factories, tools, computers.

Question 18

Categories of inputs of production

What does labour input consist of?

Answer 18

All forms of human input (both mental and physical) into current production.

Question 19

Categories of inputs of production

What does land and raw materials input consist of?

Answer 19

Inputs provided by nature, e.g. unimproved land, oil and mineral deposits.

Question 20

Categories of inputs of production

Whata does capital input consist of?

Answer 20

Inputs that have been produced themselves, e.g . factories, computers, (other) tools.

Question 21

Define macroecnomics:

Answer 21

Concerned with economy as a whole and studies economic aggregates, e.g national income, unemployment and general level of prices.

Considers aggregate supply and demand.

Question 22

Define microeconomics:

Answer 22

Concerned with indivudals parts of the economy, e.g. households, firms and industries
How they interact to determine a pattern of production and distribution of goods.

Question 23

Difference between macro and micro economics?

Answer 23

Macro looks at the wider picture, looks at the economy as whole and aggregate supply and aggregate demand.
Micro looks at individual parts within the economy and how recognises patterns and how they interact to produce and distrubute goods and services.

Question 24

What is aggregate demand?

Answer 24

Total level of spending in the economy my consumers, firms and the government.
(Total spent on goods and services in the economy).

Spending on goods

Question 25

What is aggregate supply?

Answer 25

Total amount of output (i.e. goods and services) in the economy. | Production of goods

Question 26

# Define macroeconomic terms: Define recession:

Answer 26

Period where national output falls, economic growth is negative. Formally - Output declines for two or more consecutive quarters.

Question 27

# Define macroeconomic terms: Define unemployment:

Answer 27

Refers to people of working age who currently do not have a job but are actively looking.

Question 28

# Define macroeconomic terms: Define inflation:

Answer 28

General rise in the level of prices throughout the economy.

Question 29

# Define macroeconomic terms: Define rate of inflation:

Answer 29

% increase in level of prices over a 12-month period.

Question 30

# Define macroeconomic terms: What is balance of trade?

Answer 30

Balance of Trade = Exports of goods and services - Imports of goods and services. (X-M) If exports exceed imports, there is a balance of trade surplus. (+ve) If imports exceed exports, there is a balance of trade deficit. (-ve)

Question 31

What is demand-side policy + one example:

Answer 31

Demand-side policy seeks to influence the level of spending, hence aggregate demand. E.g: Cutting taxes, increasing government spending (subsidies) and/or reducing interest rates.

Question 32

# W What is supply-side policy + one example:

Answer 32

Supply-side policy aims to influence the level of production directly, hence aggregate supply. E.g. Introducing tax incentives for firms to invest new capital, money for R&D, etc.

Question 33

Three main microeconomic considerations made by an economy when resrouces are scarce:

Answer 33

1. What goods/services will be produced and in what quantities. 2. How are goods/services going to be produced - what resources/production methods will be used? 3. For whom are goods/services going to be produced. How is the total national incoming going to be distributed? | WHAT, HOW, What, WHO, How ## Footnote National income = sum of all incomes in country's economy in a given period

Question 34

What is total national income?

Answer 34

Total national income is basically the sum of all incomes earned within a country's economy in a given period, typically a year.

Question 35

Define opportunity cost:

Answer 35

The cost of an activity measured in terms of the best alternative foregone (you didn't take)

Question 36

Define marginal cost: | For firm and individual?

Answer 36

For a firm: The additional cost of producing one more unit of output. For an individual: Additional cost of a little bit more of a particular activity.

Question 37

Define marginal benefit: | For firm and individual?

Answer 37

For a firm: The additional benefit of producing one more unit of output. For an individual: Additional benefit of a little bit more of a particular activity.

Question 38

Define rational choice:

Answer 38

A choice that involves weighing up the benefit of an acitivity against it'sopportunity cost. So the decision maker successfully maximises their objective, i.e. happiness or profits.

Question 39

Define rational decision making:

Answer 39

Involds doing more (or less) of an acitivity if it's benefit exceeds (is less than) it's marginal cost.

Question 40

Define 'production possiblity curve' ## Footnote Draw graph

Answer 40

Shows possible combinations of two goods a country can produce within a specified period of time with all its resources fully and efficiently utilised. It's a curve because of increasing opportunity costs of production i.e. the fact that additional units of one good means an ever-increasing sacrifice (of producing) of another good. ## Footnote Needs image

Question 41

On the production possibility curve, show: 1. Choice and Opportunity Cost 2. Rising opportunity cost as output of one product increases 3. Output at less than the economy's full potential

Answer 41

X,Y works as (x of Good X can be produced, if y of Good Y is produced) 1. (0,15), When 0 good X, 15 good Y is produced. To get to: (1, 13), In order to produce 1 Good X, need to reduce output of good Y by 2 units. So opportunity cost of 1 X Good is 2 Y Good. X:Y => 1:2 Rising opportunity cost as output of one product increases. OC is cost to get to the next point: 2. At point B, (1, 13), to get to C (2, 10) opportunity cost of an additonal unit of X has increased to 3Y, and opportunity cost at point C is 4Y (to get to point D (3, 6) 3. Point F (2, 6), inside the curve so not utilising economy's full potential as output of both goods could be increased.

Question 42

How would growth in the economy's potential output affect the production possibility curve for a country?

Answer 42

Shift the country's production possibility curve outwards (increase in both goods produced).

Question 43

Define "centrally planned" or "Command economy"

Answer 43

An economy where all economic decisions are made by a central authority.

Question 44

Define "free market economy"

Answer 44

Economy where all economic decisions are taken by individual households and firms with no government intervention.

Question 45

Define "mixed economy"

Answer 45

An economy where economic decisions are partly taken by the government and partly by the market. ## Footnote In practice, all economies are mixed.

Question 46

Three levels of planning in a command economy, and how resources are allocated and output distrubuted?

Answer 46

State plans allocation of resources at three levels: 1. **Plans allocation of resources** between current consumption and investment for the future. Sacrificing consumption and investing more now may increase economy's growth rate. 2. At microeconomic level - **plans the output** of each industry and firm using input-output analysis. 3. **Plans distribution of output** between consumers. This will reflect government's aims.

Question 47

# Three levels of planning in command economy. What are plans of allocation of resources?

Answer 47

Plans the allocation of resources between consumption and investing for the future. Sacrificing consumption and investing more may increase economy's growth rate.

Question 48

# Three levels of planning in command economy. What are plans of output?

Answer 48

Plans output of each industry and fir at a mircroecnomic level using input-output analysis.

Question 49

# Three levels of planning in command economy. What are plans of distribution?

Answer 49

Plans the distribution of output between consumers. Will usually reflect the government's aim.

Question 50

How resources are allocated and output distributed in a free market economy? (4)

Answer 50

1. Consumers are free to decide what to do with incomes. Firms are free to choose what to sell and how to make it. 2. Demand and supply decisions are transmitted to each other through the *price mechanism* (prices respond to changes in supply and demand). 3. Demand > Supply = Shortage = Rise in price to restore equilibirum (where supply = demand). If Supply > Demand = Surplus = Fall in price to restore equilibirum. 4. In general, increase in demand/decrease in supply => increase in price and vice versa Decrease in demand/increase in supply => fall in price.

Question 51

Define "Price Mechanism":

Answer 51

When prices in a market economy adjust to changes in supply and demand, thus allocating scarce resources. It involves the interaction of buyers and sellers, where prices signal information about scarcity. System in market economy where changes in price occur in response to changes in supply and demand to make demand = supply. | Basically figure out price due to fluctuating demands and supply at time

Question 52

Define "equilibrium"

Answer 52

Position of balance where there is no inherent tendency to move away e.g. from current prices/quanitites

Question 53

Define "equilibirum price"

Answer 53

The price at which the quantity demanded = quantity supplied so there is no shortage or surplus.

Question 54

How are resources allocated and outputs distributed in a mixed economy? (4)

Answer 54

Many allocation and outout decisions are determined by prices in a free market but gov't might control: 1. **Relative prices** of goods and services, e.g. through taxes, subsidies or price controls. 2. **Relative incomes** e.g. using income taxes, benefits, wage and rent controls. 3. **Pattern of production and consumption** e.g. by legislation, taxes and subsidies. 4. **Macroeconomic problems** e.g. inflation, unemployment and lack of growth. E.g. using gov't spending and taxes, interest rates, exchange controls, etc.

Question 55

Five problems of a command economy:

Answer 55

1. Complicated plans likely to be costly to administer and involve cumbersome bureaucracy. 2. Without prices or with aribitrarily set prices, resources are likely to be used inefficiently. 3. Difficult to device appropriate incentives to encourage works/managers to be more productive without a reduction in quality. 4. Complete state control over resource allocation would lead to loss of individual liverty. 5. If production is planned but consumers are free to spend money incomes as they wish, shortages and surpluses would occur if consumers' wishes change.

Question 56

Nine problems of a free market economy:

Answer 56

1. Power and property may be unequally distributed. 2. Competition between firms often limited. 3. Consumers/firms may not have full information so make wrong decisions. 4. Firms may persuade consumers through adversising rather than responding to demand. 5. Lack of competition and high profits may remove incentive for firms to be efficient. 6. Some firms' practices may be socially undesirable, e.g. pollution. 7. Socially desirable goods may not be produced. 8. May lead to economic instability. 9. Encourage selfishness, greed, materialism, etc.

Question 57

How does change in the goods market affect the factor market?

Answer 57

- Increase in demand for a good: Creates shortage for good => Increase in price of the good. - Encourages firms to produce more: Increases demand of factors of production (inputs) => create shortage of inputs => increases price of inputs

Question 58

How does change in the factor market affect the goods market?

Answer 58

- Discovery of new raw materials (increase in supply): Creates surplus in factor markets => decrease prices of those inputs. - Reduces firms' cost of production: Encourage them to produce more. - Increases supply of the finished goods: Creates surplus of good => reduces price of good.