Topic 2: The allocation of resources

Question 1

Define demand

Answer 1

The amount of a good/service bought at given prices over a period of time

Question 2

Define quantity demanded

Answer 2

The amount of a good/service bought at a specific price over a period of time

Question 3

Define a substitute

Answer 3

A good/service that satisfies the same needs and wants as another good/service (i.e. Coke and Pepsi)

Question 4

Define supply

Answer 4

The amount of a good or service produced/provided at a given price/all prices over a period of time

Question 5

Define quantity supplied

Answer 5

The amount of a good or service provided/produced at a specific price over a period of time

Question 6

List the 6 non-price determinants of supply

Answer 6

1: cost of raw materials
2: wages
3: rent
4: tax + subsidies
5: new technology
6: price of related goods

Question 7

Define market equilibrium

Answer 7

The price and quantity at which quantity demanded and quantity supplied can equal

Question 8

Define excess supply

Answer 8

When quantity supplied of a good exceeds the quantity demanded

Question 9

Define excess demand

Answer 9

When quantity demanded exceeds quantity supplied

Question 10

Define price elasticity of demand

Answer 10

The price elasticity of demand is a measure of responsiveness of quantity demanded to a change in price

Question 11

Define total revenue

Answer 11

The total amount generated from sales

Question 12

What are the three factors affecting PED?

Answer 12

1: Availability of substitutes
2: Price as a proportion of income
3: Time

Question 13

Define price elasticity of supply

Answer 13

A measurement of the responsiveness of quantity supplied to a change in price

Question 14

What are the four factors affecting PES?

Answer 14

1: Time
2: The availability of resources
3: Stock levels
4: Mobility of factors of production

Question 15

Define the market system

Answer 15

The way in which an economy is structured & organised

Question 16

Define free market

Answer 16

An economic system which relies on the market forces of demand & supply to allocate goods and services

Question 17

Define private sector

Answer 17

The economic activity of privately owned firms and individuals

Question 18

Define planned economy

Answer 18

An economic system which relies on direct involvement from the government to allocate goods & services (i.e. North Korea and Cuba)

Question 19

Define public sector

Answer 19

Economic activity which directly involved the government

Question 20

Define free market

Answer 20

minimal government intervention

Question 21

Define mixed economy

Answer 21

an economic system where resources are allocated by bother the private and public sectors

Question 22

Define market failure

Answer 22

when a market fails to allocate resources in the most socially desirable way

Question 23

Define private benefit

Answer 23

The benefit of an economic activity to those involved in the activity (i.e. satisfaction, profit, utility)

Question 24

Describe private cost

Answer 24

The cost of an economic activity to those individuals in that activity (i.e. price paid by consumers, cost of production, health costs)

Question 25

Define a rational consumer

Answer 25

A rational consumers will consume the quantity of a good where the private cost equals the private benefit

Question 26

Define a rational producer

Answer 26

Rational producers will produce the quantity of a good where the private cost equals the private benefit.

Question 27

Define an external cost

Answer 27

The cost of an economic activity on third parties

Question 28

Define an external benefit

Answer 28

The benefit of an economic activity on third parties

Question 29

Define a social cost

Answer 29

cost of an economic activity on society (i.e. those involved & those not involved in the activity)

Question 30

Define a social benefit

Answer 30

benefit of an economic activity on society

Question 31

Define a demerit good

Answer 31

goods that are overconsumed and overproduced

Question 32

Define a merit good

Answer 32

goods that are underconsumed and underproduced

Question 33

Define minimum price

Answer 33

A price below which a good cannot legally be sold

Question 34

Define maximum price

Answer 34

a price above which a good cannot legally be sold

Question 35

Define indirect taxation

Answer 35

a payment/tax taken indirectly through the consumption of goods/services (taken indirectly from income)

Question 36

List the 6 responses to market failure

Answer 36

1: Minimum Price 2: Maximum Price 3: Indirect Tax 4: Subsidies 5: Social Advertising 6: Regulations

Question 37

Define a subsidy

Answer 37

A payment from a government to a firm to lower the costs of production

Question 38

Define social advertising

Answer 38

When governments attempt to influence consumption behaviour through public advertisement