U6 mock Theme 1

Question 1

Positive Statement

Answer 1

true or false - can be tested

Question 2

Normative Statement

Answer 2

subjective - opinionated ‘should’

Question 3

Capital
Entrepreneurship
Land
Labour

Answer 3

Investment
Profit
Rent
Wages

Question 4

Capital Goods

Answer 4

Goods used to produce other goods

Question 5

Consumer goods

Answer 5

goods which can’t be used to make other goods e.g. clothes

Question 6

Functions of money

Answer 6

Medium of exchange, measure of value, store of value, deferred payment

Question 7

Rational decision making: what do consumers and producers aim to do?

Answer 7

Consumers - maximise utility

Producers - maximise profits

Question 8

Demand

Answer 8

Quantity of G&S that customers are willing to buy at a given price during a given time

Question 9

Supply

Answer 9

Quantity of G&S that producer is able & willing to supply at a given price over a period of time

Question 10

Excess Demand

Answer 10

Price below P1

Question 11

Excess Supply

Answer 11

Price above P1

Question 12

Price mechanism

Answer 12

allocates resources via price changes. Removes supply from surplus areas into areas of deficit

Question 13

Rationing

Answer 13

increase price due to excess demand, discourages demand and rations resources

Question 14

Incentive

Answer 14

encourages change in behaviour of consumer or producer

Question 15

Signalling

Answer 15

price changes show where resources are needed in the market

Question 16

Price elasticity of Demand

Answer 16

responsiveness of change in Demand to a change in Price
PED= %△QD
%△ P

Question 17

Perfectly elastic

Answer 17

Horizontal

Question 18

Perfectly inelastic

Answer 18

Vertical

Question 19

Income elasticity of Demand

Answer 19

responsiveness of change in Demand to a change in income
IED= %△QD
%△ Y

Question 20

Cross elasticity of Demand

Answer 20

responsiveness of change in Demand of one good to the change in price of another good
XED= %△QD of x
%△ P of y

Question 21

Price Elasticity of Supply

Answer 21

responsiveness of change in supply to a change in Price
PES= %△QS
%△ P

Question 22

Factors influencing Price elasticity of supply

Answer 22

Time scale, spare capacity, Level of Stocks, Barriers to entry

Question 23

Consumer Surplus

Answer 23

Difference between price consumer is willing to pay vs what they actually pay

Question 24

Producer Surplus

Answer 24

Difference between price producer is willing to charge vs price they actually charge

Question 25

Indirect Taxes

Answer 25

government-imposed taxes which increase production costs, reduce supply and increase market price

Question 26

Subsidy

Answer 26

payment from the government to a producer to lower their costs of production and encourage them to produce more

Question 27

Market failure

Answer 27

free-market fails to allocate resources to best interests of society. inefficient allocation of scarce resources

Question 28

externalities

Answer 28

Cost or benefit a third party receives from transaction

Question 29

Private Costs

Answer 29

costs to economic agents involved directly in economic transaction

Question 30

External costs

Answer 30

difference between private cost and social costs

Question 31

Social Costs

Answer 31

Private cost + External Cost

Question 32

Private Benefit

Answer 32

Consumers - derived benefit from good | Producers - Revenue from selling good

Question 33

Social Benefit

Answer 33

Private benefit + external benefit

Question 34

Government policies for negative externalities

Answer 34

Indirect taxes, subsidies, regulation, provide information

Question 35

Public goods

Answer 35

missing from free market, offer benefits to society. | Non Rivalrous and Non Excludable

Question 36

Private Goods

Answer 36

Rivalrous and Excludable

Question 37

Ad Valorem

Answer 37

% tax e.g. VAT (20% in UK)

Question 38

Specific Tax

Answer 38

set tax per unit e.g. 58p per Litre unleaded petrol

Question 39

Maximum Pricing

Answer 39

max price prevents monopolies from exploiting consumers

Question 40

Minimum Pricing

Answer 40

gov set minimum price when discouraging consumption e.g. cigs