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Economics National 5 Exam 2019 > Unit 1 > Flashcards

Flashcards in Unit 1 Deck (27)
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Describe the basic economic problem (4)

The basic economic problem is scarcity. Human wants for goods and services are unlimited for example advertising and fashion trends. People are always wanting the next best thing, however the resources required to produce these in the factors of production used to produce these goods and services are limited e.g. oil. It affects both rich and poor


What is land and the return
What is labour and the return
What is capital and the return
What is enterprise and the return

The natural resources used to make a good. Return for land is rent

The physical effort by people used to make a good. Labour return is wages

The man made resources used to make goods e.g. machinery. The return is interest

The entrepreneurs who take risks to set up firms. Return is profit


Define opportunity cost

Opportunity cost is the risk of sacrificing the next best alternative e.g. having a mars bar but not a twin


Why do individuals make choices ?

Individuals choose in order to maximise their utility, because they have limited income. Therefore they have make choices to maximise their utility e,g, a computer or tablet


Why do firms have to make choices?

Firms choose in order to maximise profit. They have limited factors for production (resources) therefore they have to decide what to produce in order to maximise profit. E.g. tablets or computers


Why do governments have to make choices?

Governments choose in order to improve as many peoples welfare as they can, however they have a limited amount of tax revenue. They have to decide what goods and services to provide to maximise welfare of society e.g. to build a school or increase spending on defence


Disposable income

InCome left after taxes have been deducted


Discretionary income

Income after tax and bills (mortgage)


Name 4 types of saving

instant acces savings account
Treasury bond
Premium bonds


What is a cash ISA

An account that pays interest tax free as opposed to an account where you pay tax


Instant access savings account

A savings account where you can take money out of the bank at any point in time


A treasury bond

A treasury bond is a bond issued by the national government generally with a promise to pay periodic interest payments and repay the face value on maturity date. This method is low risk


What are premium bonds

A premium bond is a government security that offers no interest or capital gain but is entered in regular draws for cash prizes. Usually used for kids accounts with extra excitement


Reasons why people borrow

To buy assets (e.g. a house
To pay for day to day expenses
To cover unexpected repairs


Name r types of borrowing

Credit card
Payday loans
Hire purchase


What’s a mortgage

Helps you to buy a property of which you pay back in monthly instalments. The bank gains possession of the house if full amount is not payed


What’s a credit card

A credit card let’s you pay for items and repay the provider at a later date


Payday loans

Quick money however very high interest. Given if running low before pay day


Hire purchase

A way of paying for goods overtime if can’t afford it. An initial desposeí is made followed by regular payments. An individual doesn’t own the asset until the last payment is made


Define demand

The ability and willingness to buy a product


Define effective demand

The actual demand purchasers are buying in the market


Name 2 reasons why the supply curve slopes downwards

The law of diminishing marginal utility ( as consumers purchase more of a good there satisfaction becomes less for each extra unit of that good they consumer. Therefore they are less willing to purchase an extra unit of that goods

The income effect ( as the price of a good rises the consumers income buys them less units of the good.this means that there purchasing power has fallen. This explains why as price rises demand falls


Factors of demand

Price of substitute goods


Define supply

The amount of goods producers are willing to supply at a price


Name some Factors of supply

Productivity (how fast can make a good)
Number of other firms
Technology (how advanced
Weather (can improve crops)


What is a market

Where buyers and sellers come together to determine a price of a good


Practice supply and demand curves with surpluses