Unit 1 End Of Year

Question 1

Scarcity and choice

Answer 1

Scarcity means resources are limited but human wants are unlimited and choice refers to people’s decisions on how to use and share those resources. Need to allocate scarce resources efficiently

Question 2

Opportunity cost

Answer 2

The next best alternative foregone when a choice is made

E.g Gov builds a highway, could’ve been spent on more hospitals

Question 3

Factors of production

Answer 3

Resources used to make goods and services:

• land
• labour
• capital (tools, machinery, factories etc)
• enterprise (those who take risk and innovate)

Question 4

PPC curve

Answer 4

Shows scarcity, opportunity cost and efficiency

Points:
- points along the curve shows productive efficiency
- inside the curve shows underutilisation of resources
- outside the curve shows unnatainable points with current resources

Question 5

Circular flow of income

Answer 5

The circular flow of income shows households consume and pay for goods and services, which generates income for firms. Firms produce goods and services which households consume. The people in the households are workers and they provide capital, laboour, land and enterprise for firms. The firms then give the workers payment, wether it’s wages, profit, rent or
Interest. Households then spend that payment on goods and services and the cycle goes on.

Question 6

Positive economics

Answer 6

Statements based on facts, they’re objective and testable.

E.g. raising taxes reduces income

Question 7

Normative statements

Answer 7

Statements based on opinion, they’re subjective and value based.

E.g. gov should raise taxes

Question 8

Free market economy

Answer 8

• prices determine by supply and demand
• private ownership or resources
• innovation encourage by profit motive
• can lead to inequality
• market failure
• decisions made by firms/individuals

Question 9

Planned economy

Answer 9

• gov controls resources and production decisions
• no price mechanism, production based on central planning
• can reduce inequality
• lack of innovation
• inefficient allocation

Question 10

Mixed economy

Answer 10

Combines free market + government intervention

E.g. Sweden or UK

Question 11

Rational behaviour

Answer 11

Refers to the decision making by individuals or firms that’s based on logical reasoning, complete info and the goal of maximising personal benefit - like utility for consumers or profit for firms

Question 12

Irrational behaviour

Answer 12

Occurs when individuals or firms make decisions that don’t maximise utility or profit, instead influence by emotions, cognitive bias, social pressure or misinformation

Question 13

Assumption

Answer 13

Consumers and firms are rational and aim to maximise utility/profit

Question 14

Marginal analysis

Answer 14

Decisions are made by comparing marginal benefit to marginal cost

If MB is greater than MC that’s good

E.g. student deciding to study another hour

MB : better exam performance
MC : less sleep, more stress

Question 15

Behavioural economics

Answer 15

Decisions often irrational or rational

Question 16

Keynesian economics

Answer 16

Argues that markets may not reach full employment alone, especially in recessions. It supports government intervention mainly through fiscal policy, to manage aggregate demand and stabilise economy in short run

Question 17

Neoclassical economics

Answer 17

Assumes that markets are efficient and self-correcting, with rational agents who seek to maximise utility or profits. Emphasises supply side factors, minimal gov intervention, focuses on long run outcomes