Unit 2 Risk or certainty

Question 1

What is the definition of changing demand

Answer 1

The process of demand of a product or service fluctuating and a business having to adapt their plans accordingly to deal with the change.

Question 2

What does increased demand mean for businesses

Answer 2

It means that more customers are buying so they are happy so will have a larger revenue and profit. Customers will treat themselves so budget shops may see customers go elsewhere.

Question 3

What does decreased demand mean for businesses

Answer 3

It means customers will be spending less meaning less revenue and profit as they will cut back on spending.

Question 4

What is inflation and why does it happen

Answer 4

It is when the average cost of living increases yearly.
It happens because the cost of resources increase due to scarcity (cost push) as we have limited resources.
Also because the demand for resources increases which leads to scarcity which drives inflation (demand pull)

Question 5

How is inflation measured

Answer 5

By using the CPI (consumer price index) which is where economists buy an average basket of of goods that the TYPICAL household buys for a year and measure the increase as a percentage.

Question 6

How is inflation takcled

Answer 6

1. Reduce Demand
   By raising interest and tax rates, it discourages borrowing, spending and reduces disposable income.
2. Reduce cost push
   Limiting wages, forcing electricity and gas companies to freeze prices and increasing the value of £ to make importing cheaper.

Question 7

What is the definition of Unemployment

Answer 7

The number of people out of work at actively seeking jobs by claiming Job Seekers Allowance.

Question 8

How is the number of unemployed calculated

Answer 8

By totaling up all of the people who are claiming JSA but doesn’t include health or disability benefits.

Question 9

Why are unemployment levels high when the economy is low

Answer 9

There’s less of a demand for a good or service so business will be less productive so will not require as many workers to create stock.

Question 10

What are the costs of Unemployment to the individual

Answer 10

Reduction of Income
Loss of skills
Low self esteem

Question 11

What are the costs of unemployment to the economy

Answer 11

Increasing costs to the government
Opportunity costs of JSA
Increase in crime

Question 12

What is the definition of economic shock

Answer 12

An unexpected event that affects an economy in terms of the availability and price of resources or products

Question 13

What happens when the interest rates are high

Answer 13

More people will save than spend as they will have to pay more on credit cards and mortgages. Businesses with loans will have to pay more money.

Question 14

What happens when interest rates are low

Answer 14

People will be spending as they do not get much interest on money. Furthermore they will not have to pay as much for credit cards and mortgages. Businesses with loans will not have to pay as much money.

Question 15

What is an exchange rate

Answer 15

The price or value of one currency when compared with another currency.

Question 16

What happens to importing and exporting with a STRONG pound

SPICED

Answer 16

Importing goods are cheaper as you get more (dollars) for your pound so costs for down
Exporting goods would be more expensive as the product looks more expensive to foreign people so they may not buy it.

Question 17

What happens to importing and exporting with a WEAK pound

Answer 17

Importing goods is more expensive because you are getting less (dollar) for your pound so costs increase.
Exporting goods would be cheaper as your product looks less dearer in the foreign country meaning they are more likely to buy it.

Question 18

What areas of the economy does tax go to

Answer 18

NHS, education, benefits, policing, national defence, and International trade.

Question 19

What is income tax

Answer 19

It is money that every employee pays to the government straight out of their wages

Question 20

What is VAT

Answer 20

It is tax on purchases that is added to items. The standard rate is 20%

Question 21

What is corporation tax

Answer 21

It is tax on profits for limited companies ONLY.

Sole traders only pay INCOME TAX and NATIONAL INSURANCE

Question 22

How does taxation work if the economy is doing well

Answer 22

If the economy is doing well then tax income is high as individuals are earning and business are making good profits. This means that government spending is low as less people are unemployment and seeking less benefits. This means that the government don’t need to spend all of the tax just in case the economy gets low.

Question 23

What sort of products have different VAT rates

Answer 23

Cigarettes, alcohol and motoring have negative externalities which means that they are highly taxed to discourage the use or consumption of them.
Fresh fruit on the other hand is healthy and so is not or has reduced tax compared with unhealthy foods which have the standard rate.