The Economic Problem & Allocation
What is the basic economic problem?
Unlimited wants and finite/scarce resources
What term describes a good whose demand increases as consumer income rises?
Name the four factors of production.
Land, Labour, Capital, and Enterprise
What is the formula for calculating Social Costs?
Private costs + External costs
What does GDP stand for?
Gross Domestic Product
What concept describes the next best alternative foregone when making a choice?
Opportunity cost
Calculate the Price Elasticity of Demand (PED) if a 10% price rise causes a 20% fall in quantity demanded.
2 (Price elastic)
What term describes the reductions in average total costs resulting from an increase in the scale of production?
Economies of scale
What term describes breaking down a production process into small, specialized tasks assigned to specific workers?
Division of Labour
What term describes an increase in a country's output of goods and services over time, measured using GDP?
Economic Growth
True or False: In a mixed economy, resources are allocated purely by the price mechanism.
False (resources are allocated by both market forces and the public sector/government).
True or False: A vertical supply curve has a Price Elasticity of Supply (PES) equal to zero.
True (perfectly price inelastic)
What is the formula used to calculate Total Revenue?
Price x Quantity
Why is the demand for labour described as 'derived demand'?
Because labour is demanded for what it produces; demand for labour depends on the demand for the final product
Name the four main phases of the economic (business) cycle.
Boom, Downturn, Recession, and Recovery
What are the basic economic assumptions regarding the primary goals of consumers and firms?
Consumers aim to maximize utility/benefit, and producers aim to maximize profit
State two factors that can cause a supply curve to shift to the right.
Any two of: lower production costs, improved technology, government subsidies, or favorable weather/natural factors
On your whiteboards, draw a long run average cost (LRAC) curve diagram, clearly annotated to show internal economies of scale
A U-shaped LRAC curve, with the downward-sloping section highlighted and labeled
True or False: Granting a government subsidy on a good with positive external benefits shifts its supply curve to the right.
True
True or False: An outward shift of a Production Possibility Frontier (PPF) indicates an increase in productive potential.
True
On your whiteboards, draw a Production Possibility Frontier (PPF) diagram with an 'x' showing an economy operating with unemployed resources
A standard PPF curve with a clear point drawn inside the curve.
If demand for a good is price inelastic, what happens to total revenue when the price increases?
Total revenue increases
True or False: A monopoly firm is considered a 'price taker'.
False ('price maker').
State two potential disadvantages of introducing a legal minimum wage set above equilibrium.
Any two of: unemployment/job losses, higher costs for businesses, or potential cost-push inflation
State two negative consequences of rapid economic growth
Any two of: environmental damage/pollution, risk of inflation, depletion of non-renewable resources, or widening income inequality