Definitions
Scarcity
unlimited needs, limited resources
increase in the price of a substitute
increase in demand
increase price, increase quantity
What are the three economic questions?
What to produce
How to produce
For whom to produce
State one disadvantage of the government using subsidies
Government budget becomes worse
Opportunity cost
How much to subsidise?
1 reason why there may be an outward shift of the PPC in an economy
increase in quality or quantity of any factor of production
Merit Goods
Goods that create external benefit to third parties when consumed or produced
PPC diagram showing inefficient output (point A), efficient output (point B), and scarcity (point C)
point A inside the curve, point b on the curve, point c outside the curve
PPC LABELED, Axes labeled with 2 types of g/s
State two functions of the central bank
Issue banknotes and coins
Bank for the government and other commercial banks
Lender of last resort
Operates monetary policy
Manages foreign exchange rate
State two disadvantages of the government implementing a minimum wage
Surplus of workers --> unemployment
Increase cost of production for firms --> can make goods and services more expensive
3 reasons why people may save more money
Higher income
Saving for retirement
Higher interest rate
Low confidence in economy
Saving culture in the country
Division of labour
Occurs when a production process is split between different workers who become experts in a part of the process
Minimum wage diagram
Axes labeled correctly (wages, q of labour)
Original equilibrium (w1, q1)
Min wage as a price floor ABOVE the equilibrium wage
unemployment between Qd1 and Qs1
A worker decides to leave their job as a bus driver and take a job as a lorry driver. What will increase the opportunity cost of this decision?
A an increase in the holidays for lorry drive
B an increase in the income tax paid by bus drive
C an increase in the wages of bus drive
D an increase in the wages of lorry drivers
C an increase in the wages of bus drive
State one advantage and one disadvantage of a trade union to workers
Advantages:
Better wage and working conditions, Provide service for members, Influence government policy
Disadvantages:
Could lead to higher unemployment, Expensive to join trade union
When the price of a smartphone increases from $500 to $560, the quantity supplied increases from 400 units to 520 units.
Calculate the PES for the smartphone
PES = 2.5
Occupational mobility
The extent to which labour is able to move between jobs
Labour diagram for teachers: An increase in education graduates and decrease in schools provided by the government
Increase in supply of labour
Decrease in demand of labour
-> decrease in wage, undetermined quantity
State two factors that can affect the elasticity of demand of a good/service
Availability of substitutes
Degree of necessities
Time for making the decision
Proportion of income spent
State one advantages and one disadvantages of the market economic system
Advantages:
Wide variety of goods and services, Firms respond quickly to changes in consumer wants
Disadvantages:
May cause market failure (merit goods/de-merit goods, public goods, monopolies, etc)
Identify the 4 functions of money
Medium of Exchange
Store of Value
Unit of Account
Standard of deferred payments
Price mechanism
The way in which prices are determined through the market forces of demand and supply
increase indirect tax and education awareness programs for cigarettes
Decrease in demand
--> quantity decreases, price undetermined
The PED of the product is -1.25.
The original price is $30 and the original quantity demanded is 200 units. After a change in price, the quantity demanded decreases to 160 units.
Calculate the new price of the product.
New Price = $34.8
State one advantage and one disadvantage of the government using regulations to correct market failure
Advantages:
Accurately target the consumers or producers, Individuals or firms may be fined/imprisoned for breaking the rules, may generate gov revenue
Disadvantages:
Difficult to ensure people follow the rules and regulations, Black market, Is the punishment harsh enough
Explain two reasons why workers in the tertiary sector may be paid more than workers in the primary sector
Higher demand for tertiary workers in the country
More qualifications needed --> lower supply
Stronger trade unions
Tertiary workers more found in developed countries where average income is higher