Basic Economics

Demand

100

Define Demand

Demand is the ability and willingness to buy a quantity good at a given price 

200

Law of Demand states that 

as price rises the quantity demand falls, ceteris paribus.

300

This movement in the demand curve is called a ___________ in demand as quantity demand falls as price rises.

Contraction

400

Give 4 factors that may have caused the outward shift in the demand curve

Any factors that shift demand curve outwards:
1. Advertising (increases willingness)
2. Lower income tax or VAT (increases ability)
3. New movie / sequel (increases willingness)
4. Holidays, weekends (increases willingness)

500

Complete the sentence: The demand for labour is 

The demand for labour is DERIVED from the demand for goods and services.

Supply

100

Define Supply

Supply is the ability and willingness of producers to sell a quantity of good at a given price. 

200

Law of supply states that

as price rises, the quantity of supply will increase, ceteris paribus.

300

The movement along the supply curve is known as an __________________ in supply

extension

400

Name 4 goods or services that would exhibit a perfectly inelastic supply curve

Any examples including:
1. Land
2. Commodities such as oil, gold, diamonds, iron ore, rice, wheat etc.
3. Seats in a stadium or theatre
4. Tickets to a concert

500

Give five ways in which governments can help increase the supply of a good

Any five supply policies:
1. Subsidies for solar power
2. Grants for training
3. Reduce or remove tariff (import tax)
4. Privatisation-reduces barriers of entry
5. Deregulation-reduces barriers of entry
Allow government provision of merit / public goods

Efficiency

100

Allocative Efficiency exists when 

quantity demand = quantity supply

200

the price, Pe, at the allocatively efficient point where quantity demand equals supply is known as the

Market Clearing Price ( Equilibrium price)

300

Which points are allocatively efficient on the PPF?Which point(s) is/are not allocatively efficient?

A and B are allocatively efficient: all resources / factors of production are used fully

C and D are not allocatively efficient:
C has underemployed resources
D cannot be produced as there is not enough
factors of production to make that combination

400

Name all parts of the diagram below:

A= economies of scale

B=diseconomies of scale

C=Long run average cost

D= Production efficiency

500

Name 5 ways governments can improve production efficiency for companies.

Any five ways to reduce LRAC

1. Subsidies-helps to reduce costs
2. Grants -helps to reduce costs
3. Lower tariffs- lower price of raw materials -reduce costs
4. Lower VAT-lower price of raw materials -reduce costs
5. Deregulation / privatisation- increases competition, increases supply, lower prices
6. Provision of public goods-external e.o.s

Factors of production

100

List the four main factors of production

Capital
Enterprise
Land
Labour

200

Give TWO ways in which changes in population can shift the PPF outwards.

Natural increase ( birth rate > death rate)

High net migration ( Immigration > emigration)

300

Name three different ways in three different industries that has substituted labour with automated machinery or robots. 

Any three methods in any appropriate industry.

Robots in the production of microchips

Automated enquiry / customer service in banking

Barcode / self checkout in retail / supermarket

Online computer orders in Amazon books

400

For each of the factors of production, give one reason why that factor of production cannot be increased.

Capital: Lack of profit to invest in new machinery/ High rates of interest=expensive
Enterprise: Education standard is low in the country for LEDCs /
Land:Scarcity / Exhaustion
Labour: High costs/ Occupational immobility

500

Give 5 ways government can help to improve or increase the factors of production in the country

Any 5 government policies

1. Capital: Lower interest rates / provide grants / subsidies

2. Enterprise: Lower immigration control/ fund universities / enterprise grant to start own business

3. Land: Fund reclamation / deregulation of land use control/ privatisation of nationalized industries

4. Labour:  Lower immigration control/ fund universities / grant for training

Elasticity

100

Define price elasticity of supply

PES measures the responsiveness of supply to changes in price.

200

Give the formula to PED and PES

PED= % change in Qd  /  % change in p

PES = % change in Qs  /  % change in p

300

What is the difference between a good with a value of -0.5 YED and a value +1.5 YED?

-0.5 YED

is an INFERIOR

INELASTIC good income rises quantity demand falls, but at smaller percentage than the percentage change in price

+1.5 YED

is NORMAL

ELASTIC good as income rises quantity demand also rises, at a large percentage than the percentage change in price

400

Explain how companies use PED determine whether to increase the of their good

Companies revenue will RISE if price of INELASTIC goods rise

Revenue rise if price of ELASTIC goods fall.

500

How should governments use PES to determine which goods to increase VAT on?

Increase VAT for PES Inelastic goods to maximise tax revenue

Reduce VAT for PES elastic goods to maximise tax revenue