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Economics Revision
Questions
| Question | Answer |
|---|---|
| How would you define the study of economics? | The Study of the ways in which a society decides to use its scarce resources to satisfy unlimited wants |
| Define the term 'scarcity'. | Scarcity is insufficiency relative to want- a universal problem because the resources available for the satisfaction of human wants are limited while wants appear to be unlimited |
| Provide a synonym for the word 'allocation'. | Appointment, dividing, divying up |
| State the term used to describe consumers in an economy. | Households |
| State the term used to describe producers in an economy. | Firms |
| List the five sectors in the 5-Sector Flow Model. | Households, firms, financial sector, government sector, external sector |
| Explain the purpose of the 5-Sector Flow Model. What does the model illustrate? | The movement of income, resources and g/s through an economy |
| Define the term 'national income'. | |
| List the four flows between the HH and FIRM sector | From HH to FIRMS- labour (L), consumer spending (CS) From FIRMS to HH- income (Y), goods and services (G/S) |
| Explain each of the flows regarding HH and FIRM. What is moving along the arrow? | |
| List the three 'leakages' of national income in the 5-Sector flow model | Tax (T), savings (S), import (M) |
| Select one of the leakages and explain how it leaks income. | If households are not spending their income on goods and services, and instead saving their money this 'leaks' income as it is not directly going back into the economy. |
| List the three 'injections' of national income in the 5-sector-fow model | Government spending (G), investment (I), Exports (X) |
| Select one of the leakages and explain how it leaks income. | Government spending is when the government puts income back into the economy, this speeds up the flow between HH and FIRMS. |
| Draw the 5-sector-flow model | |
| Explain the purpose of the Production Possibility Curve. What does the model illustrate? | PPC represents alternate possible productions of two goods within an economy. As scarcity is evident the economy must choose which good will best satisfy the needs and wants of society. |
| Draw the PPC | |
| What does PPF stand for? | The production possibilities frontier |
| Annotate a PPF graph to explain what the PPF illustrates (point ABC) | Point A- under-utilisation of resources Point B- a utilisation of resources at the productive capacity of the economy Point C- an impossible point of production, beyond the productive capacity of the economy |
| Explain the relationship between 1.Needs and wants 2. FOP/Resources 3. G/S | Needs are things that are essential for life in a society and wants are things humans desire as they give satisfaction. These can be satisfied by goods and services which are formed by the utilisation of FOP (land, labour, capital and enterprise) |
| Explain the relationship between Supply and Demand? | |
| Explain the relationship between Supply and Price? (the law of supply) | Correlation relationship meaning as price goes up, so too will the number of units supplied and as price goes down, so too will the number of units supplied. |
| Explain the relationship between Demand and Price? (the law of demand) | Inverse relationship meaning as price goes up the # of units demanded goes down, as price goes down, the # of units demanded will go up |
| Which variable is independent quantity supplied/demanded or price? | Price= independent variable (Y-axis) Q(D+S)= dependent variable (X-axis) |
| Distinguish between the terms 'private sector' and 'public sector'? | Private sector is firms producing for households. public sector is the provision of public goods and services (by the government sector) |
| Define the term 'gross domestic product'. | GDP is the total market value of all final goods and services, produced in an economy over a given period of time (usually measure as a yearly rate of growth) |
| What are 'final' goods and services, and why does GDP only measure them? | Final g/s are those g/s that are sold to the end consumer. They are not sold to producer. The 'market value' of the FINAL g/s are recorded in GDP, as this as this value incorporates the value of all the component parts. |
| Define the term 'elasticity of demand' | The term elasticity of demand refers to the degree of responsiveness of quantity demanded to a change in price. When a g/s has elastic demand, this means that the QD will be relatively responsive to change in price. (Line will be almost horizontal |
| Define the term 'unit elasticity' | Unit elasticity occurs when a change in price results in an equally proportionate change in quantity demanded. |
| Identify and explain three factors that contribute to elasticity of demand | Necessity: is it essential, demand likely inelastic (relatively unresponsive to change in price) Availability of substitutes: if g/s has few readily available sub, demand likely inelastic % of Y: price g/s represents small % of Y, its demand inelastic |
| What is the savings rate? What does it measure? What would you expect the savings rate to do in economic downturn? | The saving rate measures the # of cents in every $ an average HH will save at any given time, During times of eco. downturn, the HH saving rate increases, as consumer are less confident to spend |
| Name three things economists can 'watch' and measure in order to anticipate changing economic activity | -savings rate -consumer confidence -business confidence -private sector investments -consumption (e.g. through retail sales) |
| What does the term fiscal policy relate to? What are two levers of fiscal policy? | Fiscal policy refers to the government's budget measures, implemented to manage the economy. Two levers used: -Taxation -Government spending |
| List three government decisions that would slow the economy down | An increase in income/business tax A withdrawal of welfare spending A withdrawal of public investment spending |
| Define Opportunity cost | |
| The market mechanism is an economic system-what does this system do? | |
| List the two forces that operate in the market mechnism | Supply and Demand |
| The demand curve slopes down- why? | As there is an inverse relationship between demand and price. The higher the price the lower |
| The supply curve slopes up- why? | |
| Define the differences of movement | |
| Explain the purpose of the 5-sector flow model | An illustration of flow of national income |
| Define needs | |
| Define wants | advanced |
| The households needs and drive the |
Created by:
fmill17
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