Economics Test Term 1

Front 1

What is the Economic Problem?

Back 1

The Economic Problem is arises when there is a finite amount of resources in relation to the wants/demands of individuals.

Front 2

What do Consumer Goods do?

Back 2

Consumer goods provide immediate satisfaction to individuals.

Front 3

What are the purpose of Capital Goods?

Back 3

Capital Goods are machines used to produce more consumer goods.

Front 4

What are the 4 Factors of Production?

Back 4

1. Land

2. Labour

3. Capital

4. Enterprise

Front 5

What 4 Questions to ask to solve the problem of scarcity?

Back 5

1. What to produce?

2. How much to produce?

3. How to produce?

4. How to distribute?

Front 6

What is Opportunity Cost?

Back 6

Opportunity cost is the use of alternate resources.

Front 7

What are the 4 constants in a Production Possibility Curve Model?

Back 7

1. Only two goods produced.

2. All resources are fully employed.

3. Level of technology is assumed to be constant or fixed.

4. Resources are fixed or finite.

Front 8

How do you calculate OC?

Back 8

OC is calculated by loss/gain. E.g loss 10 units / gain 15 units.

Front 9

What is the marginal rate of substitution?

Back 9

The rate in which can be given up for another. E.g 10 / 15.

Front 10

What is the main objective of getting involved in economic activity?

Back 10

Maximize the return from using the resources available. Aka profit.

Front 11

What are the economic factors that affect decision making in an economy?

Back 11

Consumers, work, education, retirement and voting/participation in the political process.

Front 12

What is the Consumption and Saving equation?

Back 12

Y = C + S (Y is income)

Front 13

Why do people save?

Back 13

Transactionary motive: Saving to spend on goods and services.

Precautionary Motive: Be financially secure if something were to occur.

Speculative Motive: Saving to invest in shares or bonds.

Front 14

What does an economy provide?

Back 14

The basic function of coordinating economic activities such as resource allocation, production and distribution.

Front 15

What are the 4 major economic systems? Which two are the most popular?

Back 15

Feudalism

Capitalism

Socialism

Communism

Capitalism and Socialism

Front 16

Why is there always conflict in Capitalism?

Back 16

They own LLCE

Labor want higher wages etc and capitalists want more profit

Front 17

What 4 functions do prices have in an economy?

Back 17

1. Prices match the O (Output) of G+S with the demand of consumers.

2. Ration the limited supply of resources.

3. Help prevent wastage and shortages.

4. Act as a signally device to change their economic behavior.

Front 18

What are the 5 main sectors in the 5 Sector Model?

Back 18

1. Household

2. Firms

3. Finance

4. Government

5. Overseas

Front 19

Leakages of Injections on the left side of the model?

Back 19

Leakages

Front 20

Leakages of Injections on the right side of the model?

Back 20

Injections

Front 21

What happens when STM > IGX?

Back 21

Unemployment

Front 22

What happens when STM < IGX?

Back 22

Inflation

Front 23

What is a recession?

Back 23

2 or more quarters of negative growth.

Front 24

What is a depression?

Back 24

Worse than a recession in that there is 2 or more quarters of negative growth.

Front 25

What is a Market Economy?

Back 25

Type of free market with little to no government intervention.

Front 26

What is a Mixed Market Economy?

Back 26

A mixed market economy is when there are both free markets and government intervention to prevent market failures.

Front 27

What are Newly Industrialized Economies?

Back 27

Invest in Capital for Industrial growth.

Front 28

What are planned economies?

Back 28

Government allocates resources according to priorities.

Front 29

What is an economy in transition?

Back 29

When one type of economic system merges with another. (Think Berlin Wall).

Front 30

What are Emerging/Developing markets?

Back 30

Emerging/Developing markets are third world markets which are dominant usually due to their natural resources.

Front 31

What are the 4 returns for the factors of production?

Back 31

Rent, Wage/Salary, Investment and Profit

Front 32

What is relative scarcity?

Back 32

Relative scarcity means that we do not have enough resources to satisfy our wants and needs.

Front 33

What is consumer sovereignty?

Back 33

Consumer sovereignty is the power to consumers to produce what they want.

Front 34

What is investment?

Back 34

Investment is characterised as the I character means purchasing of something that is not consumed however is used in the future to create wealth.

Front 35

What does the investment sector control?

Back 35

The investment sector controls the finance sector where leakages is savings and injections is investment.

Front 36

Formula for leakages and injection?

Back 36

STM = IGX

Front 37

Which groups decide what to produce and how to produce it?

Back 37

Consumers and businesses decide what to produce and how to produce it.

Front 38

Which branch of economics deals with aggregate behaviour?

Back 38

Macroeconomics

Front 39

What happens when you consume more than save of income?

Back 39

When you consume more than you save you get a high MPC and lower MPS. This means that you save less than people who have a higher MPS making you worse off.

Front 40

Major factor determining household savings?

Back 40

Interest rate would be the major factor determining household savings.

Front 41

What is Technical efficiency?

Back 41

Technical efficiency is the effectiveness in which a given set of input is used to produce an output.

Front 42

How do firms maximise profit?

Back 42

Firms maximise profit by using the most efficient method possible. CP < SP (Cost price < Selling Price)

Front 43

Define earn't and unearnt income?

Back 43

Earned income means income that has been earnt via salary or wage. Unearnt is a return on investment like rent or profit.

Front 44

What are the 4 industry types?

Back 44

Primary. (Natural resources)

Secondary. (Basic materials are turned into products like wool into clothes)

Tertiary. (Framework and foundations of business)

Quinary. (Internet based businesses and trade)

Front 45

What is labour productivity?

Back 45

Measure of growth in an economy. Measures the amount of goods an services produced in 1 hour.

Front 46

What is the likely consequence of higher interest on consumers?

Back 46

If interest rates were to go up consumers would have a higher incentive to save thus slowing down the economy and combating inflation.