Edexcel A-level Economics Theme 1-4 Examination Questions and Answers

Edexcel A -level Economics Theme 1 -4 Examination Questions and Answers Economics ✅The study of the allocation of scarce resources. Economic Goods ✅Resources that are scarce. Short Run ✅A time period where at least one factor of production is fixed. Long Run ✅A time period where all factors of production are variable. Productivity ✅The output per unit of input. The Economic Problem ✅Resources are scarce but wants are infinite. Scarcity ✅The world's resources are limited, there are only limited amounts of land, water, oil, food, etc.. Therefore, resources are scarce. Free Goods ✅Goods that are unlimited in supply and therefore have no opportunity cost. Economic Agents ✅Consumer, Business and Governments. Agents involved in Economic transactions. Production Possibility Frontier ✅The maximum potential output of a combination of goods an economy can achieve when all its resources are fully and efficiently employed, given the level of technology. Opportunity Cost ✅The next best alternative foregone. Economic Growth ✅Increase an economy's productive potential. Capital Goods ✅Goods intended for use in production, rather than by consumers. Consumer Goods ✅Goods designed for use by final consumers. Renewable Resources ✅A resource whose stock level can be replenished naturally over a period of time. Non-renewable Resources ✅A resource whose stock level decreases over time as it is consumed. Ceteris Paribus ✅'All other things (factors) remaining the same' The assumption that all other variables within a model remain constant whilst the change is being considered. Positive Statement ✅A statement based on facts which can be tested as true or false and are value -free. Normative Statement ✅A statement based on value judgements which cannot be tested as true or false. Adam Smith ✅The Father of Economics; - The Invisible Hand (workings of the Price Mechanism) - Specialisation - Division of Labour Division of Labour ✅Specialisation of workers on specific tasks in the production process. Specialisation ✅The process of breaking down the production process into steps and then each worker is assigned a step. This would then increase labour productivity (Output per Worker). Barter ✅An exchange of goods/services for other goods/services. - Does not involve money. - Double coincidence of wants. Money ✅Anything which is acceptable to a wide number of people and organisations as payment for goods and services. Free Market Economy ✅Where all resources are privately owned and allocated via the price mechanism. There is minimal government intervention. Command Economy ✅Where there is public ownership of resources and these are allocated by the government. Mixed Economy ✅Where some resources are owned and allocated by the private sector and some by the public sector. Market ✅A channel where goods and services are exchanged. Utility ✅The capacity of a good or service to satisfy some human want. Rational Decision Making ✅Where consumers allocate their expenditure on goods and services to maximize utility, and producers allocate their resources to maximize profits. Demand ✅The quantity of goods or services that will be bought at any given price over a period of time. Demand Curve ✅Shows the quantity of a good or service that would be bought over a range of different price levels in a given period of time. Slopes downward - Price and Quantity have an inverse (negative) relationship. Marginal Utility ✅The additional satisfaction that a consumer gains for consuming one additional unit of a product. Diminishing Marginal Utility ✅As successive units of a good are consumed, the utility gained from each extra unit will fall. % Change ✅y2 - y1 / y1 × 100 Price Elasticity of Demand (PED) ✅The responsiveness of demand to changes in price. The value is always negative. % ∆QD / % ∆P × 100 Unitary Price Elasticity (Ped) ✅Ped = 1 Perfectly Price Inelastic (Ped) ✅Ped = 0 Price Inelastic (Ped) ✅Ped is < 1 Perfectly Price Elastic (Ped) ✅Ped = ∞ Price Elastic (Ped) ✅Ped is > 1 Total Revenue ✅Price × Quantity Income Elasticity of Demand (YED) ✅The responsiveness of demand to changes in income. %∆QD / %∆Y × 100 Negative - Inferior Good (Y increases, QD decreases) Positive - Normal Good (Y increases, QD increases). Negative Income Elasticity of Demand ✅Inferior Good (As income increases, QD decreases) Positive Income Elasticity of Demand ✅Normal Good (As income increases, QD increases) Cross Price Elasticity of Demand (XED) ✅The responsiveness of demand for one good to changes in the price of a related good. (Either substitutes or complements). % ∆ inQD of Good A/ % ∆ in Price of Good B × 100 Negative Value - Complements (The 2 goods are in Joint Demand; as the Price of Good A increases the Demand of Good B decreases). Positive Value - Substitutes (The 2 goods are in Competitive Demand; as the Price of Good A increases, the Demand of Good B increases.) Negative Cross Price Elasticity of Demand ✅Complements (As the Price of one good increases, the Demand for the second good decreases) The 2 goods are in Joint Demand. Positive Cross Price Elasticity of Demand ✅Substitutes (As the Price of one good increases, the Demand for the second good increases) The 2 goods are in Competitive Demand. Supply ✅The quantity of a good or service that firms are willing to sell at a given price over a given period of time. Supply Curve ✅Shows the quantity of a good or service that firms are willing to sell to a market over a range of different price levels in a given period of time. An upward sloping curve - Price and Supply have a direct relationship. Price Elasticity of Supply ✅The responsiveness of supply to changes in price. Pes = %∆QS / %∆P Equilibrium Price ✅The price at which the Quantity Demanded and Quantity Supplied are equal, ceteris paribis. "Market Clearing Price" Excess Supply ✅Where the QS exceeds the QD for a good at the current market price. QS > QD Excess Demand ✅When the QD exceeds the QS for a good at the current market price. QD > QS