[C] Capital equipment being greater than labour.
Economics S1
Chapter One. The nature of the economic problem
01 Vocabulary & Definitions
*Resources: Factors used to produce good and services.
*The Economic Problem: Unlimited wants exceeding finite resources.
*Wants: Desires for goods and services.
*Scarcity: Situation where there is not enough to satisfy everyone’s wants.
*Economic Good: A product which requires resources to produce it
and therefore has an opportunity cost.
*Free Good: A product which does not require any resources to
make it and so does not have an opportunity cost.
02 The concepts covered this chapter/Class Notes
- People’s wants continue to grow and change over time.
However, what stops people from enjoying all the products
they would like to have is a lack of resources to produce
them (this is called scarcity). Basically, this is called The
Economic Problem.
- The vast majority of good and services are economic goods
(takes resources to produce them; therefore, limited in
supply and has opportunity cost). Economic goods include:
cars, textbooks, laptops, etc.
- Free goods are goods that people don’t have to pay for. This
includes: Sunshine, oxygen, river, etc.
03 Exam-style questions that are related to this chapter
Q1. Why does scarcity exist? (Multiple Choice)
[A] Each year workers tend to produce less than previously.
[B] Machines wear out of time.
[C] There are not sufficient resources to produce all the products
people want.
[D] There is a limit to people’s wants.
Q2. Why will scarcity continue to be a problem in the future?
[A] Prices will rise.
[B] The quantity of resources will decline.
[C] Wants will continue to increase.
[D] World population will fall.
Q3. Which of the following is a free good?
[A] Inoculation provided without charge by the state.
[B] Products given away by a supermarket to attract consumers.
[C] Recycled Paper
[D] Wind coming in from the sea.
Q4. Why is YeBin so amazing?
[A] She is cute.
[B] She is pretty.
[C] She is smart.
[D] All of the above.
Q5. Natural sunlight is classified as a free good because:
[A] Sunlight is a gift of nature.
[B] Sunlight is a renewable source.
[C] There is no opportunity cost of using sunlight.
[D] Unlimited amounts of sunlight can be consumed.
Q6. What would be classified as the factor of production capital for
an airline?
[A] The aircraft operated by the airline.
[B] The money the airline keeps in the bank.
[C] The pilots the airline uses.
[D] The shares of the airline quoted on the stock market.
Q7. What is meant by the economic problem?
A. The economic problem is the unlimited wants of people
exceeding the limited amount of resources.
Q8. What gives rise to the problem of scarcity?
[A] A lack of money
[B] An uneven distribution of income.
[D] Wants exceeding resources.
Q9. As an economy becomes richer, what happens to resources and
wants?
A. Resources decrease and wants increase.
Q10. Which of the following is an example of the factor of
production ‘capital’?
[A] The money a farmer has borrowed to buy livestock.
[B] The money a farmer has saved in the bank.
[C] A farm worker.
[D] A tractor.
Q11. Which type of factor of production can be described as a
‘natural resource’?
[A] Capital.
[B]
Chapter Two. Factors of Production
01 Vocabulary & Definitions
*Factors of Production: The economic resources of Land, Labour, Capital, and
Entrepreneur.
*Land: Gift of nature available for production.
*Labour: Human efforts used in producing goods and services.
*Capital: Human made goods used in production.
*Consumer Goods: Goods and services purchased by households for their own
Satisfaction.
*Enterprise: Risk bearing and key decision making in business.
*Mobility of Labour: The ability of labour to change where it works or which
occupation.
*Mobility of Capital: The ability to change where capital is used or in which
occupation.
*Productivity: The output per factor of production in an hour.
02 The Concepts covered this chapter/Class Notes
- The four factor of production are: Land, Labour, Capital, Enterprise.
- Causes of mobility of labour include: Differences in the price and
availability of housing in different areas and countries, Family ties,
Differences in educational systems in different areas and countries, Lack
of information, Restrictions on the movement of workers.
- The quantity of land: The quantity of renewable resources are easily
restored (however, there is a risk of renewable resources turning into
non-renewable resources if they are over-used). On the other hand, the
quantity of non-renewable resources can be restored but is harder
compared to renewable sources.
- The quality of land: The use of fertilizers and less pollution can lead to
an increase in the quality of land.
- The quantity of labour: The quantity of labour is influenced by two
factors: Number of workers available (determined by the size of the
population, the age structure of the population, the retirement age, the
school-leaving age, attitude to working women) and number of hours
that the labour work (determined by the length of average working day,
whether they work in full or part-time, the duration of overtime, the
length of holidays taken by workers, the amount of time lost through
sickness and illness).
- The quality of labour: Better education and training, more experience
and better healthcare can lead to an increase in the quality of labour as
their productivity goes up and make fewer mistakes.
- The quantity of capital: Investment and time determines the quantity of
capital.
- The quality of capital: Advances in technology enable capital goods to
produce a higher output and a better quality output.
- The quantity of enterprise: Quantity of enterprise increase when the
number entrepreneurs.
- The quality of enterprise: Quality of enterprise can be improved if
entrepreneurs receive better education, better training, better healthcare,
and gain more experience.
- Payments for Factors of Production: Rent (Land), Wages (Labor),
Interest (Capital), Profit (Enterprise).
03 Exam-style questions that are related to this chapter
Q1. Identify the two human factors of production.
A. Labour, Enterprise.
Q2. Which factor of production’s function is to make decisions and take risks?
[A] Capital
[B] Enterprise
[C] Labour
[D] Land
Q3. Which type of factor of production is a road?
[A] Capital
[B] Enterprise
 [C] Labour
[D] Land
Q4. Which factor of production is the most mobile?
[A] Capital
[B] Enterprise
[C] Labour
[D] Land
[E] Cute YeBin
Q5. Identify the two non-human factors of production.
A. Land, Capital
Q6. Explain two causes of an increase in the quantity of labour.
Q7. Analyze why the mobility of labour may increase over time.
Chapter Three. Opportunity Cost
01 Vocabulary & Definitions
*Opportunity Cost: The best alternative given up when making a decision.
02 The Concepts covered in this chapter/Class Notes
- Opportunity cost is an important concept as it emphasizes that people
have to consider what they are sacrificing when they decide what to buy,
what job to do and what to produce, and when governments are deciding
what to spend their tax revenue on.
- Influence of opportunity cost on consumers: Consumers can’t buy
everything they want, so they have to make a choice. When they make a
choice, it means that they give up the other possible option. This is the
concept of opportunity cost to the consumers.
- Influence of opportunity cost on workers: Undertaking one job involves
opportunity cost as people need to carefully consider their preference for
the jobs available.
- Influence of opportunity cost on producers: Producer has an opportunity
cost because they have to decide what to make.
- Influence of opportunity cost on the government: Governments have to
consider the opportunity cost produced when making a decision because
they have to decide where they would put their tax revenue on.
- Economic goods have an opportunity cost whereas free goods do not.
03 Exam-style questions that are related to this chapter
Q1. What is meant by ‘opportunity cost’?
[A] The. Best alternative forgone.
[B] The cost of item selected.
[C] The cost of exploring business opportunities.
[D] The labour used in producing the product.
Q2. Explain why opportunity cost is an important concept for producers.
Q3. Analyze what effect the building of an airport may have on the decision of
how to use an area of land nearby.
Chapter Four. Production Possibility Curves
01 Vocabulary & Definitions
*Production Possibility Curve: A curve that shows the maximum output of two
types of products and combination of those
products that can be produced with existing
resources and technology.
02 The Concepts covered in this chapter/Class Notes
- PPC (Production Possibility Curve) is also known as a PPF (Production
Possibility Frontier). YeBin personally prefers to call it a PPC.
- Any point inside the curve means that there is not full use of resources
(inefficient but possible). Any point on the curve means that the
resources are fully employed (efficient and possible). Any point outside
the curve means that it is unachievable/impossible.
- Movement along the PPC shows that resources are being reallocated.
- Causes of shift in a PPC include: Changes in the quantity or quality of
resources.
03 Exam-style questions that are related to this chapter
Q1. What is the difference between a point inside and a point on a PPC?
[This revision sheet doesn’t include Chapter 5 and Chapter 6 because we didn’t
learn it in class and it’s not as important as the other chapters]
Chapter Seven: Demand
01 Vocabulary & Definitions
*Demand: The willingness and ability to buy a product.
*Market Demand: Total demand for a product.
*Extension in Demand: A rise in quantity demanded (this is important! It’s QD
not Demand!! They are different!!)
*Contraction in Demand: A fall in quantity demanded.
*Changes in Demand: The shifts in the demand curve.
*Normal Good: Income Rise, Demand rise. Income fall, Demand fall.
*Inferior Good: Income Rise, Demand fall. Income fall, Demand rise.
*Substitutes: A product that can replace another.
*Complement: A product used together with another product.
02 The Concepts covered in this chapter/Class Notes
- Quantity demanded and price are inversely related.
- Causes of changes in demand include: Changes in consumer’s income,
Change in the price of related products (substitutes and complements),
Advertising Campaigns, Changes in population, Changes in taste and
fashion, Other factors (Weather conditions, Expectation about future
prices).
- An increase in demand shifts the demand curve to the right.
- A decrease in demand shifts the demand curve to the left.
03 Exam-style questions that are related to this chapter
Q1. What is measured on the vertical axis of a demand diagram?
[A] Cost
[B] Price
[C] Quantity Demanded
[D] Wants
Q2. The price of a product rises. What will happen to the demand for its
complement?
[A] It will contract
[B] It will extend
[C] It will decrease
[D] It will increase
Q3. Define market demand.
Chapter Eight. Supply
01 Vocabulary & Definitions
*Supply: The willingness and ability to sell a product.
*Market Supply: Total supply of a product.
*Tax: A payment to the government.
*Subsidy: A payment by a government to encourage the production or
consumption of a product.
02 The Concepts covered in this chapter/Class Notes
- An increase in supply moves the supply curve to the right.
- A decrease in supply moves the supply curve to the left.
- Causes of changes in supply include: Changes in the cost of production,
Changes in technology, Weather conditions and health of livestock and
crops, Prices of related goods (competitive supply and joint supply),
Disasters and Wars, Discoveries and depletion of new commodities.
03 Exam-style questions that are related to this chapter
Q1. Define supply.
Q2. Explain why supply and price are positively related.
Chapter Nine. Price Determination
01 Vocabulary & Definitions
*Equilibrium Price: The price where demand and supply are equal.
*Excess supply (Surplus): Supply > Demand
*Excess demand (Shortage): Demand > Supply
*Disequilibrium: A situation where demand and supply are not equal.
02 The Concepts covered in this chapter/Class Notes
- Price is determined by the interaction of demand and supply.
- At the equilibrium price, demand is equal to supply.
- When a market is at disequilibrium, the firm will move towards
equilibrium.
- If price is below the equilibrium price, there will be excess demand
(shortage).
- If price is above the equilibrium price, there will be excess supply
(surplus).