Year 9 Economics revision questions

The demand for a factor of production depends on the demand for the good or service it produces

Derived demand means the demand for a factor of production (eg labour, land, capital) is derived from the demand for the final good or service it helps to produce. If demand for cars rises, demand for car workers rises too.

Wants are unlimited but resources to satisfy them are finite

Scarcity is the fundamental economic problem: human wants are unlimited while the resources (land, labour, capital, enterprise) available to satisfy them are finite. This forces choices to be made.

Income tax

Direct taxes are levied directly on income or wealth and paid directly to the government by the taxpayer. Income tax, corporation tax, and inheritance tax are examples. Indirect taxes (VAT, excise duties) are levied on expenditure and collected by the seller.

The desire and ability of consumers to buy a good at a given price

Demand requires both the wish to buy AND the ability to pay. Just wanting something is not enough — you must be able to afford it.

Short-term unemployment as workers search for jobs that match their skills

Frictional unemployment occurs when workers are temporarily unemployed while transitioning between jobs. It exists even at full employment and is considered natural - some time is needed to match workers with suitable vacancies.

Shift to the right

A fall in wages reduces the cost of production. Lower costs mean firms are willing to supply more at each price level, shifting the supply curve to the right (an increase in supply).

Adding up the value of all goods and services produced, adjusted for inflation

Real GDP adjusts nominal GDP for inflation using a price index (the GDP deflator). This allows meaningful comparisons of output over time, removing the effect of price changes. Real GDP growth reflects actual increases in the volume of goods and services produced.

Savings

Withdrawals remove money from the circular flow: savings, taxation, and imports. Injections add money in: investment, government spending, and exports.

Rent paid on the factory premises

Fixed costs do not change with the level of output in the short run. Factory rent is fixed regardless of how much is produced. Raw materials, piecework wages, and electricity used in production all vary with output (variable costs).

Rivals will not follow the price rise, so the firm loses a large share of customers to competitors

The kinked demand curve assumes rivals ignore a price rise (demand above the kink is elastic, so the firm loses many customers) but match a price cut (demand below the kink is inelastic) - explaining price stability in oligopoly.

A coal miner who loses their job permanently when the coal industry declines

Structural unemployment arises from a permanent change in the structure of the economy, making some skills or industries obsolete. The decline of coal mining in the UK in the 1980s left many miners structurally unemployed as their skills did not match available jobs.

Government spending and taxation

Fiscal policy involves the use of government spending and taxation to influence aggregate demand and achieve macroeconomic objectives. It is distinct from monetary policy (interest rates and money supply), which in the UK is delegated to the Bank of England.

The social cost of production is GREATER than the private cost

A negative externality adds costs to third parties not involved in the transaction. Social cost = private cost + external cost, so social cost exceeds private cost. The market over-produces.

Quantity demanded equals quantity supplied

Equilibrium is the price at which the market clears — the quantity that consumers wish to buy exactly equals the quantity that producers wish to sell. There is no surplus or shortage.

Rising living standards, measured by higher average income per capita

Sustained economic growth (rising real GDP) typically leads to higher average incomes, improved living standards, lower unemployment, and greater tax revenues. However, it can also lead to inflation, environmental costs, and increased inequality if growth is not inclusive.

Higher prices and lower output

A monopolist restricts output below the competitive level to push up price and earn supernormal profit. This results in a deadweight welfare loss compared to perfect competition, where price equals marginal cost.