TOPIC 1

The economic problem

WORKBOOK ANSWERS

Aqa as Economics Unit 1 Markets and Market Failure

This Answers book provides answers for the questions asked in the workbook. They are intended as a guide to give teachers and students feedback. The candidate responses for the longer essay-style questions are intended to give some idea about how the exam questions might be answered. The examiner commentaries (underlined text) have been added to give you some sense of what is rewarded in the exam and which areas can be developed. Again, these are not the only ways to answer such questions but they can be treated as one way of approaching questions of these types.

Topic 1 The economic problem

1 The use of resources to make goods or services which have market value, or the process or set of processes which convert inputs (factor services) into outputs. (1 mark)

2 Firms use resources to produce goods or services which they sell to households who consume them. Capitalist firms engage in production in order to make profits from selling products to households, who benefit from the exchange by achieving higher living standards. (4 marks)

3 Resource depletion occurs when resources are used up in the course of production, for example energy, whereas, degradation refers to the quality of resources falling, for example as a result of pollution. (2 marks)

4 Many households reuse plastic containers and glass jars. Second-hand and charity shops provide a means for clothing, records and other household items to be reused. Local councils allow for recycling of paper, cardboard, bottles and some plastics either at recycling centres or through regular collections. (4 marks)

5 Income is limited which means that all households have to consider carefully which goods and services they choose to purchase. Consumer goods are made from scarce resources which means that people have to make a decision about which goods to buy and which goods to go without every week. (3 marks)

6 The passage mentions that Ford decided to build cars at Dagenham (where to produce), and from the 1920s onward (when to produce). How to produce is suggested by using a large site which enables production to be vertically integrated and economies of scale to be used to reduce average costs. The passage does not explicitly address the question of for whom to produce or when to produce in the sense for example of using night shifts as well as day shifts or using continuous flow production. (5 marks)

7 An excess of sales receipts over the spending by a business on the services or factors of production during a period of time, i.e. profit = revenue – costs. (2 marks)

8 Each week, or possibly each month or year, shortage of money or income means that most people have to choose between consuming their income or saving their income. The fact that income is not unlimited forces this choice. (3 marks)

9 The funds available for the British government to spend are limited. Choosing to spend more on aircraft carriers means that less tax revenue is available to spend on primary education in Africa (and vice versa). (3 marks)

10 In addition to the point made in the answer to Question 9, the decision not to build aircraft carriers may mean sacrificing defence capability. (3 marks)

11 The firm would not be operating at full capacity. It would be operating inside its production possibility frontier. Maximum possible combinations of television sets and mobile phones would not be produced. (3 marks)

12 This is a positive statement, which means that it can be tested, though it is inconceivable that it would actually be tested. Economists could count the number of pensioners who have died from hypothermia after a cut to the state pension. They could then compare these figures with previous years when pensions were not cut and see whether the statement is correct or incorrect. (4 marks)

13 This is a normative statement. It is a not very pleasant opinion or value judgement which cannot be tested scientifically. (4 marks)