Unit 1: The Capitalist Revolution

Question 1

What is Income Inequality?

Answer 1

The unequal distribution of income throughout a population

Question 2

What is GDP per capita?

Answer 2

It is the measure of the total goods and services produced in a country (GDP) which is then divided by the country’s population. GDP per capita measures average income and living standards.

Question 3

Definition of GDP

Answer 3

GDP is the measure of the total goods and services produced in a country. It measures the market value of the output of final goods. Output of intermediate goods (inputs of final goods) are excluded to prevent double counting

Question 4

What is disposable income?

Answer 4

The amount of wages or salaries, profit, rent, interest and transfer payments from the government (benefits) or from others (like gifts) received over a given period such as a year, minus taxes

Question 5

Why is disposable income a good measure of living standards?

Answer 5

because is the maximum amount of food, housing, clothing and other goods and services that the person can buy without having to borrow

Question 6

What does disposable income not account for that makes it not comprehensive enough to measure wellbeing?

Answer 6

It does not account for the quality of our social and physical environment like friendships and clean air. It also doesn’t consider work-life balance or happiness. So disposable income doesn’t fully measure wellbeing

Question 7

Is average income representative of a population?

Answer 7

No, as it is just an average. Extreme values can distort the average

Question 8

What is Purchasing Power Parity?

Answer 8

An economic theory that compares the relative value of currencies by examining the cost of a standard basket of goods and services across different countries using a common currency ($). It measures the living standards in countries.

Question 9

Growth Rate formula

Answer 9

Growth rate = change in income/original level of income

Question 10

What is a Ratio Scale (Log scale)?

Answer 10

skewed data/log, meaning the distance between the gaps is timed by a scale factor, like x2. This makes it possible to compare growth rates across countries

Question 11

Ratio Scale chart line meanings:

Answer 11

A steeper line in a ratio scale chart means a faster growth rate.
A series that grows at a constant rate will look like a straight line as the percentage is constant

Question 12

What is technology?

Answer 12

a process that takes inputs and materials (labour + capital) and creates an output

Question 13

Definition of Industrial revolution

Answer 13

The rapid development of industrial growth that occurred in Britain in the late 18th and 19th centuries. This was due to scientific advancements, which led to new technologies being introduced in textiles, energy and transportation

Question 14

Impact of technological advancements

Answer 14

Increased efficiency of production (reduced time to produce + lower costs), so higher productivity and living standards

Question 15

What is Capitalism?

Answer 15

An economic system in which private individuals or businesses own capital goods. An economic system is a way of organizing the production and distribution of goods and services in an entire economy.

Question 16

What is a centrally planned economic system?

Answer 16

The government is in charge of production and distribution of goods in an economy. An example is the Soviet Union

Question 17

Definition of Market

Answer 17

A means of exchange of goods and services from one person to another. It is where buyers and sellers interact

Question 18

Characteristics of Markets:

Answer 18

They are reciprocated: it is an exchange. They are voluntary, so its beneficial for both. In a market, there is also competition, as there are many buyers and sellers.

Question 19

In a capitalist system, where does production take place?

Answer 19

Production takes place in firms. Inputs and outputs are private property (belong to the firm), and firms then use markets to sell output.

Question 20

What is an essential condition for market operation?

Answer 20

Private property, as buyers will not want to pay for goods unless they have the right to own them.

Question 21

How does capitalism lead to increased living standards?

Answer 21

Through Technology (competition incentivised firms to develop and adopt new productive technology and invest in capital goods), and through Specialisation (employing more workers can leads to the division of labour), which in turn increases productivity + living standards

Question 22

What is Specialisation?

Answer 22

When an individual, company or nation focuses on producing one good

Question 23

How does Specialisation increases productivity

Answer 23

1) Learning by doing (we acquire skills by practising)
2) Difference in ability (people are better at doing different things)
3) Economies of scale (producing a large number of goods is more cost effective)

Question 24

What is the division of labour?

Answer 24

Refers to the specialisation of tasks, where each worker is allocated an individual task during production

Question 25

Definition of Comparative Advantage

Answer 25

When one country can produce a good at a lower opportunity cost then another country (give up producing less of another good)

Question 26

Definition of Absolute Advantage

Answer 26

A country's ability to produce a good more efficiently than another country using the same amount of resources (can make more of a good with the same FOP resources). Means they are more productive.

Question 27

What does Specialisation require?

Answer 27

It requires trade between countries, as if countries are specialising, it means they lack the other essential goods, meaning countries will have to trade to have a greater variety of goods

Question 28

Link between Capitalism and higher living standards

Answer 28

Capitalism (people having private property), has led to specialisation and technological advancement, which has increased productivity and thus living standards

Question 29

How can the government encourage development?

Answer 29

1) explicitly promote certain industries 2) make firms compete in foreign markets 3) provide high quality education for its workforce An example is the South Korean Government

Question 30

What is a dynamic economy?

Answer 30

An economy bringing sustained growth in living standards.

Question 31

Reasons why Capitalism may be less dynamic:

Answer 31

1) Private Property is less secure (weak enforcement of rules or expropriation) 2) Markets are not competitive (no rewards or consequences) 3) Firms are owned by people who survive because of their connections (Nepotism)

Question 32

Capitalism can be a dynamic economic system when it combines:

Answer 32

1) Private incentives for cost-reducing innovation: These are derived from market competition and secure private property. 2) Firms led by those with proven ability to produce goods at low cost. 3) Public policy supporting these conditions: Public policy also supplies essential goods and services that would not be provided by private firms. 4) A stable society, biophysical environment and resource base

Question 33

What is a Political System (democracy)?

Answer 33

A system that determines how governments will be selected, and how those governments will make and implement decisions that affect the population.

Question 34

What is Economics?

Answer 34

The study of how people interact with each other and with their natural surroundings in producing their livelihoods, and how this changes over time.

Question 35

Why did the Industrial Revolution occur in the UK?

Answer 35

1) Migration from agriculture to manufacturing (industrial growth). 2) Abundance of cheap coal + cheap transportation of coal in the UK. 3) British work ethic, they were hard working. 4) Growth of Scientific Knowledge + innovation, like technological advancement.