Exam (elaborations)
Nature and Purpose of Economic Activity
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_______________________Name:
_
1.1.2 Nature and purpose
of eco activity _______________________
Class:
_
_______________________
Date:
_
Time: 81 min.
Marks: 64 marks
Comments:
Page 1 of 11
, Q1.
The central purpose of the production of goods and services is to
A achieve more technological innovation.
B maximise exports.
C maximise profits.
D satisfy consumer wants.
[1 mark]
Q2.
The central purpose of economic activity is to
A use land, labour and capital to maximise profits.
B produce goods and services to satisfy needs and
wants.
C ensure that the economy operates on its
production possibility boundary.
D achieve productive efficiency.
[1 mark]
Q3.
MARKETS: DO THEY BENEFIT ALL?
Extract B: Markets at work
Adam Smith, the eighteenth century economist, wrote of the ‘invisible hand of the market’. 1
He believed that, left to its own devices, a market would ensure that resources are
allocated to their best uses for the benefit of all. Changes in prices would coordinate the
decisions between consumers and producers. Indeed, it is largely as a result of the market
mechanism that 63 million people in the UK are fed and clothed every day. How could a 5
government hope to plan for such an undertaking? For instance, consumers can buy fresh
food or processed food; they may eat in, eat out or on the go; they can dress in designer
wear, sportswear or work wear. The list is endless.
However, buying decisions can be influenced by powerful producers. Indeed, the power
of brand names such as iPad and Coca-Cola can be a significant barrier to entry. It can 10
reduce competition in markets and lead to some firms possessing monopoly power.
Consequently, consumers may face reduced choice and may have to pay higher prices to
obtain what they perceive to be the best product. Moreover, in reality, advertising
also plays a key role in the allocation of resources. Its influence, in some markets,
has been criticised, and there have been calls for greater regulation. Advertising can 15
encourage increased consumption of goods and other activities which give rise to negative
externalities, such as gambling. In some cases, this has led to financial ruin, family
breakdown and health problems; yet the total number of gambling advertisement slots on
UK television increased from 152 000 in 2006 to 1.39 million in 2012. Statistics show that
those in the lowest income group spend, on average, more per week on gambling than they 20
do on taking part in sports activities.
Source: News reports 2014
Page 2 of 11
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