Exam code: 0455 & 0987
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Define derived demand.
A derived demand is the demand for a factor of production that arises from the demand for the final goods and services it helps to produce.
What happens to the demand for rubber if the demand for tyres increases?
If the demand for tyres increases, the demand for rubber will also increase because rubber is needed as an input for tyre production.
Define factors of production.
The factors of production are the resources used to produce goods and services: land, labour, capital, and enterprise.
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Define derived demand.
A derived demand is the demand for a factor of production that arises from the demand for the final goods and services it helps to produce.
What happens to the demand for rubber if the demand for tyres increases?
If the demand for tyres increases, the demand for rubber will also increase because rubber is needed as an input for tyre production.
Define factors of production.
The factors of production are the resources used to produce goods and services: land, labour, capital, and enterprise.
True or False?
Firms only consider the price of labour when deciding which factors of production to use.
False.
Firms consider the prices of all available factors of production, including labour, capital, and raw materials, to maximise profits.
How does an increase in the productivity of a factor of production affect its demand?
An increase in the productivity of a factor of production usually increases its demand because firms want to employ more productive resources to increase profits.
Define capital-intensive production.
Capital-intensive production occurs when manufacturing relies more heavily on machinery, equipment and technology than human labour.
Define labour-intensive production.
Labour-intensive production occurs when manufacturing relies more heavily on human workers than machines.
What is one key reason a firm may choose labour-intensive production methods?
A firm may choose labour-intensive production if their products require personalisation or craftsmanship.
Which form of production is usually preferred for mass-produced, standardised goods?
Capital-intensive production is usually preferred for mass-produced, standardised goods.
Firms with financial resources are more likely to afford expensive equipment, making capital-intensive production more viable.
Firms with greater financial resources are more likely to afford expensive equipment, making capital-intensive production more viable.
In countries with labour costs, firms may choose labour-intensive production to save money.
In countries with low labour costs, firms may choose labour-intensive production to save money.
True or False?
A disadvantage of labour-intensive production is the risk of low worker productivity.
True.
Labour-intensive production can suffer from low worker productivity, which may harm output and efficiency.
List one advantage of capital-intensive production.
One advantage of capital-intensive production is that production can continue 24/7 with only short breaks for maintenance.
A key disadvantage of capital-intensive production is the high of purchasing and installing machinery.
A key disadvantage of capital-intensive production is the high cost of purchasing and installing machinery.
Why did Toyota increase capital-intensive production in 2025?
Toyota increased capital-intensive production in 2025 due to rising labour costs, a tight labour market, advances in robotics and AI, and the need to maintain competitiveness.
Switching from to capital can negatively impact workers who lose their jobs and the morale of those who remain.
Switching from labour to capital can negatively impact workers who lose their jobs and the morale of those who remain.
How does flexibility differ between labour-intensive and capital-intensive production methods?
Labour-intensive production is usually more flexible and responsive to customisation or changes, while capital-intensive production is efficient but less adaptable.
True or False?
The proportion of machinery costs is higher than labour costs in capital-intensive production.
True.
In capital-intensive production, machinery costs make up a higher proportion of total costs than labour costs.
Define production.
Production is the act of adding value to the factors of production to create goods and services; it is a measure of output.
Define productivity.
Productivity is a measure of efficiency that calculates the amount of outputs produced per unit of input.
What is the key difference between production and productivity?
Production measures total output of goods and services, while productivity measures how efficiently resources are used to produce output (output per unit of input).
How does a recession affect production?
During a recession, production falls because there is lower demand for goods and services.
True or False?
Competition tends to reduce productivity.
False.
Competition usually increases productivity by forcing firms to innovate and improve efficiency to stay ahead.
List two ways training can improve productivity.
Training makes workers faster and better at their jobs and reduces the number of mistakes.
How does increased investment affect productivity?
Increased investment in capital goods, technology, or training raises productivity by enabling more output with the same input.
True or False?
The UK's productivity has grown strongly over the last 15 years due to high investment.
False.
The UK's productivity growth has stagnated due to weak investment in machinery, technology, and skills.
What are two negative effects of falling investment on productivity?
Falling investment leads to aging capital stock (outdated machinery) and a skills gap (workers lacking up-to-date skills), both of which reduce productivity.
Why is higher productivity important for an economy?
Higher productivity lowers costs, improves international competitiveness, increases profits, allows higher wages, and boosts government revenue through taxes.