1.1

Question 1

Explain the difference between a want and a need

Answer 1

A want is not necessary, however a need is to live

Question 2

Define the term “ opportunity cost”

Answer 2

The next best alternative that is forgone when a choice is made

Question 3

List 4 factors of production

Answer 3

Labour, Capital, Enterprise, Land

Question 4

Describe the difference between renewable and non-renewable resources

Answer 4

Renewable resources can be replaced
Non renewable resources cannot be replaced

Question 5

Explain the significance of the term “Ceteris Paribus”

Answer 5

Ceteris paribus in economics is a reference to how one isolated variable may change an economic environment assuming all other variables remain the same. In economics, ceteris paribus is often highly hypothetical as national economics and macroeconomic conditions are highly intricate and complex. However, ceteris paribus is the practice of seeing how a single economic concept (i.e. inflation) can impact broader concepts.

Question 6

When should an economist use Ceteris Paribus

Answer 6

In the study of cause and effect relationship between two specific variables such that other relevant factors influencing these are assumed to be constant by the assumption of Ceteris Paribus.

Question 7

Explain what a positive statement is with an example

Answer 7

A statement based on facts that can be proved or disproved.
“ A fall in the supply of petrol will lead to an increase in its price”

Question 8

Explain what a normative statement is and give an example

Answer 8

Subjective statements based on value judgements and cannot be proved or disproved.
“Women should be provided higher school loans than men “

Question 9

Explain the role of value judgements in influencing economic decisions

Answer 9

A value judgement is often prescriptive, i.e. a normative view might be expressed that reveals certain attitudes or behaviours toward the world. All government economic policies are influenced by value judgements, which vary from person to person, resulting in fierce debate between competing political parties.
Economists often develop models to help them predict what may happen in the real world as scientific, laboratory experiments are impossible in economics. Assumptions underlying these models are usually based on value judgements

Question 10

Explain what a Production Possibility frontier shows

Answer 10

The maximum potential output of an economy when all resources are fully employed

Question 11

In a PPF,
dots on the line are …..
dots outside the line are….
dots inside the line are….

Answer 11

Efficient
Unattainable
Inefficient

Question 12

Explain how a PPF illustrates the concept of opportunity cost
Explain how marginal analysis effect’s decision making

Answer 12

By increasing production on one Axis, you are able to produce fewer of the other thus the opportunity cost is those products that you’re now not able to produce due to the production of the other product.
Marginal analysis concerned with the impact of additions to or subtractions from the current situation. The rational decision maker will only decide on an option if the marginal benefit exceeds the marginal cost

Question 13

Explain factors that would cause an outward shift in a PPF

Answer 13

Economic growth:
Discovery of new natural resources
Advances in technology
Development of new methods of production increasing productivity

Question 14

Explain the difference between capital goods and consumer goods

Answer 14

Capital goods are goods that are used to make consumer goods and services. Consumer goods and services are products which satisfy our needs and wants directly.

Question 15

What will happen to a PPF if economic growth has occurred

Answer 15

The line will shift outwards

Question 16

Define Specialisation and Division of labour

Answer 16

Spec- The concentration of a worker, firm, region or country to produce a narrow range of goods and services
Dil- Occur when specialisation has already taken place where the production process is broken down into separate tasks

Question 17

Advantages and Disadvantages of specialisation and the div of labour

Answer 17

Workers good at job so improve and feel valued
Production increases thus productivity increases
But
Bored workers= decrease in productivity
lack of variety
too much reliance on other nations

Question 18

Advantages and Disadvantages of specialising in the production of goods and services to trade

Answer 18

Allows a firm/nation to trade these goods for goods and services it doesnt produce then can benefit from increased output, increased choice an decreased prices
but….

World prices for a product might fall leading to declining revenues.

Risk of over-specializing and structural unemployment (a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers.)

Might lead to over-extraction of a country’s natural resources.

Question 19

explain the 4 functions of money

Answer 19

Medium of exchange
Store of value
Measure of value
A means of deferred payments enabling ppl to buy goods and pay for them on a credit

Question 20

Explain why a means of exchange (money) is necessary for the full benefits of specialisation to be realised

Answer 20

When specialised on a certain good/service a country requires money to be able o import the products it isn’t producing due to specialisation in another area

Question 21

Explain what a command ecomomy is

Answer 21

An economy in which resources are allocated by the state

Question 22

Explain what a free market economy is

Answer 22

AN economic system in which prices are determined by supply and demand with no government intervention

Question 23

Explain advantages+ disadvantages of a free market

Answer 23

Efficiency increases due to competition and profit which motivates businesses to be more efficient
Lots of choice
Consumer spending decisions determine whats produced (customer sovereignty)

Inequality as those who own resources will be richer than those who dont
Trade cycles - Instability in the form of booms and slumps

Question 24

Explain advanatages and disadvantages of a command economy

Answer 24

Greater equality
Full employment
Macroeconomic stability (booms and slumps are smoothed out)

Inefficiency
lack of motivation
restrictions on freedom of choice

Question 25

Define a mixed economy

Answer 25

A system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.
eg in Britain state provides a variety of roles:
Defense+internal security,
Provision of public goods+services
Redistribution from rich to poor

Question 26

Which 3 factors limit the extent to which the division on labour can be applied..

Answer 26

The size of the market: If there is only a small market then it is more difficult to specialise
The type of product: for example, designer fashion products are likely to be unique and not suitable for the division of labour
Transport costs: If these are high then large-scale production and the division of labour may not be possible.

Question 27

Whats the difference between economic and free goods

Answer 27

Economic goods are created from resources that are limited in supply and so are scarce. Consequenty, they command a price.
Free goods are unlimited in supply, such as sunlight or sand on a beach. Consumption by one person doesn’t limit consumption by others. Therefore, the opportunity cost of consuming a free good is zero.

Question 28

why is the PPF curved

Answer 28

The law of diminishing marginal returns, ( the decrease in marginal output of a production process as the amount of a single factor of production is incrementally increased, holding all other factors of production equal)