1.1

Question 1

what is meant by a model

Answer 1

a simplified version of reality used to provide insight into economic decisions and events

Question 2

what are models used for

Answer 2

to predict what will happen in a market, or economy when a variable is changed

Question 3

what does ceteris paribus mean

Answer 3

all other things being equal

Question 4

what is a positive statement

Answer 4

a testable and refutable statement, a statement about what is, eg ‘10% of the population are diabetic’

Question 5

what is a normative statement

Answer 5

a statement that involves a value judgment about what ought to be done, eg ‘people should stop smoking’

Question 6

what is the economic problem

Answer 6

the problem of scarcity

Question 7

what is meant by scarcity

Answer 7

a situation that arises when people have unlimited wants in the face of limited resources

Question 8

what are economic goods

Answer 8

goods that are scarce

Question 9

what are free goods

Answer 9

goods that are not scarce

Question 10

what are renewable resources

Answer 10

resources that have the ability to replenish themselves if they are not depleted at the current rate of use

Question 11

what are non renewable resources

Answer 11

finite resources that cannot be replenished in a reasonable time period

Question 12

what is meant by opportunity cost

Answer 12

the next best alternative foregone when an economic decision is made

Question 13

what is the central purpose of economic activity

Answer 13

the production of goods and services to satisfy needs and wants

Question 14

what are four categories of economic resources

Answer 14

land
labour
capital
entrepreneurship

Question 15

what is involved in land

Answer 15

goods like minerals
raw materials
land itself

Question 16

what is involved in labour

Answer 16

workforce
skills
ability/intelligence

Question 17

what is involved in capital

Answer 17

machines
stock of goods
services

Question 18

what is meant by enterprise

Answer 18

the risk takers who are prepared to work to bring the other factors of production together to make goods and services

Question 19

why is choice a necessary element in the economic problem

Answer 19

each individual must choose which goods and services to consume, they must prioritise consumption of the commodities they need

Question 20

what is a PPF

Answer 20

a PPF shows all the different combinations that can be produced from two goods when all other factors of production are fully and efficiently employed

Question 21

what is meant by capital goods

Answer 21

goods used to make other goods or provide a service

Question 22

what is meant by consumer goods

Answer 22

goods which are consumed by the end user

Question 23

why is the PPF curved

Answer 23

because of the law of diminishing marginal returns - as you increase the units of one resource and keep other factors constant, the marginal benefit from the extra units will eventually start to decline

Question 24

why does the PPF shift outwards/inwards

Answer 24

it shifts outwards because of economic growth which is because the productivity capacity of the economy has increased
shifts inwards because of negative growth, output decreases

Question 25

what do points under the PPF mean

Answer 25

there are factors of production being underemployed

Question 26

what do points outside the PPF mean

Answer 26

they are unattainable factors of production

Question 27

what is meant by allocative efficiency

Answer 27

this occurs when a specific combination of goods is efficient for society. As this refers to a specific combination of goods, it refers to a point on the PPF, not the entire curve, so not all points on the PPF are allocatively efficient

Question 28

what is marginal analysis

Answer 28

a way of making economic decisions based on considering the marginal benefits and costs of a change in behaviour

Question 29

draw a PPF

Answer 29

``` consumer goods - y axis capital goods - x axis curved line two points on the PPF dotted lines to each point arrow on PPF to show opportunity cost numbers to represent goods ```

Question 30

what may cause an inward shift in the PPF

Answer 30

damaging effects of natural disasters destruction/loss of factor inputs caused by civil war/conflict large scale net outward labour migration

Question 31

what is meant by Specialisation

Answer 31

when a household or economy concentrates on producing the goods that they are most efficient at, then trade the surplus

Question 32

name three benefits of specialisation

Answer 32

greater economic efficiency consumer benefits opportunity for growth for competitive sectors

Question 33

what does productivity mean

Answer 33

the efficiency at which a good is produced in a time period. measured by rate of output per unit of input

Question 34

what is meant by division of labour

Answer 34

where the production procedure is broken down into a sequence of stages and workers are assigned to a particular stage

Question 35

what are three disadvantages of specialisation

Answer 35

risk of worker alienation risk of disruptions to production process risk of structural unemployment due to occupational immobility

Question 36

what are the functions of money

Answer 36

medium of exhange store of value measure of value method of deferred payment

Question 37

what is meant by production

Answer 37

output in a time period

Question 38

what is meant by labour productivity

Answer 38

output per unit of labour in a time period

Question 39

what is a free market

Answer 39

this type of market allocates scarce resources becased on the price mechanism

Question 40

what are the benefits of a free market

Answer 40

efficient - highest value products are in demand | it rewards entrepreneurship

Question 41

what are the negatives of the free market

Answer 41

- inequitable - what is fair in the free market may not be fair in reality - missing markets - goods we need in society may not be produced if they cannot generate a profit - monopolies may arise

Question 42

what is a command economy

Answer 42

where the government is in charge of resource allocation (eg N.Korea)

Question 43

what are the benefits of a command economy

Answer 43

- can correct inequalities that exist in a free market - possible reduction in unemployment - they can break up monopolies

Question 44

what are the negatives of a command economy

Answer 44

- less efficient - the government is not a profit maximisng entity, so the incentive for entrepreneurship and efficiency pushing activities is reduced - asymmetric information - the government may not actually know what is best - choice restriction

Question 45

what is the mixed economy

Answer 45

the government forms the public sector firms form the private sector together, they are responsible for the allocation of scarce resources