1.1 NATURE OF ECONOMICS

Question 1

The Scientific Method?

Answer 1

1. Hypothesis
2. Gather Data
3. Accept Modify Or Refute

Question 2

What Is A Positive Statement?

Answer 2

Objective statements that can be tested, amended or rejected by referring to the available evidence.

Question 3

What Is A Normative Statement?

Answer 3

Subjective statements of opinion or value judgement rather than facts that can be tested by looking at available evidence.

Question 4

The Basic Economic Problem?

Answer 4

Resources are FINITE and the humans wants are INFINITE.

Question 5

4 Factors Of Production?

Answer 5

1. LAND
2. LABOUR
3. CAPITAL
4. ENTERPRISE

Question 6

Opportunity Cost?

Answer 6

The benefit forgone of the next best alternative.

Question 7

What is barter?

Answer 7

Exchange of other goods and services without use of money.

Question 8

4 Key Functions Of Money

Answer 8

1. MEDIUM OF EXCHANGE - It can be used to buy and sell goods and services and is acceptable everywhere. The problem with barter was that people could only trade if there was a double coincidence of wants: where both parties want the good the other party offers. Since money can be used to buy all goods and services, everyone will accept money as they know they can use it to buy what they want.
2. MEASURE OF VALUE - It can compare the value of two goods, such as a table and a skirt. It is also able to put a value on labour.
3. A STORE OF VALUE - It is able to keep its value and can be kept for a long time. With barter, goods such as fruits often went out of date and so could not keep their value.
   4.METHOD OF DEFERRED PAY - Money can allow for debts to be created. People can therefore pay for things without having money in the present, and can pay for it later. This relies on money storing its value.

Question 9

What is a PPF?

Answer 9

Production Possibility Frontier

Question 10

Reason for a PPF?

Answer 10

The PPF shows the different combinations of economic goods which are able to be produced if all resources in the economy are fully and efficiently employed.

Question 11

Law Of Diminishing Returns

Answer 11

As we moved down the PPF, as more resources are allocated towards the other good, the extra output gets smaller. This occurs because not all factor inputs are equally suited to the other side of production.

Question 12

Straight Lined PPF

Answer 12

Is an indication of perfect factor suitability.

Question 13

Causes Of Outward Shifts PPFs

Answer 13

-Higher Productivity
-Better Management
-Increase in stock of capital and labour supply
-Innovation/Invention of new resources + products
-Discovery of natural resources

Question 14

Causes Of Inward Shifts and PPF Contraction

Answer 14

-Damaging effects of natural disasters
-Destruction from warfare
-Large scale net outward labour migration
-A trend in efficient productivity declines

Question 15

Specialisation

Answer 15

Is the concept of focusing time, effort and resources into doing or making a limited range of goods as well as an economy or a company can.

Question 16

Benefits Of Specialisation

Answer 16

-HIGHER OUTPUT: Total amount of production of goods and services is raised, and quality can be improved.
-VARIETY: Consumers have access to a greater variety of higher quality products.
-A BIGGER MARKET: Specialisation and global trade increase the size of the market offering opportunities for economies of scale.
-COMPETITION AND LOWER PRICES: Increased competition acts as an incentive to minimise costs, keep prices down and therefore maintain low inflation.

Question 17

Problems Of Specialisation

Answer 17

-THE RESOURCE CURSE: In terms of trade poor countries may be encouraged to use up their nonrenewable resources to sell to developed countries. This may prevent them from investing in more valuable industries and therefore limit economic growth.
-ECONOMIC SHOCKS/OVER SPECIALISATION (COVID+UKRAINE): If this happens in one country can lead to countries becoming over independent of one particular commodity, e.g. if a developing country specialises in the production of a primary product their income may be adversely affected by bad weather conditions.

Question 18

Division Of Labour

Answer 18

Specialisation by individuals is called the Division Of Labour.

Question 19

Adam Smith’s Description Of Division Of Labour

Answer 19

Adam Smith described the Division Of Labour in the “Wealth Of Nations”
and identified how it increased productivity.

Question 20

Advantages Of Specialisation Of Labour

Answer 20

-Become far more skilled and productive in a narrow range of tasks.
-Time is saved as workers don’t have to switch tasks.
-It is cost effective to provide workers with specialist tools.
-Workers can specialise in tasks in which they are best suited.

Question 21

Disadvantages Of Specialisation Of Labour

Answer 21

-Can become monotonous and boring resulting in poorer quality and lower output.
-The size of the market may not support specialisation.
-Overspecialisation can lead to pockets of high unemployment if the industry collapses.

Question 22

Sectors Of The Economy

Answer 22

PRIMARY SECTOR - the part of the economy generated by extracting raw materials directly from the Earth for consumption or sale.

SECONDARY/MANUFACTURING SECTOR - the part of the economy that transforms the raw materials into goods for sale or consumption.

TERTIARY/SERVICE SECTOR - the part of the economy that involves the sale or trade of services.

Question 23

Alternative Split Of The Economy

Answer 23

PUBLIC SECTOR - production of goods and services is by Government business or departments e.g. NHS, BBC, Roads, Defense, Police
PRIVATE SECTOR - production of goods and srvices by private individuals, companies and charities. e.g. Apple and FirstBus.

Question 24

Ceteris Paribus

Answer 24

All other factors remain the same.