1.1 Nature of economics

Question 1

All things remain equal

Answer 1

ceteris paribus

Question 2

Positive statement

Answer 2

Statement of fact that can be proven with relevant evidence

Question 3

Normative statement

Answer 3

A value judgement that cannot be proven.

Question 4

Economic problem

Answer 4

We have unlimited wants, but only finite resources, what/how to produce and who gets the good or service

Question 5

Opportunity cost

Answer 5

Cost of the next best option when making a choice

Question 6

Economic agents

Answer 6

Consumer, producer, government

Question 7

Factors of production

Answer 7

Capital, Enterprise, Land, Labour

Question 8

Production

Answer 8

Set of processes that turn inputs into outputs of goods

Question 9

Capital goods

Answer 9

Goods used in the production of other goods

Question 10

Consumer goods

Answer 10

Goods consumed by individuals or households used to satisfy wants/needs.

Question 11

PPF

Answer 11

Represents all possible combinations of goods and economy or firm can produce when all F.O.P are fully employed and used efficiently. (Production Possibility Frontier)

Question 12

Working on PPF

Answer 12

Using all resources to maximum efficiency (Productive efficiency)

Question 13

Working in PPF

Answer 13

Using resources inefficiently

Question 14

Working outside PPF

Answer 14

Unattainable as firm/ economy does not have the resources.

Question 15

Why is the PPF concave shaped

Answer 15

The law of diminishing returns, as output increases for one good, it as to decrease for the other

Question 16

Why would the PPF shift outwards

Answer 16

Increase in available resources, rise in efficiency, advancements in technology, better education & training, increased labour supply.

Question 17

Can the PPF shift inwards

Answer 17

Yes, impact of a deep economic recession, ageing population and workers entering employment at later ages, over exploitation of resources, external shocks which could destroy factor resources.

Question 18

Allocative efficiency

Answer 18

Available resources are used to produce the combination of goods and services that best match consumer’s tastes and preferences.

Question 19

Non-renewable resources

Answer 19

Resources with a finite supply

Question 20

Renewable resources

Answer 20

Resources with an infinite supply

Question 21

Free market

Answer 21

Operates without government intervention. Markets allocate resources, driven by profit motive, limited role for state, private sector dominates.

Question 22

Command economy

Answer 22

Complete government control. Planning allocates resources, little role for market prices.

Question 23

Mixed economy

Answer 23

Mix of state and private ownership.

Question 24

Specialisation

Answer 24

Firm/ economy focuses production on a particular good or service.

Question 25

Benefits of specialisation

Answer 25

Higher output, consumers have a greater variety of products to choose from, increases the size of the market, increases competition and therefore minimises price rises

Question 26

Division of labour

Answer 26

Production process is split up into smaller, separated tasks

Question 27

Benefits of division of labour

Answer 27

Increases output per worker, lowers the supply cost per unit, this should then lead to lower prices for consumers, higher output and productivity.

Question 28

Costs of specialisation and division of labour

Answer 28

Repetitive work and boredom can lower motivation and therefore productivity, this can also lead to a lower quality of product, high worker turnover.

Question 29

Difference between production and productivity

Answer 29

Production- measure of the value of output of goods and services.
Productivity- measure of the efficiency of the production process, measured by output per person employed.