1.1 nature of economics

Question 1

Ceteris Paribus

Answer 1

• Isolate the relationship between 2 variables by assuming ceteris paribus

Question 2

Positive + Normative statements

Answer 2

Pos-statement that can be tested (fact)
Normative - valued judgement

Question 3

Pareto efficiency

Answer 3

Not possible to increase output of one thing with out reducing output of another thing

Question 4

Factors of production

Answer 4

Land, labour, capital, enterprise

Question 5

What is consumer and capital good
+ example

Answer 5

Consumer goods - are not used to produce other goods. Consumer goods are used or consumed by the consumer or and they do not aid in further production
e.g. Clothes shirt
Capital goods - are the goods which are used to produce consumers goods (goods which make other goods) eg. Factories

Question 6

Productivity is

Answer 6

A way of measuring how a efficiently a company or economy is producing its output

Question 7

Why labour production matters

Answer 7

• Economic growth
• inflation
• rising real wages
• International competitiveness
-The firm itself

Question 8

Types of the economy (4)

Answer 8

• Traditional economy- each new generation retains the economic positi its prevents and grandparents
• command economy - state/gov controls all resources
• free market economy-based on consumers buying decisions
• mixed economy combines the command and free market models

Question 9

Command economy +/-

Answer 9

Ad:
- welfare maximised-gow has control minimise inequality
-Low unemployment-provide everyone with jobs
- prevent monopolies - when single firms dominate the market
Dis:
- pour decision making-lack of info means you makes slow poor decisions
- restricted choice-consumers has limited choice as businesses are told what to make
-Lack of risk taking + efficiency - firms have no incentive

Question 10

Free market economy +/-

Answer 10

Ad:
- Efficiency-any product can be bought and sold. Firms have to have best value so we pick them
- entrepreneurship-encourage risk taking and innovation
-Choice
Dis:
- inequalities if not able to work you receive no income
-Non profitable goods would not be made e-g. Street lights
- monopolies - successful businesses can grow + dominate the market
- even illegal drugs or guns could be sold

Question 11

Adam smith

Answer 11

• Adam smith (1723-1790)
  -Free market economy
• invisible hand-self interest balances out competition

Question 12

Karl Marx

Answer 12

• Karl Marx (1818 -1883 )
• command economy
  -He argued 3 points
  1-most important aspect is labour(owners want to produce none at lower costs - workers pay decreases)
  2-increase specialisation -same person doing the same job. No satisfaction. Workers exploited until they protest.
  3-production/under consumption – produce loads as producers. Assume they will sell – but to little people can’t afford them.

Question 13

Friedrich Hayek

Answer 13

– (18 99–19,92)
– Supporters of free market
– Individual consumers plus producers, have the best knowledge

Question 14

What is the invisible hand?

Answer 14

Self interest balances out competition

Question 15

Specialisation is
+ at what levels

Answer 15

When we concentrate on a product or task
1. Within a business
2. In a region of a country
3. In a country

Question 16

Division of labour
+ when it occurs
+what does it do

Answer 16

Specialisation by individuals

– Occurs when production is broke down into separate tasks
– Raises output per person

Question 17

Advantages to businesses/country of division of labour

Answer 17

-employees become very productive
-better quality of product
-efficiency
-time saving
-global trade increase
-training cheaper

Question 18

Disadvantages to business/country of division of labour

Answer 18

-May have to pay workers more if they are specialised
– If everyone is specialised less people to do lower paid jobs
– Specialised people can’t do other things
– Quality may suffer due to boredom

Question 19

Advantage to employee of division of labour

Answer 19

– Employees will have a greater knowledge of the job
– Pay could be higher specialised
– Sense of achievement, as they have their very own specialisation

Question 20

Disadvantage to employees of division of labour

Answer 20

– Employees may become bored of doing the same job, so quality may suffer
– Maker replaced by machines
– May leave if bored
– Over specialised

Question 21

What are the four functions of money?

Answer 21

-Function one – a medium of exchange
Function two – a measure of value
Function three – a store of value
Function full – standard of deferred payment

Question 22

Function, one – a medium of exchange

Answer 22

Money is used as a medium of exchange to obtain things you can’t make yourself

Question 23

Function two – a measure of value

Answer 23

Money is a common measure of the value of goods and services being exchanged

Question 24

Function three – a store of value

Answer 24

Overtime, money loses value, however it stores as the same amount for some time

Question 25

Function for – standard of deferred payment

Answer 25

Hard-working money can be paid at a later date

Question 26

Opportunity cost

Answer 26

The benefit loss from the next best alternative forgone

Question 27

What is the basic economic problem?

Answer 27

Resources are scarce, but wants are infinitive

Question 28

Why does productivity matter?

Answer 28

– To keep ahead of your competition
– to be as efficient as possible?
– To produce a max output

Question 29

How to improve productivity

Answer 29

– Labour to capital
– Specialisation
– Motivation
– infrastructure
– Technology