1.1 Nature of Economics

Question 1

Positive statement

Answer 1

One that can be proven or disproven and made WITHOUT any judgment or emotions

Question 2

Ceteris Paribus meaning

Answer 2

All other things remaining equal

Question 3

Normative statement

Answer 3

One that is subjective and based upon opinion so cannot be proven or disproven

Question 4

What is the basic economic problem?

Answer 4

Scarcity - people have finite needs but infinite wants

Question 5

Opportunity cost

Answer 5

Cost of one thing in terms of the next best option which has to be given up

Question 6

4 factors of productions

Answer 6

Land
Labour
Capital
Enterprise

Question 7

Production possibility frontiers - PPF - What does it show?

Answer 7

Shows the maximum productive potential of an economy

Question 8

What does a movement along the PPF show?

Answer 8

A change in the combination of goods produced

Question 9

What does a shift in the PPF indicate

Answer 9

A change in the productive potential of the economy

Question 10

What are the axis of a PPF?

Answer 10

Consumer goods and Capital goods

Question 11

What is specialisation?

Answer 11

When a company becomes specialised in producing a certain product

Question 12

What is division of labour?

Answer 12

How a task is divided up throughout the process of it being complete

Question 13

Advantages of division of labour and specialisation

Answer 13

Labour productivity is increased
Time is not wasted
Higher quality of goods and services

Question 14

Disadvantages of specialisation and division of labour

Answer 14

Structural unemployment because they aren’t skilled for other jobs
Boredom = reduction in quality

Question 15

3 types of economy

Answer 15

Free market
Mixed economy
Command economy

Question 16

Free market economy characteristics

Answer 16

Free to make their own choice and own the factors of production
Resources are allocated through the price mechanism

Question 17

Advantages of free market:

Answer 17

System is automatic due to the invisible hand
Political freedom

Question 18

What is it called when consumer have freedom of choice?

Answer 18

Consumer sovereignty

Question 19

Disadvantages of free market

Answer 19

Higher levels of inequality
Externalities and monopolies

Question 20

Command economy characteristics

Answer 20

All factors of productions except labour is owned by the state
No private property

Question 21

Advantages of command economy

Answer 21

Minimum standard of living
Less wastage of resources

Question 22

Disadvantages of command economy

Answer 22

Consumers loose freedom
Less efficiency