1.1 Nature of Economics

Question 1

What is the meaning of ‘ceteris paribus’?

Answer 1

All other things equal

Question 2

What are positive statements?

Answer 2

An objective statement based on empirical evidence that can be scientifically tested

Question 3

What are normative statements?

Answer 3

Matters of opinion that are subjective and cannot be scientifically tested as right or wrong

Question 4

What is the basic economic problem?

Answer 4

How to satisfy the unlimited wants and needs of the population with limited resources

Question 5

What is scarcity?

Answer 5

When there is a mismatch between the resources required and the resources available

Question 6

What is the difference between renewable and non-renewable resources?

Answer 6

Renewable resources can be replenished/replaced on a level equal to consumption

Non-renewable resources cannot be readily replaced by natural means on a level equal to consumption

Question 7

What is opportunity cost?

Answer 7

The value of the next best alternative forgone

Question 8

What does the PPF show?

Answer 8

The maximum output combination of two goods that an economy can produce when all resources are being fully employed

Question 9

What is a trade-off?

Answer 9

When you opt for an objective at the cost of another conflicting benefit

Question 10

What are 2 problems with opportunity cost?

Answer 10

• Some factors e.g land can be hard to switch to alternative uses
• There may be lack of information of alternatives and their costs

Question 11

Name 3 factors that lead to an outward shift in PPF

Answer 11

• Improved technology
• Improvements of labour e.g training
• Economic growth

Question 12

Name 3 factors that lead to an inward shift in PPF

Answer 12

• Recession
• Natural disasters
• International lockdown/pandemic

Question 13

What are consumer goods?

Answer 13

Goods that are purchased for consumption to satisfy needs and wants

Question 14

What are capital goods?

Answer 14

Physical assets or resources used in the production of goods and services

Question 15

What does the slope of PPF represent?

Answer 15

Represents the opportunity cost of producing one good in terms of another good

Question 16

What is specialisation in terms of firms and workers?

Answer 16

• Producing a limited number of goods instead of a wide variety to more efficiently produce those goods
• A worker only performing one task or a narrow range of tasks

Question 17

What is the division of labour?

Answer 17

The breakdown of a larger task into smaller, specialised tasks that can be performed by different workers

Question 18

Name 3 benefits to the business of specialisation

Answer 18

• Increased quality of goods mean firms can increase prices
• Decreased production time means production costs fall
• Workers only need to be trained for one specific task, lowering costs

Question 19

Name 2 benefits to the worker of specialisation

Answer 19

• Higher pay for specialised work
• Increased job choices - can specialise in jobs they find appealing

Question 20

Name 2 drawbacks to the business of specialisation

Answer 20

• Repetition leads to boredom in workers, decreasing quality of production
• High staff turnover costs, workers quit due to low morale

Question 21

Name 2 drawbacks to the worker of specialisation

Answer 21

• Reduces the range of workers skills
• Easier to replace skilled workers with machines as production has been broken down

Question 22

What are the 4 functions of money?

Answer 22

1. A medium of exchange: used to buy and sell goods and services, is acceptable everywhere
2. A measure of value: it can compare the value of two goods
3. A store of value: it is able to keep its value and can be kept for a long time
4. A method for deferred payment: people can pay for things without having money in the present, can lead to debt

Question 23

What is an economic system?

Answer 23

A way of making decisions about how to allocate resources

Question 24

What is a market economy?

Answer 24

Where decisions about resource allocation is made between households and firms through supply and demand without the intervention of government

Question 25

What is a planned economy?

Answer 25

Where all decisions about resource allocation is made by government

Question 26

What is a mixed economy?

Answer 26

Where decisions about resource allocation are made by government, firms and households (mixture of planned and market economy)

Question 27

What is 1 advantage and 1 disadvantage of a market economy?

Answer 27

• Firms are competitive so will produce goods at the lowest cost, ensuring productive efficiency
• May be a lack of merit goods and little control of demerit goods

Question 28

What is 1 advantage and 1 disadvantage of a planned economy?

Answer 28

• The state provides a minimum standard of living, ensuring less inequality
• As everyone receives the same wage and standard of living, motivation and efficiency decreases

Question 29

What is the governments role in a mixed economy?

Answer 29

• Creating a framework of rules
• Supplements and modifies the price system: produces public and merit goods
• Redistributes income e.g income tax, benefits
• Stabilises the economy: attempt to manage level of demand