1.1 Nature of economics

Question 1

What is a normative statement?

Answer 1

those statements that express an opinion or judgement. They cannot be proven and do not contain facts. Often the words ‘ought,’ and ‘should’ are found in these types of statements.

Question 2

What is a positive statement?

Answer 2

statements that describe the world as it is, without making any value judgments. They are based on objective facts

Question 3

What is a production possibility frontier?

Answer 3

Considers the maximum possible production that a country can generate if it uses all of its factors of production to produce 2 goods/services.

Question 3

Production inefficiency

Answer 3

(inside the curve) wasting factors of production (CELL(

Question 3

What is opportunity cost?

Answer 3

the loss of the next best alternative when making a decision.

Question 4

Production efficiency

Answer 4

Producing the largest possible output from the available sources in the economy

Question 5

unattainable

Answer 5

(outside the curve) that cant produce it yet with the resources they have

Question 5

Allocative efficiency

Answer 5

Whether what is being produced is satisfying consumer demands

Question 6

Pareto efficiency

Answer 6

When nobody can be better off without making someone worse off

Question 6

What is specialisation?

Answer 6

occurs when each worker is completes a specific task in a production process.

Question 7

Advantages of specialisation?

Answer 7

. Higher labour productivity lowers cost/unit for firms

. It creates many low skilled jobs

. There is more competition and this given them an incentive for firms to lower their costs, which helps keeps prices down

. Higher output so potentially higher quality since production focuses on what people and business are best at

Question 8

Disadvantage of specialisation

Answer 8

. Work becomes repetitive and monotonous, which could lower the motivation of workers. potentially affecting quality and productivity. Workers could become dissatisfied

. By producing a lot of one type of a G/S through specialisation, variety could in fact decrease for consumers

. If workers lose their jobs, then it may be hard for them to find work as they are only trained in one skill

Question 9

What are the functions of money?

Answer 9

Medium of exchange (buying and selling of goods and services)

A measure of value

Store of value

A method of deferred payment (Money allows debts to be created, can pay back later)

Question 10

What’s a free market economy?
Adam smith

Answer 10

based on supply and demand where prices set freely between seller and consumer, without intervention from the government.