1.1 Nature of Economics Flashcards

Question

What is specialisation?

Answer 1

The production of a limited range of goods by a company/individual/country, making trade essential for accessing all needed goods. ## Footnote Specialisation allows entities to focus on specific products or services, enhancing efficiency and productivity.

Answer 2

When labour becomes specialised in a particular part of the production process. ## Footnote Division of labour can lead to increased productivity and efficiency in production.

Answer 3

Adam Smith

Answer 4

Labour productivity (output per worker)

Answer 5

Increases efficiency and lowers costs of production

Answer 6

● The pin making process had been split into 18 different operations ● As a result, the company were able to produce 5,000 pins per person employed ● If the work had been carried out by workers making the whole pin from start to finish, it would have been less a few dozen.

Answer 7

● **Labour productivity is increased**, Workers will be quicker, better and more efficient as they are concentrating on one thing and so can quickly develop their skills. ● Can lead to a **higher quality of goods and services**, since workers are more skilled at their jobs. ● **More cost effective** to develop specialist tools, improving speed or quality. ● **Time is not wasted** moving between jobs and getting out tools etc. ●Workers only need to be **trained to do one specific task**, rather than many, saving time and money.

Answer 8

● Can make work **very boring** which will lead to **poor quality** of work and people leaving the business. Firms can take some action to reduce this, for example by playing music. ● There is a **reduction of craftsmanship** and a much more standardised product because of mechanisation. ● If production in one process is **delayed**, every other task has to stop until that problem is solved. ● The workforce do not have wide industrial training and could suffer from **structural unemployment.**

Answer 9

Countries should specialise in producing those goods where they have a **lower opportunity cost**, and so they are relatively best at producing. This will help them boost their economy. On the whole, there is **greater output globally**.

Answer 10

● May become **over-dependent** on one particular export and if this fails their economy may collapse. ● Other countries specialise in non-renewable resources and these could run out, which will result in a huge loss of income for that country. It will also mean the loss of these resources. ● There will be **high interdependence** and this will cause problems if trade is prevented, for example because of war. ## Footnote For example, many developing countries specialise in farming and if crops fail due to weather they will have no income. Areas such as Manchester suffered high unemployment as traditional areas of employment, like shipbuilding, became less important.

Answer 11

● A medium of exchange ● A unit of account (measure of value) ● A store of value ● A method of deferred payment

Answer 12

An economy where individuals can make their own choices and own the factors of production without government interference.

Answer 13

Through the price mechanism. The consumer determines what is produced by their willingness to spend their money on a good

Answer 14

Satisfaction.

Answer 15

The government has to intervene at least to an extent, for example by issuing money, protecting property rights and breaking up monopolies. Without this, the market mechanism could not work.

Answer 16

The free market economy and the laissez-faire approach by governments

Answer 17

Adam Smith.

Answer 18

Allocated resources to everyone’s advantage, allowing the greatest good for the greatest number of people

Answer 19

Goods/services which free markets wouldn’t such as the laws, property rights and goods such as bridges and roads.

Answer 20

A free market economy

Answer 21

● Argued that state control of the economy leads to the loss of freedom. ● Said that central planning by governments led to what a small minority wanted being forced on the whole of society ● Although individuals don’t make supply and demand decisions based on perfect information, they best know what they need in their own situation ## Footnote He believed that the poor in free market (or freer market) countries were better off than those in command economies because at least they had personal freedom

Answer 22

● The system is **automatic** due to the invisible hand; resources are moved out of production of a good when people stop wanting it or costs are too high. ● Consumers have freedom of choice, called **consumer sovereignty**. ● There is **high motivation** as people know working hard could lead to high potential rewards ● There is **political freedom**. ● Competition means firms will produce goods at the lowest cost they can, ensuring **productive efficiency**. ● In general, freer market economies tend to have **higher growth**.

Answer 23

● There tends to be high levels of **inequality**, since the rich own more factors of production and so can grow richer. ● There may be a **lack of merit goods** and **little control of demerit goods** ● Resources could be wasted on **unproductive expenses** such as advertising, switching the factors of production and providing competitive services. ● If competition disappears then there may be **monopolies**, who charge high prices and offer low quality of service. ● There is the problem of **externalities**.

Answer 24

In a command economy, all factors of production, except labour, is owned by the state and labour is directed by the state

Answer 25

● There is no private property and everyone is assumed to be selfless, working for a common good. Resource allocation is carried out by the government, rather than the price mechanism ● Some goods can be purchased whilst others, such as houses, are allocated ● Income distribution is determined by the government and all workers, no matter their job, tend to receive the same wage ● Products are standardised and prices are limited causing excess demand and queueing.

Answer 26

A command economy

Answer 27

Marx believed that capitalist’s profit came from **exploiting labour** as they underpaid workers for the value that they actually created. He wanted remove the difference between the incomes of owners and workers and believed that capitalism would collapse leading to communism

Answer 28

●Marx saw businesses growing and workers getting poorer, creating a two class system with a few wealthy capitalists and many underpaid workers ●His theory stated that these workers would inevitably rise against property owners and seize control of the means of production. This would lead to a democratic society where everything would be owned by everyone i.e. the fall of capitalism to begin communism.

Answer 29

● The state provides a **minimum standard of living**, ensuring no one is extremely poor as there is **less inequality**. ● There is **less wastage of resources** as there is no need for competitive services or advertising, which is very expensive. ● **Long term planning** means that the industry doesn’t have to keep changing and shifting resources. This is important as some industries may take a number of years to get established and would fail if planning was short term. ● Standardised products means that they are **produced cost effectively**. ● The government (generally motivated by the wellbeing of the country) rather than the companies (motivated by profit) decide resource allocation, **merit goods are encouraged** and increased whilst **demerit goods aren’t produced.**

Answer 30

● Impossible for the state to make so many decisions correctly, could lead to **over or under supply** and a **waste of resources**. ● Decision making will be **slow** as it has to go through various stages and there could be an increase in **bribery and corruption** (an increase in bureaucracy). ● As everyone receives the same wage, there is **less motivation and efficiency** because people know that working harder will not increase their standard of living. ● Consumers **lose their freedom** and it is often led by dictators.

Answer 31

An economy where both the free market mechanism and the government planning process allocate a significant amount of the total resources in the country ## Footnote Each country will have a different amount of control by the government, but it is usually between 40-60%.

Answer 32

Usually between 40-60%

Answer 33

● Creating a framework of rules ● Supplements and modifies the price system ● Redistributes income ● Stabilises the economy

Answer 34

●They prevent the abuse of monopolies ●They can protect customers through consumer protection laws to protect the consumers from poor quality products or services. ●They protect property rights, ensuring whatever a person owns cannot be taken away by someone else. ●They ensure safety standards, protecting employers and employees.

Answer 35

They produce public and merit goods, and limit the production of demerit goods. Government action ensures the consideration of externalities.

Answer 36

● They use **tax**, such as income tax, to take money away from one group then give the money to the poor. ● This is in the form of **benefits** for those who are out of work or on low incomes, and in the **provision of services** for all, such as **education** and the **NHS**, allowing the poor to access these services when they might not have been able to **afford** to.

Answer 37

● The government will attempt to **manage the level of demand** in the economy to **prevent extremes.** ● They do this through **fiscal and monetary policy**