1.1 nature of economics key words

Question 1

meaning of ceteris paribus & what it allows for

Answer 1

all other things equal. helps to define what is causation by isolating independent variables

Question 2

three main economic agents

Answer 2

households/indidivuals
firms
governments

Question 3

what are social sciences

Answer 3

the study of human behaviour within human society

Question 4

what is opportunity cost

Answer 4

measures the cost of any choice in terms of the next best alternative forgone

Question 5

positive statements

Answer 5

a statement that is verifiable by data

Question 6

normative statements

Answer 6

a statement that involves a value judgement

Question 7

Subsidies

Answer 7

a sum of money granted by the state to a certain industry to keep prices steady

Question 8

tax

Answer 8

govt takes money from workers to fund public endeavors

Question 9

goods

Answer 9

tangible products

Question 10

labour

Answer 10

jobs and the people that do them

Question 11

the economic problem

Answer 11

resources are scarce & our wants often exceed them

Question 12

what are renewable resources

Answer 12

commodities that are inexhaustible or replaceable over time providing that the rate of extraction of the resource is less than the natural resource renews itself

Question 13

finite / non renewable resources

Answer 13

cant be renewed

Question 14

sustainable development

Answer 14

refers to how each generation should pass on at least as much ‘capital’ as it inherits

eg. environmental capital or machinery

Question 15

production possibility frontier

Answer 15

is used to show different combinations of outputs for two products given available resources. it illustrates the issue of choosing how to use scarce resources when producing goods and services

Question 16

the PPF diagram captures these concepts

Answer 16

trade offs & conflicting objectives

Question 17

Shift in the PPF diagram OUTWARDS & TO THE RIGHT shows

Answer 17

an increase in the productive capacity of the economy where a greater output can be produced

Question 18

What might result in a shift inwards of the PPF diagram?

Answer 18

Natural disasters, civil unrest, emigration, ageing population, obselete equipment

Question 19

Shift in the PPF diagram INWARDS & TO THE LEFT shows

Answer 19

a decrease in the productive capacity of the economy ie. Less ouptut can be produced

Question 20

the 4 functions of money

Answer 20

medium of exchange
measure of value
deferred payment
store of value

Question 21

potential benefits from specialisation

Answer 21

higher output
greater variety for consumers
a bigger market
competition thus lower prices

Question 22

what is the division of labour

Answer 22

a type of specialisation wherein the production of a good is broken down into separate tasks each performed by one person or a small group

Question 23

limitations of division of labour

Answer 23

may eventually reduce efficiency & increase unit costs as the work becomes unrewarding & repetitive for workers & they lack motivation & productivity

also if one machine breaks down ur done for

Question 24

what is a free market economy & example

Answer 24

limited role of govt & resources are privately owned. prices are set freely between seller & consumer

eg. hong kong

Question 25

what is a mixed market economy & example

Answer 25

decisions on what and for who to produce are partly made by the private sector and partly by the public sector. The public sector supplies public, quasi-public and merti goods and intervenes in markets to correct percieve market failure eg. UK

Question 26

what is a command market economy & example

Answer 26

wherein the govt makes all decision eg. north korea

Question 27

what is the index of economic freedom

Answer 27

an annual index and ranking to measure the degree of the economic freedom in the worlds nations

eg. singapore being the highest

Question 28

explain the invisible hand

Answer 28

idea propped up by adam smith in the 18th century.
refers to the self regulating behaviour of the market place. individuals seeking to maximise personal gains will lead to an efficient allocation of resources

Question 29

explain the invisible hand

Answer 29

idea propped up by adam smith in the 18th century.
refers to the self regulating behaviour of the market place. individuals seeking to maximise personal gains will lead to an efficient allocation of resources

Question 30

advantages of free market economy

Answer 30

increased efficiency & innovation
competitive market
consumer choice
rewards entrepreneurship

Question 31

disadvantages of free market economy

Answer 31

poor quality
inequalities in wealth
market monopolies

Question 32

advantages of command economy

Answer 32

low levels of inequality & unemployment
the common good replaces profit as the primary incentive for production
prevents monopolies

Question 33

disadvantages of command economy

Answer 33

less incentives to work hard
businesses struggle to maintain high production levels
lack of competition & innovation

Question 34

what did fredreich hayek believe about free market economies

Answer 34

the state should not interfere in the free market and that its role should be to maintain the rule of law

Question 35

what belief did fredreich hayek subscribe to

Answer 35

mixed market economy, where decisions are left in the hands of individuals & firms but the state acts as a safety net

Question 36

quote from marx

Answer 36

workers of the world unite. you have nothing to lose but your chains