1.1 The Nature Of Economics

Question 1

What is the difference between a Want and a Need?

Answer 1

A need is what someone needs for survival
A want is something that someone does not need for survival

Question 2

Define Opportunity Cost

Answer 2

The benefits foregone of the next best alternative

Question 3

List the 4 factors of production

Answer 3

Labour, Enterprise, Land, Capital

Question 4

What is the difference between renewable and non-renewable resources

Answer 4

Renewable resources will never run out eg, wood
Non-Renewable resources will run out eg, coal, oil

Question 5

Define Ceteris Paribus

Answer 5

If all factors are held constant only one can be changed. Eg, if income changes how does that affect demand

Question 6

What is a positive statement

Answer 6

An objective statement that can be tested, amended or rejected by referring to the available evidence

Question 7

What is a normative statement

Answer 7

A valued judgement that cannot be proven true or false

Question 8

Explain what a PPF shows

Answer 8

A PPF shows the different combinations of economic goods which an economy is able to produce if all resources are fully and efficiently employed

Question 9

On a PPF, Show outcomes that are Efficient, Inefficient, Unattainable

Answer 9

Efficient - On curve
Inefficient - Inside curve
Unattainable - Outside curve

Question 10

On a PPF, Show economic growth

Answer 10

Outward shift of the PPF

Question 11

Explain what factors that would cause an outward shift in the PPF

Answer 11

When there is an increase in the quantity and quality of resources available. Eg, More workers, improved skills, advances in technology

Question 12

Explain the difference between capital goods and consumer goods

Answer 12

Consumer goods are goods bought by the consumer whereas capital goods are goods bought by manufacturers to produce products

Question 13

Explain how workers, firms and regions specialise

Answer 13

Workers - Specialise in a specific skillset
Firms - Specialise in the production of a specific good
Regions - Specialise in the whole production of a good

Question 14

Give two benefits of specialisation

Answer 14

Increased productivity should keep prices low - good for business profits and consumers
Creates bigger markets to sell in - opportunity for economies of scale

Question 15

Give two disadvantages of specialisation

Answer 15

Work may become tedious and monotonous - boring for individuals resulting in poor quality labour
Areas or regions can become over-dependant on a limited number of industries which mat decline

Question 16

List and explain the 4 Functions of money

Answer 16

Means of exchange - Facilitates trade
Measure of value - Price of goods and services makes it possible to compare their value
Store of value - Can be stored and used at some point
Method of deferred payment - Allows credit and debt anda system for the repayment of debt

Question 17

Explain why a means of exchange is necessary for specialisation

Answer 17

Money allows one person to sell their production knowing that the money is valid to buy anything else in the economy

Question 18

Explain what a command economy is

Answer 18

A planning mechanism allocates resources and the state is responsible for making decisions about what is produced

Question 19

Explain what a free market economy is

Answer 19

A price mechanism allocates resources, fluctuations in prices help to allocate resources so when demand increases price rises as its more profitable

Question 20

Give two advantages of the free market

Answer 20

Competition in a free market could produce lower costs and lower prices
Firms have a profit incentive to innovate

Question 21

Give two Disadvantages of a free market

Answer 21

Goods and services that are not profitable will not be produced like necessities
Large firms can dominate markets and exploit suppliers and consumers to maximise profit

Question 22

Give two advantages of a command economy

Answer 22

It is easier to prevent the abuse of monopoly power by businesses
Government can ensure that everyone has access to basic necessities

Question 23

Give two disadvantages of command economies

Answer 23

Lack of profit motive removes the incentive for firms to make new and better goods and services
Price/exchange controls could create black markets

Question 24

Explain what a mixed economy is

Answer 24

Mixed economy combines element of both free market and command systems