1.1 The nature of economics

Question 1

What is a model?

Answer 1

A simplified representation of reality used to provide insight into economic decisions and events.

Question 2

What is ‘ceteris paribus’?

Answer 2

A latin phrase meaning ‘other things being equal’

Question 3

How is ceteris paribus linked to economics?

Answer 3

It is used in economics when we focus on changes in one variable while holding other influences constant

Question 4

What is a positive statement?

Answer 4

A statement about what is (i.e. about facts)

Question 5

What is a normative statement?

Answer 5

A statement that involves a value judgement about what ought to be

Question 6

What is scarcity?

Answer 6

A situation that arises when people have unlimited wants in the face of limited resources

Question 7

What is opportunity cost?

Answer 7

In decision making, the value of the next-best alternative forgone

Question 8

What is marginal analysis

Answer 8

An approach to economic decision making based on considering the additional (marginal) benefits and costs of a change in behaviour

Question 9

What are factors of production?

Answer 9

Resources used in the production process; inputs into production, particularly including labour, capital, land and entrepreneurship

Question 10

What are renewable resources?

Answer 10

Natural resources that can be replenished

Question 11

What are non-renewable resources?

Answer 11

Natural resources that once used cannot be replenished

Question 12

What is production possibility frontier, (PPF)?

Answer 12

A curve showing the maximum combinations of goods or services that can e produced in a giver period with available resources.

Question 13

What is potential economic growth?

Answer 13

An expansion in the productive capacity of the economy

Question 14

What is gross domestic product, (GDP)?

Answer 14

A measure of the economic activity carries out in an economy over a period

Question 15

What is division of labour?

Answer 15

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage

Question 16

What is a market?

Answer 16

A set of arrangements that allows transactions to take place

Question 17

What is market economy?

Answer 17

An economy in which market forces are allowed to guide the allocation of resources

Question 18

What is command economy?

Answer 18

An economy in which decisions on resources allocations are guided by the state

Question 19

What is microeconomics?

Answer 19

The study of economic decisions taken by individual economic agents, including households and firms

Question 20

What is macroeconomics?

Answer 20

The study of the interrelationships between economic variables at an aggregate (economy-wide) level

Question 21

AO1

Answer 21

Demonstrate knowledge of terms/concepts and theories/models to show an understanding of the behaviour of economic agents and how they are affected by and respond to economic issues

Question 22

AO2

Answer 22

Apply knowledge and understanding to various economic contexts to show how economic agents are affected by and respond to economic issues

Question 23

AO3

Answer 23

Analyse issues within economics, showing an understanding of their impact on economic agents

Question 24

AO4

Answer 24

Evaluate economic arguments and use qualitative and quantitative evidence to support informed judgements relating to economic issues

Question 25

What does the factor land consist of?

Answer 25

Includes the land itself, and all the resources found on it or under it, e.g. Fishes in the sea

Question 26

What does the factor labour consist of?

Answer 26

Refers to the workforce in the economy, any human effect on the production, on which they get paid.

Question 27

What does the factor capital consist of?

Answer 27

Man-made resources, used to make goods and services. E.g. Machinery

Question 28

What does the factor entrepreneurship consist of?

Answer 28

An entrepreneur is someone who