1.1.5

Question 1

An introduction of specialisation in production means that?

Answer 1

A form of exchange is necessary to allow everyone to access what they need.

Question 2

What was the earliest method of exchange?

Answer 2

Barter (swapping goods)

Question 3

What are the 4 key functions of money?

Answer 3

1. A medium of exchange
2. A store of value
3. A unit of account
4. A standard of deferred payment

Question 4

What is a medium of exchange (functions of money)?

Answer 4

Money is an asset widely acceptable as a medium of exchange. It facilitates between buyer and seller. Specialisation and division of labour require a means of exchanging goods and services.

Question 5

What is a store of value (functions of money)?

Answer 5

An asset that holds value over time.

Question 6

What is a unit of account (the function of money)?

Answer 6

Money is a unit of measure used to value/cost products, assets, debts, incomes and spending.

Question 7

What is a standard of deferred payment (functions of money)?

Answer 7

The accepted way, in a given market, to settle a debt.

Question 8

What are the 6 characteristics of money?

Answer 8

1. Durability
2. Portable
3. Divisible
4. Hard to counterfeit
5. Accepted
6. Valuable

Question 9

What is specialisation?

Answer 9

The production of a limited range of goods by a company/individual/country which means that trade is essential as it is the only way they are able to access all that they need.

Question 10

What is division of labour?

Answer 10

When labour becomes specialised in a particular part of the production process.

Question 11

What did Adam Smith state about the concept of specialisation and division of labour?

Answer 11

Showed how it can increase labour productivity allowing firms to increase efficiency and lower their costs of production

Question 12

What are the advantages of specialisation and the division of labour in organising production?

Answer 12

-Labour productivity to be increased.
-Higher quality of goods and services.
-Time is not wasted moving between jobs.
-Workers only need to be trained for one specific task

Question 13

What are the disadvanatges of specialisation and division of labour in organising production?

Answer 13

-Poor quality of work as they’re doing one task which makes it boring.
-Reduction of craftmanship
-Structural unemployment, workforce don’t have wide industrial training.
-If production process is delayed in one are every other task has to stop.

Question 14

The degree to which specialisation or the division of labour is possible depends on?

Answer 14

The nature of the task and the size of the firm.

Question 15

What is essential for a country if they specialise?

Answer 15

They trade in order to obtain all goods and services the consumer demands.

Question 16

What is an advantage of specialising in the production of goods and services to trade?

Answer 16

Theory of comparative advantage states that countries should specialise is producing those goods where they have a lower opportunity cost, and so they are relatively best at producing. Boosts their economy and greater output globally.

Question 17

What are disadvantages of specialising in the production of goods and services to trade?

Answer 17

-Become over-dependent on one export and it it fails their economy may collapse.
-If they specialise in non-renewables, they will run out, loss of income.
-High interdependence causes problems if trade is prevented.
-More competition to cut costs, means wages will fall.

Question 18

What is the free market economy?

Answer 18

Where individuals are free to make their own choices and own factors of production without government interference.

Question 19

How are resources allocated in a free market economy?

Answer 19

Through the price mechanism

Question 20

How does a consumer determine what to produce in a free market economy?

Answer 20

Their willingness to spend their money on a good.

Question 21

What are advantages of a free market economy?

Answer 21

-Consumer sovereignity:
freedom of choice
-High motivation as people know working hard = high potential rewards
-Political freedom
-Firms are in competition so will produce goods at lowest cost ensuring productive efficiency.
-Higher growth

Question 22

What are disadvantages of a free market economy?

Answer 22

-High levels of inequality as the rich own more factors of production.
-Lack of merit goods and little control of demerit goods
-Resources could be wasted on unproductive expenses
-If competition diappears there may be monopolies
-Problem of externalities.

Question 23

What is a command economy?

Answer 23

All factors of production, except labour is owned by the sate and labour is directed by the state.

Question 24

There is no… what in a command economy?

Answer 24

Private property and everyone is assumed to be selfless working for a command good.

Question 25

How are resources allocated in a command economy?

Answer 25

By the government, rather than the price mechanism.

Question 26

How does the government allocate in a command economy?

Answer 26

Represent the wishes of the consumer and often focuses on the need to expand certain areas of the economy, such as weapon building.

Question 27

How does a government determine income distribution in a command economy?

Answer 27

All workers no matter the job, tend to receive the same wage, products are standardised and prices and limited causing excess demand and queeing.

Question 28

What are the advantages of a command economy?

Answer 28

-State provides a minimum standard of living.
-Less wastage of resources
-Long term planning so industries don’t have to keep changing and shifting resources.
-Standardised products means that they are produced cost effectively.

Question 29

What are the disadvantages of a command economy?

Answer 29

-Impossible for the state to make a lot of correct decisions, =over or under supply and a waste of resources.
-Decision making will be slow as it has to go through stages = bribery and corruption
-Less motivation and efficiency as everyone receives the same wage.
-Consumers lose their freedom

Question 30

What is a mixed economy?

Answer 30

Both the free market mechanism and the government planning process allocate a significant amount of total resources in the country

Question 31

What is the governments role in a mixed economy?

Answer 31

-Creating a framework of rules
-Supplements and modifies the price system
-Redistribute income
-Stabilises the economy.

Question 32

How do the government create a framework of rules in a mixed economy?

Answer 32

Prevent the abuse of monopolies, ensure safety standards, protecting employers and employees, property rights.

Question 33

How do the government in a mixed economy stabilise the economy?

Answer 33

The government will attempt to manage the level of demand in an economy to prevent extremes of too much or too little demand.

Question 34

How do the government in a mixed economy supplement and modify the price system?

Answer 34

They produce public and merit goods, and limit the production of demerit goods.

Question 35

How do the government in a mixed economy redistribute income?

Answer 35

Tax, such as income tax to take money away from one group and give the money to the poor.