Introduction

Question 1

Positive vs Normative Statement

Answer 1

• Statements of facts expressed in a testable, or verifiable manner.
• Statements of value judgement or opinion.

Question 2

Basic economic problem

Answer 2

Unlimited wants and needs but scarce resources.

Question 3

Factors of production

• Definition
• Examples

Answer 3

• Inputs used in the supply of goods and services.
• Capital (goods), land (natural resources), labour (human input) and enterprise (entrepreneurs).

Question 4

Human Capital

Answer 4

Is a measure of the skills, education, capacity and attributes of the human input into production.

Question 5

Opportunity Cost

• Definition
• Examples

Answer 5

• Measure the cost of any choice in terms of the next best alternative foregone.
• e.g. cost of government spending £10bn on NHS could be £10bn less is available to spending on education.
• e.g. cost of a firm investing in capital goods is fewer consumer goods produced today.

Question 6

Where is efficiency shown on PPF and why?

Answer 6

When the economy is producing on the PPF then all resources are fully utilized.

Question 7

Specialisation and Division of Labour

• Definitions
• Benefits
• Drawback

Answer 7

• When an individual, firm or country concentrates on the production of a narrow range of products.
• Occurs when the production process is broken down into many separate tasks.
• Increased output per unit of labour, increased productivity, lower costs and comparative advantage.
• Overdependent on one sector i.e. structural unemployment, repetitive work = lower motivation = lower productivity.

Question 8

Productivity

Answer 8

The rate of production; measures the efficiency of converting production inputs into products.