introductory concepts

Question 1

ceteris paribus

Answer 1

all other factors remain unchanged

Question 2

what is the role of value judgements in influencing economic decision makings? (2)

Answer 2

1. normative statements are typically backed by positive statements and are used to build up an argument that shape policies like taxation and regulations
2. helps showcase the ethical side of economic decisions

Question 3

what causes the basic economic problem

Answer 3

arises due to scarcity, allocating scarce resources in order to meet these unlimited needs and wants is the basic economic problem.

Question 4

what is an economy?

Answer 4

a system that attempts to solve the basic economic problem.

Question 5

the questions that arise with the basic economic problem (3)

Answer 5

what to produce
how to produce
for whom to produce

Question 6

factors of production (4)

Answer 6

land, labor, capital and enterprise

Question 7

the link between scarcity and opportunity cost

Answer 7

Scarcity forces us to make choices, and since resources are limited, choosing one thing means giving up the opportunity to do or have something else.

Question 8

return from land

Answer 8

rent or lease payment

Question 9

return as labor

Answer 9

wages

Question 10

return from capital

Answer 10

rent or lease payments

Question 11

return as enterprise

Answer 11

profit

Question 12

how does the ppc curve show opportunity cost

Answer 12

the concave ppf curve indicates the law of increasing demand as if you want to produce one good, more of one good has to be given up // movement of ppc curve

Question 13

why does law of increasing demand happen

Answer 13

as more of one goods are produced, the factors of production are better suited to produce that good

Question 14

what does straight lined ppf show?

Answer 14

constant opportunity costs

Question 15

how can there be constant opportunity cost?

Answer 15

when factors are perfectly substituted to produce both goods.

Question 16

explain opportunity cost using marginal analysis

Answer 16

the marginal cost of good A is a certain number of units of good B

Question 17

types of efficiency (3)

Answer 17

productive efficiency, allocative efficiency, and pareto efficiency

Question 18

what efficiency isnt shown in ppf

Answer 18

allocative

Question 19

how is pareto efficiency shown in ppf

Answer 19

opportunity cost

Question 20

how is productive efficiency shown in ppf

Answer 20

all points in the curve are productively efficient

Question 21

how to get movement along the ppc

Answer 21

reallocation of factors of production to produce more of one good

Question 22

when does ppc shift

Answer 22

when there is a change in the factors of production

Question 23

causes of outward ppc shift (3)

Answer 23

• increase the quantity of fop
• increase quality of fop
• technological advancements

Question 24

causes of inward ppc shift (4)

Answer 24

• fall in quantity of resources
• fall in quality of resources
• flood or other natural disasters
• poor allocation of resources

Question 25

how does ppf show economic growth

Answer 25

shift in ppc shows economic growth as an increase or decrease in the quantity or quality of fop means economy has increased its productive potential

Question 26

the significance of capital good investment for productivity and economic growth

Answer 26

as the economy grows, due to its investments the economy will grow faster and ppf will shift to the right

Question 27

advantages of division of labor (4)

Answer 27

• increased labor productivity
• workers can learn and specialize in new skills
• makes it cost effective to provide workers with capital
• time is saved as workers are not constantly moving from fop to fop

Question 28

disadvantages of division of labor (4)

Answer 28

• if jobs are divided too much, tasks can get tedious
• workers may be bored, produce low quality goods and thus have high unit cost
• workers have to depend on each other
• firms have to train all the workers separately

Question 29

functions of money (4)

Answer 29

• medium of exchange
• store of value
• measure of value
• method of deferred payment

Question 30

effect of inflation on functions of money

Answer 30

destroys the link between money and a store of value as money in the future is worth less than money now.

Question 31

how are resources allocated? (2)

Answer 31

• the market mechanism
• planning

Question 32

how does planning work when allocating resources?

Answer 32

planning allocates resources thro administrative decisions.

Question 33

types of economy (3)

Answer 33

free market, command economy, mixed economy

Question 34

key features of mixed economy (2)

Answer 34

• key resources and nationalized industries like coal and electricity are owned by governments, consumer goods are supplied by private sector
• decision is decentralized but can have government intervention

Question 35

free market economy advantages (5)

Answer 35

• firms produce goods that consumers want
• products are higher in quality
• variety of goods to fill demand
• high competition make firms productively efficient
• high competition so price competitive

Question 36

free market economy disadvantages (4)

Answer 36

• market may be dominated by a few firms
• public goods are underprovided due to free rider problem
• larger income gap between the rich and the poor
  -excessive freedom, like a lack of regulation, may burden the poorer people as businesses will be free to do whatever they want

Question 37

advantages of mixed economy (5)

Answer 37

• social welfare
• competition and efficient production
• promotes equality
• private sector looks out for consumer demands, government ensures they are met properly
• lower gap between the rich and the poor

Question 38

advantages of command economy (2)

Answer 38

• Centralized control makes resource allocation efficient
• reduced inequality

Question 39

disadvantages of command economy (4)

Answer 39

Lack of individual freedom
Inefficient resource allocation
lack of competition
risk of corruption

Question 40

whats the role of the state in mixed economy (4)

Answer 40

• regulation
• to provide public goods and services
• redistribution of wealth through progressive taxation and social welfare programs
• market failure correction