Kennah economics 1.1 nature of economics

Question 1

What is a social science

Answer 1

A science that studies the various theories and problem relating productions of goods distributions of goods and consumption of healthy

Question 2

What is a value judgment

Answer 2

A judgment that involves an opinion

Question 3

What is an economic model

Answer 3

A simplified framework for describing the workings of the economy or a business where only one things is allowed to change at a time

Question 4

What is ceteris paribus

Answer 4

All other things remain equal

Question 5

What is a positive statement

Answer 5

A statement which is objective and made without any obvious value judgements or emotions. They can be tested to be proven or disproven

Question 6

What is a normatative statement

Answer 6

A statement is which subjective and based on opinion so cannot be proven or disproven

Question 7

What is the economic problem

Answer 7

Scarcity. People have finite needs but infinite wants(as no one would choose to live at basic level of human living if they can have more. Wants are infinite resources finite. Scarcity is A relative concept resources are not necessarily scarce but scare in relation to demand.(food shortages) basic problem= what to produce? How to produce it? Who to produce it for?

Question 8

What is a renewable resource

Answer 8

A resource of economic value that can be replenished or replaced on a level equal to consumption. Rate of consumption is less than or equal to rate of consumption.

Question 9

What is a non-renewable resource

Answer 9

A resource of economic value that cannot be readily replaced by natural means on a level equal to consumption.

Question 10

What is a non-renewable resource

Answer 10

A resource of economic value that cannot be readily replaced by natural means on a level equal to consumption.

Question 11

What is opportunity cost

Answer 11

The cost of one thing in terms of the next best option which has been given up

Question 12

What are the four factors of production

Answer 12

Land
Labour
Capital
Entrepreneurship

Question 13

What is land

Answer 13

Natural resources used in production (e.g raw materials minerals land) owners receive RENT from land or sums of money from the sale

Question 14

What is labour

Answer 14

All productive human effort both physical and mental, paid or unpaid. The value of the worker is their human capital. Receive WAGES

Question 15

What is Capital

Answer 15

Refers to all man-made resources that are used to produce goods or services in the future. Receive INTEREST on their land

Question 16

What is entrepreneurship

Answer 16

Is the willingness and ability to take the risks of combining the other three factors of production to make a good or service . Earn a PROFIT.

Question 17

What is a production possibility frontier

Answer 17

The PPF shows the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources with full efficiency.

Question 18

What are capital and consumer goods

Answer 18

Capital= goods used by businesses in the production of other goods
Consumer= goods that are demanded and bought by households and individuals.

Question 19

PPF: what does it mean if it’s on the curve

Answer 19

Efficient allocation of resources showing resources are fully employed. PRODUCTIVE EFFICIENCY.

Question 20

PPF: what does it mean if it’s outside the curve

Answer 20

This level of output is impossible to reach at the current level of resources

Question 21

PPF: what does it mean if it’s inside the curve

Answer 21

Inefficient allocation of resources

Question 22

Causes of economic decline in the PPF

Answer 22

Natural disasters. Natural resources running out. Decrease in the quantity/quality of labour. War. Fall in spending on education.

Question 23

Causes of economic growth in the ppf

Answer 23

Increasing the quantity or quality of resources. Technological advancements. more immigration.

Question 24

What are capital and consumer goods

Answer 24

Capital= goods used by businesses in the production of other goods
Consumer= goods used by consume

Question 25

What is specialisation

Answer 25

Is 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 they need

Question 26

What is division of labour

Answer 26

Is when labour becomes specialised in a particular part of the production process

Question 27

Advantages of specialisation and division of labour

Answer 27

*DOL allows labour productivity to be increased. Workers will be quicker, better and more efficient as they are more concentrated on one thing and can quickly develop skills.
*May lead to higher quality goods and services as workers are more skilled
*Time is not wasted moving between tools
*Workers only need to be trained on one task saving time and money.
*specialisation leads to lower unit costs and higher profit and benefit from EOS
*more motavited from job satisfaction

Question 28

Disadvantages of specialisation and division of labour

Answer 28

• the workforce do not have wide industrial training so many suffer from structural unemployment
  *Reduction of craftsmanship making a more standardised production
  *Only doing one task may be very boring which will lead to poor quality of work and people leaving the business.
  *If one part of the production process is delayed everything is stopped until it’s solved.

Question 29

Advantages of specialisation in trade (essential to trade if specialised to get all the goods customers demand)

Answer 29

The theory of COMPARITIVE ADVANTAGE states countries should specialise in producing those goods were they have a lower opportunity cost and so they are relatively best at producing. This will help them boost their economy and there is greater output globally.

Question 30

Disadvantages of specialisation in trade

Answer 30

*countries may become over dependant on one particular export and if this fails there economy may collapse(e.g developing countries who sell crops will get no income if there is bad weather)
*There will be HIGH INTERDEPENDANCE which will cause problems if trade is prevented(e.g war)
*Some countries may specialise in non-renewable resources and may run out which would cause a loss of income for the economy and a loss of the resource itself
*It could cause more incentive to cut costs which could lead to wage cuts

Question 31

What are the 4 function of money

Answer 31

• A medium of exchange
  *A measure of value
• A store of value
  *A method for deferred payments

Question 32

Function of money 1. A medium of exchange

Answer 32

It can be used to buy and sell goods and services and is accepted everywhere. Since money can be used to buy everything it will be accepted by everyone as they know they can use it to buy what they want

Question 33

Function of money 2. A measure of value

Answer 33

It can compare the value of two goods.
It can also put a value on labour.

Question 34

Function of money 3. A store of value

Answer 34

It is able to keep it’s value and can be kept for a long time

Question 35

Function of money 4. A method for deferred payments

Answer 35

Money allows debts to be created. People can therefore pay for things without having money in the present and pay later.