Nature of Economics 1.1

Question 1

Ceteris Paribus

Answer 1

Means ‘all other things being equal’. It means we ignore other variables and consider the effect of just one variable.

Question 2

Positive statement

Answer 2

Based on facts that can be tested

Question 3

Normative statement

Answer 3

Based on an opinion or a value judgement

Question 4

Economic Problem: Non-renewable resources

Answer 4

Resources that are finite, once used they cannot be reused

Question 5

Economic Problem: Renewable resources

Answer 5

Resources that can be replenished e.g. wind, solar, water

Question 6

Economic Problem: Semi-renewable resources

Answer 6

Some resources that are renewable but if they are over consumed they can become extinct e.g. fish stocks

Question 7

Economic Problem: Sustainable consumption

Answer 7

Occurs when we consume resources at a rate that can be maintained in the long term. e.g. planting trees at the same rate we cut them down

Question 8

The Economic Problem

Answer 8

Issue of scarcity and how best to produce and distribute these scarce resources

Question 9

Opportunity Cost

Answer 9

The next best alternative forgone

Question 10

What does the Production Possibility Frontier show?

Answer 10

A PPF shows the maximum output that an economy can produce if the economy is maximising the use of its resources (LLCE)

Question 11

Consumer goods

Answer 11

Goods we can use and enjoy e.g. food clothes

Question 12

Capital goods

Answer 12

These are goods that are used in the productive process e.g. machinery

Question 13

Causes of economic growth

Answer 13

New raw materials
Increase in size of workforce
Increase in Capital stock
Increase in labour productivity

Question 14

Specialisation

Answer 14

Occurs when a country or firm concentrates on producing a particular good or service

Question 15

Division of labour

Answer 15

When workers concentrate on different tasks within a firm

Question 16

Advantages of specialisation of labour

Answer 16

Less time to be trained
More efficient when producing on a large scale
Spreads the work out

Question 17

Problems of specialisation

Answer 17

Jobs can become repetitive leading to boredom
If one person is absent, will affect the assembly line

Question 18

Money

Answer 18

Object used as an exchange between two parties

Question 19

Free market economy

Answer 19

A market with no government intervention
Firms are private

Question 20

Advantages of free market economies

Answer 20

Can result in efficient allocation of resources due to profit incentive
Firms will look to cut costs
Consumers will have freedom to choose the best option
Avoids gov. corruption
Incentives for people to work hard and set up a new business

Question 21

Disadvantages of Free Market

Answer 21

Risk of monopolies
Public goods may not be provided
Overconsumption of goods with negative externalities

Question 22

Command Economy

Answer 22

Where the government owns the means of production and decides what and how to produce

Question 23

Advantages of Command Economy

Answer 23

Gov can reduce inequality
Make all important public goods available to all
Take in to account externalities and intervene
Prevent monopolies
Full employment

Question 24

Disadvantage of Command Economy

Answer 24

Little to no profit motives
High admin costs
Government information failure risk
Gov may be slow to respond
Lack of choice as people may struggle to set up business creating less options

Question 25

Mixed economies

Answer 25

A degree of government intervention in parts of the economy whilst many firms remain privately owned

Question 26

Rational decision making

Answer 26

Assume firms and consumers are rational

Question 27

Profit

Answer 27

Amount of money a firm gains after subtracting costs from its total revenue. Firms try to maximise.

Question 28

Utility

Answer 28

The concept of how much benefit people get from consuming a good

Question 29

Marginal Utility

Answer 29

The satisfaction you gain from the last unit of consumption