Nature Of Economics

Question 0

List and describe the four basic factors of production.

Answer 0

Land (free gifts of nature)
Labour (physical and mental effort to produce goods)
Capital (human made aids to production)
Enterprise (combines other factors into output).

Question 1

The economic problem (problem of scarcity) begets three choices, describe them.

Answer 1

What to produce and how much, how to produce them, and how should they be allocated?

Question 2

What is the difference between a capital good and a consumer good?

Answer 2

Consumer goods give satisfaction or utility to consumers, whereas capital goods are goods that are required to produce other goods.

Question 3

List the three types of economy.

Answer 3

Free Market, Command and Mixed.

Question 4

Describe division of labour.

Answer 4

Division of labour occurs when workers specialise in very specific smaller tasks.

Question 5

Why is division of labour widely adopted?

Answer 5

• Each worker only has to be trained in one task (reduced costs)
• Less time is wasted as a workers don’t need to move around as much (from job to job or station to station).
• This approach enables the use of production lines and more machinery, which increases productivity and reduces average costs of production.

Question 6

Describe the problems associated with division of labour.

Answer 6

• Monotony and boredom are more prevalent which could cause a decrease in productivity.
• Workers have less all round skills so occupational mobility of labour is poorer.
• A strike by a single group of workers could bring all production to a halt.
• There is a lack of variety as all products produced on the production line are identical.

Question 7

Which factors limit the extent to which the division of labour can be applied?

Answer 7

• The size of the market (bigger markets means more specialisation).
• The type of product.
• Transport costs (if these are high then large scale production and division of labour may not be possible).

Question 8

Define opportunity cost.

Answer 8

Opportunity cost is the next best alternative forgone when a choice is made.

Question 9

Define an economic good.

Answer 9

Economic goods are created from resources which are limited in supply and so are scarce. Consequently, they command a price.

Question 10

Define a free good.

Answer 10

Free goods are unlimited in supply, such as sunlight. Consumption by one person does not limit consumption by others. The opportunity cost of consuming a free good is zero.

Question 11

Define positive economic statements.

Answer 11

Positive economic statements are objective statements based on evidence or facts which can, therefore, be proved or disproved.

Question 12

Define normative economic statements.

Answer 12

Normative economic statements are subjective statements based on value judgements and cannot be proved or disproved.

Question 13

What is a PPF?

Answer 13

A production possibility frontier illustrates the maximum potential output of an economy when all resources are fully employed.

Question 14

What does it mean if a point is within the PPF?

Answer 14

There is underemployment of resources or not all resources are being utilised efficiently.

Question 15

What does an outward shift of the PPF curve represent?

Answer 15

Economic growth.

Question 16

What factors may cause an outwards shift in the PPF?

Answer 16

• Discovering new resources.
• New more effective methods of production.
• Advances in technology.
• Improvements in training and education of workers which may increase productivity.
• Increases in the size of the workforce e.g. immigration, increase in retirement age, better childcare so women can get back to work more easily after pregnancy.

Question 17

What factors may cause an inwards shift of the PPF?

Answer 17

• Natural disasters.
• Depletion of natural resources.
• Factors causing a reduction in the size of the workforce.
• A deep recession which results in a loss of productive capacity.