Nature of Economics

Question 1

Ceteris Paribus

Answer 1

a Latin phrase meaning “all things being equal”; it is used in economics when we focus on changes in one variable while holding other influences constant

Question 2

Postive economic statement

Answer 2

a statement based on fact which can be tested as true or false and are value-free

Question 3

Nominative economic statement

Answer 3

a statement based on VALUE JUDGEMENTS which cannot be test as true or false.

Question 4

what indicates a nominative economic statement

Answer 4

value laden words: ought, should, fair, unfair, better or worse)

Question 5

Economic problem

Answer 5

a problem based on the problem of scarcity i.e. when there are UNLIMITED WANTS but FINITE RESOURCES with which to SATISFY them. Therefore, choices have to be made and resources have to be allocated between competing uses

Question 6

Opportunity cost

Answer 6

the value forgone of the next best alternative

Question 7

economic agents

Answer 7

groups within the economy

Question 8

Factors of production

Answer 8

C optical
E nterprise
L abour
L and

Question 9

Renewable resource

Answer 9

natural resources that can be replenished e.g. solar energy that does not get used up

Question 10

The catch with renewable resources

Answer 10

renewable resources may decline over time if consumed at a faster rate than the environment can replenish them

Question 11

non-renewable resources

Answer 11

natural resources that once used cannot be replenished e.g. coal or oil

Question 12

a PPF

Answer 12

a Production Possibility Frontier is a curve showing the maximum potential output for two goods or services that an economy can achieve when all its resources are fully and efficiently employed

Question 13

marginal costs

Answer 13

the cost of producing an additional unit of output

Question 14

opportunity cost w/ a straight line PPF

Answer 14

opportunity cost of a straight line PPF is constant b/c resources are of equal quality and equally suited to the production of both goods

Question 15

opportunity cost w/ concave line

Answer 15

the opportunity cost increases = the more of one good is produced, an increasing amount of the other good is forgone b/c not all resources are as efficient as other resources in the production of both goods = diminishing returns (after a period of time, you gain less return for the same input)

Question 16

consumer good

Answer 16

a good which directly provides utility to consumers

Question 17

capital good

Answer 17

a good which is used to produce consumer goods or services

Question 18

PPF graph - outward shifts causes

Answer 18

economic growth / anything that improves the quality / quantity of the factors of production (i.e. an advancement in technology or mass immigration)

Question 19

PPF graph - inward shifts

Answer 19

economics shrinks, war, natural disasters, depression unemployment

Question 20

PPF graph - employment

Answer 20

‘X’ under the line = unemployment
‘X’ on the line = full employment (b/c def of PPF)
‘X’ over the line - over employment

Question 21

PPF graph - increase in productivity in the production of ONE good

Answer 21

outward shift that increases as you make more of that good

Question 22

Specialisation

Answer 22

occurs when an individual / firm / region / country concentration on the production of a limited range of goods or services

Question 23

advantages of specialisation

Answer 23

increases output / productivity and living standards across the world

Question 24

disadvantages of specialisation (4)

Answer 24

1. resource depletion
2. over-reliance on imports
3. a fall in demand may = significant increase in structural employment
4. developing countries may face an unfavourable exchange rate

Question 25

Divison of labour

Answer 25

a process whereby the production procedure is broken down into a sequence of stages and workers are assigned to a particular stage

Question 26

advantages of division of labour (3)

Answer 26

1. increased output
2. increased productivity = higher living standards + reduce the cost per unit of output = efficiency of resources
3. worker becomes specialised and higher skilled in that task due to repetition = less wastage of material + less time spent on tasks

Question 27

disadvantages of division of labour (3)

Answer 27

1. creates monotony and boredom = decrease incentive to work = reduction in productivity AND when Henry Ford put this into practise so boring = demand higher wages to compensate = increase production costs
2. breaking down production into different tasks = easier to replace skilled workers with machines = structural unemployment
3. specialisation = inter/dependence in production = if one group of workers goes on strike = halt the whole production process

Question 28

productivity eqt

Answer 28

output / input