Pack 2

Question 1

Define the term Production Possibility Frontier

Answer 1

The PPF represents the maximum potential amount of two products/groups of products that can be made assuming all available resources are used fully.

Question 2

What does a PPF look like when there is inefficient use of resources, efficient use of resources and an impossible output

Answer 2

When there is inefficient use of resources, the output point is placed inside of the curve and this could be due to workers being lazy.

When there is sufficient use of resources, the output point can be placed anywhere on the curve.

When there is an impossible output point, the point is placed outside of the curve.

Question 3

Explain what a PPF looks like when more resources are available for both products and less resources available for both

Answer 3

When more resources are available for both products, the amount of products created both increase so the curve shifts out to form a new curve.

When less resources are available for both products, the amount of products created both decrease so the curve shifts inwards to form a smaller curve.

Question 4

Explain with an example, the difference between a capital and consumer good

Answer 4

A consumer good directly provides satisfaction/utility to consumers, it is wanted by consumers for personal use. For example, a chocolate bar.

A capital good is a good that is used to produce consumer goods or other capital goods such as, a machine which makes chocolate. It is not wanted for its own sake but rather for the goods and services it can produce. Capital goods are a factor of production and more of them will shift out the PPF.

Question 5

Explain why PPFs are normally drawn as a curved shape

Answer 5

The opportunity cost rises the more a product is focused on.

Question 6

Explain the use of models to economists

Answer 6

An economic model is a simplified view of reality that is used by economists as a mean of explaining economic relationships. They are judged upon their ability to explain and predict consumer and producer behaviour, even when assumptions of such models are unrealistic.

Question 7

Explain with an example, the idea and usefulness of ceteris paribus as an assumption

Answer 7

Ceteris paribus means all other things being equal. This assumption is needed as economists cannot test models in scientifically controlled laboratory conditions.

For example, a sweet shop may raise the price of a mars bar. Ceteris paribus, fewer are demanded and purchased because substitutes could be cheaper.

Question 8

How is productivity calculated

Answer 8

Total output / number of workers

This calculation gives us an appropriate measure of output per worker (labour productivity).

Question 9

What happens to average costs as productivity changes and why

Answer 9

Higher labour productivity usually leads to lower average costs for a business because the employees are making the business more money with the same wage.

Question 10

Give ways of increasing productivity

Answer 10

Specialisation / division of labour
Training
Giving workers better capital goods
Motivating workers

Question 11

Outline what specialisation is

Answer 11

When an individual, firm, region or country concentrates on the production of a limited range of goods and services

Question 12

Give at least 2 benefits of an economy specialising

Answer 12

Reduces the cost of training and lowers the long run average cost for the firm

Question 13

Give 2 drawbacks of an economy specialising

Answer 13

Workers may become bored and not be as productive.

Can be difficult to cover absences.

Question 14

Outline what division of labour is

Answer 14

The specialisation of workers on specific tasks in the production process.

Question 15

Give at least 3 pros and cons of a firm using division of labour

Answer 15

Pros:
-Higher productivity as workers gain practice in their individual task.
-Waste less time by not needing to move around the work area.
-It’s cheaper to train staff since workers are doing a very narrow range of tasks which makes the job low skilled.

Cons:
-The job can become boring for workers due to its repetitive nature and this can be demotivating so workers may be less productive.
-As workers are only trained in their small number of tasks, the workforce can be inflexible. This makes it difficult to cover absences and makes it bad for the workers as they don’t develop many transferable skills.
-As the job becomes deskilled, workers become easily replaceable which reduces their power and ability to negotiate for higher pay.

Question 16

Who came up with the idea of division of labour as a way of increasing productivity

Answer 16

Adam Smith explained that if production was broken down into 18 different specialist tasks, each carried out by a different worker, output of pins in a pin factory would increase by 2000% compared to a situation where each worker had to carry out all the tasks involved.

Question 17

List and explain the four functions of money

Answer 17

Medium of exchange - enables the buying and selling of products, making exchange easier. Also known as trading.

Measure of value - enables a value to be placed on products so they can be bought and sold with ease and it allows comparisons between the relative values of products.

Store of value - a convenient way of storing wealth so it can be spent at a later date.

Method of deferred payment - enables borrowing and lending meaning someone can borrow money in order to buy a product rather than waiting until they have saved enough money to do so.