The economic problem

Question 1

What is a positive statement?

Answer 1

A statement which can be proven true or false.

Question 2

What is a normative statement?

Answer 2

A valued judgement which is opinion based.

Question 3

Is the statement, ‘the average pensioner has a disposable income of 40% of
the average worker’ - positive or normative?

Answer 3

Positive

Question 4

Is the statement, ‘the government should increase the state pension’, positive or normative?

Answer 4

Normative

Question 5

What is the economic problem?

Answer 5

Scarcity, we have unlimited wants and needs with limited resources.

Question 6

What are the 4 factors of production?

Answer 6

Capital, Entrepreneurship, Land, Labour

Question 7

What is the opportunity cost?

Answer 7

The next best alternative that is foregone.

Question 8

What is a renewable resource?

Answer 8

A resource that can be used repeatably and replaced naturally.

Question 9

What is a non-renewable resource?

Answer 9

A naturally formed energy substance with limited availability.

Question 10

What is the PPF?

Answer 10

The production possibility frontier (PPF) shows the maximum potential output of an economy.

Question 11

What does producing on the PPF line show?

Answer 11

Full use of resources used (efficient allocations of resources)

Question 12

What does producing within the PPF line show?

Answer 12

Under use of resources (Inefficiency, not all resources being used)

Question 13

What does producing outside the PPF line show?

Answer 13

Simply unobtainable, not enough resources to be working there

Question 14

What shifts the PPF outwards?

Answer 14

Higher productivity, Increase in stock of capital and labour supply, etc.

Question 15

What shifts the PPF inwards?

Answer 15

Natura disasters, destruction, a trend decline, etc.

Question 16

What is specialisation?

Answer 16

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

Question 17

What is division of labour?

Answer 17

A process whereby the production procedure is broken down into sequence stages, and
workers are assigned to a particular stage. (eg, when car making, different people will do the wheels, tires, etc.)

Question 18

What is an advantage of specialisation and division of labour?

Answer 18

Maximise productivity, Increase efficiency, Increase profitability, etc

Question 19

What is a disadvantage of specialisation and division of labour?

Answer 19

Absenteeism increase, lower motivation (lower productivity), leads to structural unemployment.

Question 20

What is the free market economy?

Answer 20

A free market economy is based on supply and demand where prices set freely between seller and consumer, without intervention from the government.

Question 21

What is an advantage of the free market economy?

Answer 21

More competition (more choice for consumers), High quality (a lot of innovation to be the best).

Question 22

What is a disadvantage of the free market economy?

Answer 22

Leads to monopolies, distribution of wealth becomes unequal.

Question 23

What is the command economy?

Answer 23

A command economy is one in which a centralized government controls the means of production and determines output levels.

Question 24

What is an advantage of the command economy?

Answer 24

Government has more control (less unemployment), reduction in inequality (government controls wages).

Question 25

What is a disadvantage of the command economy?

Answer 25

Lack of competition, lack of productivity

Question 26

What is the mixed economy?

Answer 26

A mixed economic system is a system that combines aspects of both capitalism and socialism