Theme 1: Nature Of Economics

Question 1

What is a social science?

Answer 1

A social science is something that studies the complex world of human behaviour

Question 2

What is an economic model?

Answer 2

Economic models are built on assumptions about how people, firms and markets behave and they use stats to make predictions based on this

Question 3

Why do economists use models?

Answer 3

To help explain the choices we make in our daily lives

Question 4

What does ceteris paribus mean?

Answer 4

All other factors remain constant allowing us to isolate the effect of one variable on another variable.

Question 5

Why is it difficult for economists to conduct scientific experiments?

Answer 5

People act differently when they know that they are being tested compared to the real world

Question 6

What is a positive statement?

Answer 6

Something that can be tested, amended or rejected based on evidence

Question 7

What is a normative statement?

Answer 7

A subjective statement containing value judgement

Question 8

Which 3 questions does the study of economics seek to answer?

Answer 8

What to produce? How to produce it? Who should get it?

Question 9

What does scarcity mean?

Answer 9

Scarcity is the limited amount of resources available to produce the unlimited amount of goods and services we desire

Question 10

What is meant by a ’renewable resource’?

Answer 10

Resources that replenish over time

Question 11

What is meant by a ‘non-renewable resource’?

Answer 11

Resources that don’t replenish over time

Question 12

What is the economic problem?

Answer 12

Not knowing how to allocate scarce resources given unlimited wants

Question 13

What are the 4 factors of production? (CELL)

Answer 13

capital, entrepreneurship, land, labour

Question 14

What is the reward for enterprise?

Answer 14

Profit

Question 15

What is the reward for capital?

Answer 15

Interest

Question 16

What is the reward for land?

Answer 16

Rent

Question 17

What is the reward for labour?

Answer 17

Wages

Question 18

Why do opportunity costs exist?

Answer 18

Because of scarcity, we have to forgo the next best alternative when a choice is made

Question 19

Give an example of an opportunity cost for a consumer.

Answer 19

Choosing between 2 brands of bread, theopportunity cost is the enjoyment of missing out on your favourite brand

Question 20

Give an example of an opportunity cost for a firm.

Answer 20

Lower risk investments to gain lower financial rewards

Question 21

Give an example of an opportunity cost for a government

Answer 21

10 billion pounds on the NHS instead of 10 billion going towards education

Question 22

What is a production possibility frontier/curve?

Answer 22

The maximum possible production of 2 goods/services with given factors of production

Question 23

Illustrate a point on the PPF at which the productive potential of the economy is maximised

Question 24

Illustrate a point on the PPF which is unattainable at the current level of technology

Answer 24

Anywhere outside the curve with the current resources

Question 25

Illustrate a point on the PPF where the allocation of resources is efficient

Answer 25

Anywhere on the curve

Question 26

Illustrate a point on the PPF where the allocation of resources is inefficient

Answer 26

Anywhere inside the curve

Question 27

Illustrate actual economic growth on a PPF diagram

Question 28

Illustrate potential economic growth on a PPF diagram

Question 29

Explain 2 causes of an outward shift in the PPF

Answer 29

Higher productivity of factor inputs, increase in the stock of capital and labour supply

Question 30

Explain 2 causes of an inward shift in the PPF

Answer 30

Natural disasters which destroy built up capital, or deep recession which might cause a permanent loss of productive potential

Question 31

Illustrate opportunity cost on a PPF

Question 32

What is the difference between consumer goods and capital goods?

Answer 32

Consumer goods are consumed for utility whilst capital goods are used to make other goods

Question 33

What is the difference between actual and potential growth?

Answer 33

Actual growth is short run Economic growth caused by a rise in AD whilst potential growth is long run economic growth caused by increased capital or increased labour productivity

Question 34

Explain why we would not want 100% of our production to be on capital goods

Answer 34

It will reduce consumption in the short term, making the economy be productively inefficient

Question 35

Explain why we would not want 100% of our production to be on consumer goods

Answer 35

The economy will shrink because they don’t have capital goods to produce consumer goods