Theme 1 - The nature of economics

Question 1

What does it mean by economics is a social science?

Answer 1

Economics studies the behaviour of human, It investigates how scarce resources are allocated to provide for unlimited human wants (Basic econ problem) .

Question 2

What is the basic economics problem

Answer 2

There are unlimited wants but limited scarce resources

Question 3

What is the Ceteris Paribus assumption?

Answer 3

‘All other things being equal’

Question 4

What is a positive statement

Answer 4

Based on facts which can be tested and is not a value judgement

Question 5

What is a normative statement

Answer 5

Based on value judgement

Question 6

What is scarcity

Answer 6

Finite resources. Refers back to the basic economic problem

Question 7

What is opportunity cost

Answer 7

The value of the next best alternative forgone

Question 8

What are the factors of production

Answer 8

C - capital
E - entrepreneurship
L - Land
L - Labour

Question 9

What is renewable resource
Give example

Answer 9

Resources whose stock level can be replenished naturally or over a period of time
E.g. Wind power, solar energy, fish, trees

Question 10

What is non-renewable resources
Give example

Answer 10

Resources whose stock level cannot be naturally replenished and decreases overtime as it is consumed
E.g. Coal, oil, gas (fossil fuels)

Question 11

What does the production possibility frontier shows

Answer 11

Shows the maximum potential level of output of two goods or services that an economy can achieve when all resources are fully and efficiently employed, given the level of technology available

Question 12

What is consumer good
Give example

Answer 12

Goods bought that directly provides utility to consumers
E.g. Chocolate, fizzy drinks

Question 13

What is capital good
Give example

Answer 13

Goods produced in order to aid production of consumer goods
E.g. Machinery, services

Question 14

What can causes a shift in the PPF curve
Give example

Answer 14

Economic growth
E.g. Increase in quantity & quality of resources, increase in investment and the development of new technology

Question 15

What concept is shown in the movement of the PPF curve

Answer 15

Opportunity cost

Question 16

What is specialisation

Answer 16

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

Question 17

What is division of labour

Answer 17

The specialsation of workers on individual tasks in the production process to increase efficiency

Question 18

What are the advantages of division of labour

Answer 18

+ Higher output and potentially higher quality, since production focuses on what people and businesses are best at.
+ There could be a greater variety of goods and services produced
There are more opportunities for economies of scale, so the size of the market increases.
+ There is more competition and this gives an incentive for firms to lower their costs, which helps to keep prices down.

Question 19

What are the disadvantages of division of labour

Answer 19

• Work becomes repetitive, which could lower the motivation of workers, potentially affecting quality and productivity. Workers could become dissatisfied.
• There could be more structural unemployment, since skills might not be transferable, especially because workers have focused on one task for so long.
• By producing a lot of one type of good through specialisation, variety could in fact decrease for consumers.
• There could be higher worker turnover for firms, which means employees become dissatisfied with their jobs and leave regularly.

Question 20

What is the function of money

Answer 20

+ A medium of exchange
+ Unit of account
+ A store of value
+ A method of deferred payment

Question 21

What is a free market economy
Give example

Answer 21

Where all resources are privately owned and allocated via the price mechanism. There is minimal government intervention
E.g. Hongkong, Taiwan

Question 22

What is a mixed economy
Give example

Answer 22

Where some resources are owned and allocated by the private sector and some by the public sector
E.g. UK, USA, France, Germany, etc

Question 23

What is a command economy
Give example

Answer 23

Where there is public ownership of resources and these are allocated by the government
E.g. North Korea, Former Soviet Union