What Is The Nature Of Economics?

Question 0

What is scarcity?

Answer 0

Scarcity is the problem that arises because there are insufficient resources to provide for everyone’s wants.

Question 1

Define economics?

Answer 1

The allocation of scarce resources to provide for unlimited human wants.

Question 2

Define opportunity cost?

Answer 2

The value of the next best forgone alternative.

Question 3

What are the four factors of production?

Answer 3

Land, labour, capital and enterprise.

Question 4

What are factors of production?

Answer 4

Inputs in the production of goods and services.

Question 5

What is a renewable resource?

Answer 5

A resource whose stock level can be maintained over a period of time (solar energy, water, oxygen, soil).

Question 6

What is a non-renewable resource?

Answer 6

A resource whose stock level is decreased over time as it is consumed (oil, gas, coal, steel, copper).

Question 7

What is a PPF?

Answer 7

Production possibility frontier
A graph that shows the maximum potential level of output for two goods or services that an economy can achieve when all it’s resources are fully and efficiently employed.

Question 8

What are the axis of a PPF?

Answer 8

Y axis - good A

X axis - good B

Question 9

How is economic growth shown on a PPF?

Answer 9

A shift outwards of the curve.

Question 10

What does it mean if an economy is located at an point on it’s PPF?

Answer 10

It means that all of it’s resources are being allocate efficiently and there is no wastage.

Question 11

What does it mean if an economy is located within it’s PPF?

Answer 11

That there is an insufficient allocation of resources because not all are being effectively used.

Question 12

What does a typical PPF show?

Answer 12

A PPF bowed to the origin, which she is that as more of one good is produced, an increasing amount of the other good is forgone. This is because not all resources are as efficient as others in the production of two goods. This is called diminishing returns.

Question 13

What does a cut in price cause if demand is elastic?

Answer 13

An increase in total consumer spending and total revenue.

Question 14

What does an increase in price cause if demand is inelastic?

Answer 14

An decrease in total consumer spending and a fall in revenue of the firm.

Question 15

At what point does a company maximise it’s total revenue?

Answer 15

When the PED is equal to -1 (unit elasticity).

Question 16

What is marginal revenue?

Answer 16

The increase in revenue that results from the sale of one additional unit of output.

Question 17

What is the PED if marginal revenue is:

a) positive
b) zero
c) negative

Answer 17

a) demand is price elastic
b) demand is unit elastic
c) demand is price inelastic

Question 18

What does an XED of zero mean?

Answer 18

That there is no relationship between the goods.

Question 19

Define supply?

Answer 19

The quantity of a good or service that firms are willing to sell at a given price and over a given period of time.

Question 20

Define supply curve?

Answer 20

The quantity of a good or service that firms are willing to sell to a market over a range of different price levels in a given period of time.

Question 21

What two reasons explain why a supply curve has a positive gradient?

Answer 21

As price rises, it encourages firms to supply more of a good to make more profit.
As firms raise output in the short run, production costs increase. This causes an increase in price of their product. Higher prices allow more companies to enter the market.

Question 22

What causes a shift in the supply curve?

Answer 22

Cost of production
Price of other goods - competitive or joint supply
Productivity (of workers and firms)
Climate

Question 23

Different values of PES?

Answer 23

PES>1 - price elastic
PES<1 - price inelastic
PES=1 - unit elastic
PES=0 - perfectly inelastic
PES is infinite - perfectly elastic

Question 24

Steep supply curve = ?

Answer 24

Inelastic supply

Question 25

Shallow supply curve = ?

Answer 25

Elastic supply

Question 26

For Price of one good vs Quantity demanded of another good, a positive gradient demand curve shows?

Answer 26

Subtitute goods

Question 27

For Price of one good vs Quantity demanded of another good, a negative gradient demand curve shows?

Answer 27

Complementary goods

Question 28

Define sustainability?

Answer 28

Meeting the needs of the people today without jeopardising the potential for people in the future to meet their needs.

Question 29

5 advantages of the division of labour?

Answer 29

A person who spends lots of time on one job becomes highly skilled quickly
No time wasted switching jobs
Capital equipment can be used continuously in production
Less time required to train workers
More choice of jobs for workers and allows workers to specialise

Question 30

3 disadvantages of the division of labour?

Answer 30

Repetition causes boredom, thus causing high staff turnover
Breaking down production into different tasks makes it easier to replace workers with machines, leading to structural unemployment
Creates interdependence - if one part of production strikes, all production stops

Question 31

Advantage and disadvantage of free market economy?

Answer 31

Advantage: successful businesses would have a greater opportunity to make profits due to no min wage etc

Disadvantage: lots of poverty due to no benefits or gov intervention

Question 32

2 advantages and a disadvantage of a mixed economy?

Answer 32

Advantages: less poverty due to gov intervention
Public goods like defence are paid for

Disadvantage:
Barriers like minimum wages and minimum prices can slow down economic growth

Question 33

Define a free market economy?

Answer 33

An economy where demand and supply (market forces) determine resource allocation with no government intervention.

Question 34

Define a mixed economy?

Answer 34

An economy where a both demand and supply (market forces) and government intervention determine resource allocation.

Question 35

Define a positive statement?

Answer 35

A statement which is concerned with facts, and can be proven true or false.

Question 36

Define a normative statement?

Answer 36

A statement which is concerned with value judgements and is not based on facts.