1.1

Question 1

Why do economists develop models, how is it done, what happens next?

Answer 1

To explain how the economy works e.g- theories of supply and demand
Model is put forward, evidence is gathered, it is then accepted changed or rejected

Question 2

Why are assumptions made

Answer 2

Too many variables which can change an economic model

Question 3

What is ceteris paribus

Answer 3

All other things remain equal

Question 4

What is a positive statement

Answer 4

A statement which is objective, made without any value judgment or emotions

Can be tested or proven

Question 5

What is a normative statement

Answer 5

Subjective, based on opinions so cannot be proven or disproven

Question 6

What is the role of value judgments

Answer 6

Different economists may make different judgments from the same statistic therefore is can influence economic decision making

Question 7

What is the problem of scarcity

Answer 7

People have finite needs but infinite wants. People have infinite wants but resources are limited

Question 8

How do economies try to solve the problem of scarcity

Answer 8

Working out what to produce, whom to produce for and how to produce

Question 9

What is an opportunity cost

Answer 9

The next best alternative forgone

Question 10

What are the 4 factors of production

Answer 10

CELL

Capital
Enterprise
Land
Labour

Question 11

What does the PPF show

Answer 11

Maximum possible combination of capital and consumer goods that the economy can produce with its current resources and technology

Question 12

Why is it difficult to make scientific experiments in economics

Answer 12

Economics is a social science, therefore it is difficult to set up experiments to set up hypothesis, this is because economists gather data in the everyday world where variables keep changing

Question 13

Who are the 3 economic agents

Answer 13

Consumers, producers, government

Question 14

How is opportunity cost important to consumers

Answer 14

Consumers will make choices on how to use their limited income based on what brings them the greatest level of satisfaction

Question 15

How is opportunity cost important to producers

Answer 15

Producers must choose what to do with their limited resources and their decisions will be based on profit

Question 16

How is opportunity cost important to the government

Answer 16

Government must make decisions on where they should spend their limited tax revenues based on what will maximize social welfare.

Question 17

What part of the PPF represents the maximum productive potential of the economy

Answer 17

Any point on the curve

Question 18

what does it mean if a point is within the curve but not maximising output

Answer 18

inefficient allocation of resources

Question 19

What does it mean when the curve on the PPF shifts to the right, how is it caused

Answer 19

Economic growth,

Higher productivity - increased output per unit of input used in production

Better management-reduces waste, improves quality

Increase in stock of capital and Labour

Innovation and invention

Discovery of land

Increasing quantity and quality of factors of production

Question 20

What does it mean if the curve on the PPF shifts to the left, how is it caused

Answer 20

Economic decline

Natural disasters

Natural resources running out

Quality and quantity of Labour- war, migration, depression

Question 21

What does it mean if there is a fall in capital goods but no change in consumer goods n in PPF

Answer 21

fall in efficiency or a change in resources that only affects capital good manufacture

Question 22

What does it mean if there is an increase in ability to produced consumer goods but no change in capital goods on PPF

Answer 22

Improvement in tech that makes production of consumer goods more efficient

Question 23

What does a movement along a curve indicate compared to a shift of the curve on the PPF

Answer 23

Movement-change in combination of goods produced with the same allocation of resources

Shift-change in productive potential of the economy/change in number of resources

Question 24

What is specialization

Answer 24

The process of focusing on a specific task or area of production

Question 25

What is division of Labour

Answer 25

When Labour becomes specialized in a particular part of the production process

Question 26

Blurt Adam smith

Answer 26

Developed ideas of specialization and division of Labour and showed how it can increase Labour productivity based on observations in a pin factory Free market economy, invisible hand which allocated resources to everyone’s advantage Competition lowers prices as firms want to be competitive which benefits consumers Argued state needed to provide things the free market economy wouldn’t have e,g laws and property rights

Question 27

Advantages of specialization and division of Labour in organizing production

Answer 27

Labour productivity will increase - quicker and better workers due to concentration on one thing, therefore higher quality of work - more skilled Time is not wasted moving between jobs or getting out tools Trained to do one specific task - cost effective

Question 28

Disadvantages of Specialisation and division of Labour in organizing production

Answer 28

Work may get boring-poor quality of work- leave business (play music can be a solution) If workers lose jobs, may be hard to find new ones if they are trained in one skill

Question 29

Advantages of specialization in production of goods and services to trade

Answer 29

Comparative advantage- countries should specialize in producing goods where they have a lower opportunity cost so they are best at producing. So economy will boost - greater output globally

Question 30

Disadvantages in specialization in production of goods and services to trade

Answer 30

Countries may become over depended on one export- economy may collapse if fail Countries may specialize in non renewable resources which could run out High interdependence, could be problematic if trade is prevented

Question 31

What are the functions of money

Answer 31

A medium of exchange - as barters was only applicable with double coincidence of wants. But money can be used to buy all goods and services A measure of value - compare value of 2 goods Store of value- can keep value compared to barters where goods like fruits lost value if expired A method of deferred payment- buy now pay later

Question 32

What is a free market economy

Answer 32

Where governments leave markers to their own devices, so the market force of supply and demand allocate scarce resources

Question 33

Friedrich Hayek blurt

Answer 33

Argued state control of economy leads to loss of freedom Believed that individuals know what they need in their own situation

Question 34

Advantages of free market economy

Answer 34

System is automatic due to the invisible hand - resources are moved out of a production of a good when people stop wanting it or costs are too high Consumers have freedom of choice High motivation - working hard can lead to high potential rewards Firms will produce goods at the lowest cost they can - productive efficiency

Question 35

Disadvantages of the free market economy

Answer 35

High levels of inequality May be lack of merit goods and limited control of demerit goods Resources could be wasted on unproductive expenses such as advertising

Question 36

What is the command economy

Answer 36

All factors of production is owned by the state and Labour is directed by the state. There is no private property and everyone working is assumed to be working for a common good.

Question 37

Karl Marx blurt

Answer 37

Believed in the command economy and criticized capitalism Capitalists profit came from exploited Labour as they underpaid workers for the value they created.

Question 38

Advantages of the command economy

Answer 38

Easier to coordinate resources in times of crisis Government can compensate for market failure Inequality reduces welfare may be maximized Monopoly power can be prevented

Question 39

Disadvantages of the command economy

Answer 39

Consumer preferences may not be met Limits personal freedom Governments fail, may not be fully informed on what to produce

Question 40

What is the mixed economy

Answer 40

Market is controlled by the government and forces of supply and demand

Question 41

What is the governments role in a mixed economy

Answer 41

Create framework of rules -e.g-property rights Supplements and modified the price system-produce pubic and merit foods and limit demerit goods Redistributes income-take money from rich and give it to poor- income tax Stabilize Economy-fiscal and monetary policy