1.1 Nature of economics

Question 1

Why do economists use models?

Answer 1

To develop theories on behaviour

Question 2

What are economic models usually based on?

Answer 2

Assumptions

Question 3

What does ‘ceteris paribus’ mean?

Answer 3

‘Other things being equal’

Question 4

As economics is a social science, what is impossible and why?

Answer 4

For laboratory experiments to be conducted because many variables are always changing

Question 5

What is a positive statement?

Answer 5

A statement which is based on facts that can be proved

Question 6

What is a normative statement?

Answer 6

A statement which is based on value judgements and are subjective

Question 7

Why are value judgements important?

Answer 7

They help influence economic decision making and policy

Question 8

What is the problem of scarcity?

Answer 8

Wants are unlimited and resources are limited, so resources have to be allocated/ distributed optimally

Question 9

What are the 4 factors of production? (4)

Answer 9

Capital
Entrepreneurship
Land
Labour

Question 10

What is a renewable resource?

Answer 10

A resource which can be replenished

Question 11

What is an example of a renewable resource?

Answer 11

Oxygen, solar power

Question 12

What is a Non-renewable resource?

Answer 12

A resource which cannot be replenished

Question 13

What is an example of a Non-renewable resource?

Answer 13

Oil, gas

Question 14

What is the importance of opportunity costs to consumers?

Answer 14

Deciding on what goods to buy

Question 15

What is the importance of opportunity costs to producers?

Answer 15

Deciding on whether to hire more employees or to buy another machine

Question 16

What is the importance of opportunity costs to government?

Answer 16

Deciding whether to spend on NHS or education

Question 17

What do production possibility frontiers depict? (2)

Answer 17

The maximum productive potential of an economy
They show the opportunity cost of producing 2 goods

Question 18

How could you show a maximum productive potential of an economy using a PPF curve?

Answer 18

Anything lying on the PPF curve

Question 19

How could you show opportunity cost using a PPF curve?

Answer 19

Any points on a PPF curve and comparing the output

Question 20

How could you show economic growth using a PPF curve?

Answer 20

An outwards shift of the curve

Question 21

How could you show economic decline using a PPF curve?

Answer 21

An inward shift of the curve

Question 22

How could you show an inefficient allocation of resources using a PPF curve?

Answer 22

A point under the PPF curve

Question 23

How could you show unobtainable production using a PPF curve?

Answer 23

A point above the PPF curve

Question 24

What are PPF curves draw assuming? (2)

Answer 24

A fixed amount of resources are used
There’s a constant state of technology

Question 25

What are movements along the PPF curve due to?

Answer 25

Changes of output

Question 26

What are shifts of the PPF curve due to?

Answer 26

Changes in resources

Question 27

What are capital goods?

Answer 27

They are goods which can be used to produce other goods

Question 28

What are consumer goods?

Answer 28

They are goods which cannot be used to produce other goods

Question 29

What is specialisation?

Answer 29

When workers each complete specific tasks

Question 30

With regards to advantages of using specialisation, what is something that can be achieved?

Answer 30

Economies of scale

Question 31

With regards to advantages of using specialisation, more competition leads to what? (2)

Answer 31

Firms have to lower costs and therefore lower prices as well

Question 32

With regards to advantages of using specialisation, what variety of goods can be produced?

Answer 32

A greater variety of goods can be produced

Question 33

With regards to advantages of using specialisation, what level of output can be achieved? and why?

Answer 33

A higher level of output can be achieved, because workers do what they are good at

Question 34

With regards to disadvantages of using specialisation, Why do workers loose motivation to work?

Answer 34

Because work becomes repetitive

Question 35

With regards to disadvantages of using specialisation, why does structural unemployment increase?

Answer 35

Because skills are not transferable

Question 36

With regards to disadvantages of using specialisation, what variety of goods are produced?

Answer 36

Less variety of goods are produced

Question 37

With regards to disadvantages of using specialisation, why do workers leave their job?

Answer 37

Because they become dissatisfied

Question 38

What are the 4 functions of money? (4)

Answer 38

A medium of exchange A measure of value A store of value Method of deferred payment

Question 39

Who is associated with free market economies?

Answer 39

Adam smith

Question 40

Who is associated with mixed economies?

Answer 40

Hayek

Question 41

Who is associated with command economies?

Answer 41

Karl Marx

Question 42

What is a free market economy?

Answer 42

An economy where resources are allocated by private firms and individuals

Question 43

What is a mixed economy?

Answer 43

Where both the government and the market forces of supply and demand allocate resources

Question 44

What is a command economy?

Answer 44

Where the government allocates all resources

Question 45

What is the role of the government in a mixed economy?

Answer 45

To provide public goods

Question 46

What are advantages of a free market economy? (3)

Answer 46

Firms are efficient Personal freedom More choice

Question 47

What are disadvantages of a free market economy? (4)

Answer 47

More inequality No welfare payments Abuse of monopoly power Public goods are not/under provided

Question 48

What are advantages of a command economy? (2)

Answer 48

Less inequality in society Prevents abuse of monopoly power

Question 49

What are disadvantages of a command economy? (4)

Answer 49

Resources may not be allocated properly Less choice Less personal freedom Less democracy