1.1 Nature Of Economics

Question 1

What is social science

Answer 1

The study of society and the manner in which people behave and influence there world.

Question 2

What is Ceteris Paribus?

Answer 2

Latin word for all other things being equal.

It is difficult for economists to analyse variables and influences so they focus on the effect of one variable to another while they assume all other variables remain the same.

Question 3

What is an economic model?

Answer 3

Simplified representation of reality to test for economic variables.

It is not flawless

Question 4

Who are the economics agents?

Answer 4

Households (consumers)
Firms (Producers)
Government

Question 5

What is a positive statement?

Answer 5

statement which is objective and made without valued judgement or emotions.

can be tested to be proven or disproven - often expressed in the form of a hypothesis that can be analysed and evaluated

Question 6

What is a normative statement?

Answer 6

statement which is subjective and has a valued judgement so cannot be proven or disproven

Question 7

What is the role of a valued judgement?

Answer 7

influences economic decision making and policy. Economists may have different judgements from the same statistics

economists use positive statements to back up normative statements

Question 8

What is the basic economic problem

Answer 8

Limited resources for peoples unlimited wants

Question 9

How do economies try solve the basic economic problem?

Answer 9

what to produce
how to produce it
whom to produce for
-this is the importance of opportunity cost to economic agents

Question 10

What is renewable and non-renewable resources

Answer 10

Renewable is a resource of economic value that can be replenished
Non-renewable is a resource that cannot be replaced

Question 11

Why must people make decisions on how to use the limited resources?

Answer 11

the same resources cannot be used to produce different goods at the same time

Question 12

What is opportunity cost?

Answer 12

the cost of one thing of the next best alternative given up

Question 13

What do consumers base their choices on how to use their income?

Answer 13

they base it on what gives them the greatest satisfaction

Question 14

What do producers base their choices on how to use their limited resources?

Answer 14

they base it on what will make the highest profits

Question 15

What do the governement base their choices on how to spend their limited tax revenues?

Answer 15

they base it on what will maximise social welfare and living standards

Question 16

What does sustainability mean?

Answer 16

meeting the needs of today without compromising the meeting of needs for future generations

Question 17

What does sustainable development mean?

Answer 17

economic development that is conducted without depletion of natural resources

Question 18

What are the four factors of production?

Answer 18

land, labour, capital, enterprise

Question 19

What is PPF?

Answer 19

Production possibility frontiers shows the maximum possible combinations of capital and consumer good that the economy can produce with its current resources and technology

Question 20

When is there maximum potential ?

Answer 20

any point on the curve

Question 21

When the PPF diagram shifts what does this mean.

Answer 21

left means economy is declining as it can produce less goods than previously
right means economy has grown and can produce more goods

Question 22

What is a movement on the PPF curve?

Answer 22

change in the combinations of good produced - same amount of resources are allocated

Question 23

What is a shift in the PPF diagram?

Answer 23

change in the productive potential of the economy

Question 24

What are consumer and capital goods?

Answer 24

consumer goods is goods demanded and brought by households and individuals

capital goods are goods that are produced in order to aid the production of consumer gods

Question 25

What is specialisation?

Answer 25

The process of concentrating on produce it one good to service.

Question 26

What is the division of labour?

Answer 26

When labour becomes specialised in a particular part of the production process

Question 27

Who was Adam Smith?

Answer 27

Stated the concept of specialisation and the division of labour and showed how it can increase labour productivity allowing firms to increase efficiency and lower their costs of production

Question 28

What are advantages of the division of labour/specialisation?

Answer 28

• Labour productivity increases
• High quality goods or services due to workers more skilled at their job
• Lower costs = lower price for consumers/ higher profits -> higher wages
• Workers only need that specific skill -> creates low skilled jobs

Question 29

What are disadvantages of division of labour/specialisation?

Answer 29

• task repetition = boredom and decrease in workers motivation - can lead to poor quality
• if workers lose or leave their jobs it will be hard to find someone who is as highly skilled
• if one process in the production is delayed every other task becomes delayed
• workers do not have a lot of skill so will suffer from structural unemployment