1.1 Nature of Economics

Question 1

Explain Ceteris Paribus

Answer 1

‘Everything else remains the same’

Question 2

Explain the difference between a want and a need.

Answer 2

A want is something not necessary to survival, a need is necessary.

Question 3

Define Opportunity Cost

Answer 3

The benefits foregone of the next best alternative

Question 4

What are the 4 Factors of production?

Answer 4

Capital
Enterprise
Land
Labour

Question 5

What is the difference between renewable and non renewable resources?

Answer 5

Renewable resources can be replaced as quick as they are consumed

Question 6

What is a positive statement?

Answer 6

A positive statement is objective and can always be tested against evidence.

Question 7

How do Value judgements influence economic decision making?

Answer 7

Value judgements make up all the important economic discussions as they involve different opinions on how to respond to economic problems

Question 8

What does a PPF show?

Answer 8

The different combinations of goods an economy can produce is resources are being fully and efficiently employed

Question 9

What does a point inside the PPF show?

Answer 9

Inefficiency

Question 10

What does an outward shift show on a PPF?

Answer 10

Increase in maximum potential output of economy

Question 11

What are capital goods?

Answer 11

Capital goods are man made products used by a business to produce either consumer goods or more capital goods

Question 12

What are consumer goods?

Answer 12

Consumer goods are products used by a consumer

Question 13

How do workers become specialised?

Answer 13

Workers choose to follow particular career paths

Question 14

How do firms become specialised?

Answer 14

Firms specialise in certain products

Question 15

How do regions become specialised?

Answer 15

Regions are known for particular industries

Question 16

What is the Division of labour?

Answer 16

The splitting of tasks to maximise output

Question 17

List some advantages of Specialisation in organising production

Answer 17

• Workers perform tasks they are most suited to
• 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 18

List some disadvantages of Specialisation in organising production

Answer 18

• Work becomes tedious, affecting quality and quantitity
• Structural unemployment
• High worker turnover, meaning people leave
• Lack of Variety

Question 19

List some advantages of specialising in production of goods and services to trade

Answer 19

• Increased Output
• Greater Choice
• Lower Prices

Question 20

List some disadvantages of specialising in goods and production of goods and services to trade

Answer 20

• Over Dependence
• Trade Imbalance

Question 21

What are the 4 Functions of money?

Answer 21

• Means of exchange (facilitates trade)
• Measure of value (Can compare goods and services by prices)
• Store of Value (Can be stored and used at some point in future)
• Method of deferred payment (Allows credit and debt and a system for repayment of debt)

Question 22

What does a means of exchange allow?

Answer 22

Trade between countries

Question 23

What is a command economy?

Answer 23

A planning mechanism allocates resources
State is responsible for making decisions about what is produced

Question 24

What is a free market economy?

Answer 24

A price mechanism allocates resources
More AD leads to an increase in price
More profit means more resources

Question 25

What is a price mechanism?

Answer 25

A balance of procedures wanting high price and consumers wanting low price

Question 26

Advantages of a Free market economy

Answer 26

- Flexible and Responsive - Resources not wasted on planning system - Competition could lead to lower costs and prices - Firms need to innovate - Goods and services produced people actually want

Question 27

Disadvantages of Free Market

Answer 27

- No safety net for vulnerable - Wider inequalities - Necessary but unprofitable goods and services not produced - Large firms dominate markets

Question 28

Advantages of Command Economy

Answer 28

- Planning accounts for collective needs - Resources share more equitably - Easier to prevent abuse of monopoly power - Everyone can access basic necessities

Question 29

Disadvantages of command economy

Answer 29

- Greater infringement on individual liberty - Central planning uses resources - Lack of profit motive means no incentive for firms to make better goods and services

Question 30

What type of economy is the UK and why?

Answer 30

Mixed Economy Some goods and services produced by government planning, most produced via price mechanism

Question 31

Outline scarcity

Answer 31

Unlimited wants and finite resources

Question 32

Examples of opportunity cost to producers

Answer 32

producers might have to choose between hiring extra staff and investing in a new machine.

Question 33

Examples of opportunity cost to government

Answer 33

The government might have to choose between spending more on the NHS and spending more on education

Question 34

What did Adam smith state in relation to specialisation?

Answer 34

specialisation of labour will increase worker productivity

Question 35

What did Friedrich Hayek promote?

Answer 35

Laissez faire

Question 36

What did Karl Marx promote

Answer 36

Command Economies

Question 37

What did adam smith believe about economy structure?

Answer 37

Believed in the 'invisible hand' of market based solutions

Question 38

What is the role of the state in the mixed economy?

Answer 38

To provide public goods which would not be provided by the free marker - e.g street lighting, police etc