1.1 Nature of economics

Question 1

What is a positive statement?

Answer 1

An objective statement that can be tested against facts/evidence to be declared either true or false.

Question 2

What is ceteris paribus?

Answer 2

All things remain equal - assumption that only the two factors change and all other variables remain the same.

Question 3

What is a normative statement?

Answer 3

A subjective opinion or a valued judgement that cannot be tested against facts.

Question 4

What is a need?

Answer 4

Something that humans require to survive.

Question 5

What is a want?

Answer 5

Something that is not essential to survival but improves people’s standard of living or ‘economic welfare’.

Question 6

What is interdependence?

Answer 6

The decisions of each group contribute to how an economies resources are used.

Question 7

What is opportunity cost?

Answer 7

Refers to the value of the next best alternative forgone (given up) when a choice is made.

Question 8

What are rational people?

Answer 8

Economists generally assume that people behave rationally and make decisions in their self interest to maximise their benefit.

Question 9

What are the factors of production?

Answer 9

This is a country’s economic resources, referring to: Land, Labour, Capital, Enterprise.

Question 10

What is land in terms of factors of production?

Answer 10

Includes all the earth’s natural resources such as: Renewable/Non-renewable resources, Minerals, Sea, Water, etc.

Question 11

What is labour in terms of factors of production?

Answer 11

People involved in production (human capital) who contribute to the production process.

Question 12

What is a labour force?

Answer 12

The population that are capable of working.

Question 13

What is capital in terms of factors of production?

Answer 13

Man-made physical equipment used to make other goods and services.

Question 14

What is enterprise in terms of factors of production?

Answer 14

Entrepreneurs are individuals who are willing to take a risk to make a profit.

Question 15

What are the three economic agents?

Answer 15

Consumers, Producers/firms/suppliers, Government.

Question 16

What is a consumer’s role in terms of economic agents?

Answer 16

Person or organisation that directly uses a good or a service.

Question 17

What are producers/firms/suppliers roles in terms of economic agents?

Answer 17

A person, company or country that makes, grows or supplies goods and/or services.

Question 18

What is government’s role in terms of economic agents?

Answer 18

A political authority that decides how a country is run and manages its operations.

Question 19

What is an example of interdependence with the economic groups?

Answer 19

Many of the government actions may influence price, quantity or quality of a good or service.

Question 20

What is the basic economic problem?

Answer 20

The basic economic problem is scarcity i.e. the economic resources are limited relative to society’s wants.

Question 21

What is productivity?

Answer 21

The rate at which factor inputs are converted into outputs of goods and services.

Question 22

What is a production possibility curve?

Answer 22

A diagram which depicts the various combinations of two products that can be produced by an economy.

Question 23

How do you calculate the total productivity?

Answer 23

Total output % total amounts of inputs used.

Question 24

What are the four functions of money?

Answer 24

Medium of exchange, Measure of value, Store of value, Method of deferred payment.

Question 25

What is medium of exchange?

Answer 25

Enables the buying and selling of products, making exchange easier.

Question 26

What is measure of value?

Answer 26

Enables a value to be placed on products so they can be bought and sold with ease.

Question 27

What is store of value?

Answer 27

It is a convenient way of storing wealth so that it can be spent at a later date.

Question 28

What is method of deferred payment?

Answer 28

Enables borrowing and lending.

Question 29

What is division of labour?

Answer 29

The process whereby the production process is broken into a sequence of stages.

Question 30

What are some advantages of division of labour?

Answer 30

Increase in productivity, Increase in efficiency of resources, Improved efficiency.

Question 31

What are disadvantages of division of labour?

Answer 31

Repetition creates monotony and boredom, Breaking down production into stages makes it easier to replace workers.

Question 32

What is specialisation?

Answer 32

Occurs when an individual, firm, region or country concentrates on the production of a limited range of goods and services.

Question 33

What are some advantages of specialisation?

Answer 33

Increases productivity, Increase in efficiency, Reduction in average cost.

Question 34

What are some disadvantages of specialisation?

Answer 34

Structural unemployment, A country that specialises may face problems of resource depletion.

Question 35

What is a free market economy?

Answer 35

An economic system in which goods and services are purchased through the prices mechanism.

Question 36

What are some advantages of a free market economy?

Answer 36

Efficiency, Enterprise, Choice.

Question 37

What are some disadvantages of a free market economy?

Answer 37

Inequalities, Non-profitable goods may not be made, Monopolies.

Question 38

What is a command economy?

Answer 38

An economic system in which government officials are planners and allocate economic resources.

Question 39

What are some advantages of a command economy?

Answer 39

Governments can prevent inequality and redistribute income fairly.

Question 40

What are some disadvantages of a command economy?

Answer 40

Poor decision making by government about what needs to be produced.

Question 41

What is a mixed economy?

Answer 41

When both governments and markets play a part in allocating resources.