Micro 1.1.5+6

Question 1

Normative statements?

Answer 1

Opinionated

Question 2

Positive statements?

Answer 2

Fact

Question 3

Why is economics a social science?

Answer 3

Uses scientific methods to build theories

Question 4

Problem of scarcity?

Answer 4

Unlimited wants, finite resources

Question 5

Factors of production?

Answer 5

Land

Labour

Capital

Enterprise

Question 6

What is a free good

Answer 6

No opportunity cost

Question 7

Difference between command and market economies

Answer 7

Planning mechanism allocates resources vs price mechanism allocates resources

Question 8

Socialist vs capitalist economies

Answer 8

Means of production state owned vs privately owned

Question 9

1940s UK economy ?

Answer 9

State ownership coal, rail, steel

1944 Creation of NHS

Question 10

1960s/70s UK economy?

Answer 10

People said public sector inefficient and wealth consuming

Question 11

1980s/90s

Answer 11

Privatisation, deregulation, marketisation (changing market price for goods)

Question 12

What did Adam smith believe?

Answer 12

Capitalist economy good

People should pursue their self interest with government repression

They act like they are controlled by an “invisible hand” to guide and create the most common good if acting in self interest

But if self interest lead to greed and oppression, gov should intervene

Question 13

What did Friedrich Hayek believe?

Answer 13

Too complex to organise big economic regulation

Theory of “minimum state”
Redistribution of wealth through public treasury

Neoliberalism

Question 14

What did Karl Marx believe?

Answer 14

Communism.

No private property or controlling central authority

Common means of production

Question 15

What are value judgements ?

Answer 15

An assessment of something as good or bad in terms of one’s standards or priorities

Question 16

Advantages/disadvantages of free market economy

Answer 16

Freedom to innovate

Customers drive choices

But

Market failure

Dangers of profit motive

Question 17

What is specialisation

Answer 17

Division of labour, Adam Smith

Breaks down large jobs into tiny components

Each worker becomes expert in isolated area, more efficient

Question 18

Advantages of specialisation in organising production

Answer 18

More efficient

Better capital employed

Question 19

What is absolute advantage

Answer 19

When a country can produce more of a good with fewer resources

Look at numbers

Question 20

What is comparative advantage

Answer 20

Relative efficiency

A country has it when it can produce a good at a low opportunity cost

David Ricardo developed idea

Question 21

What are the UK’s comparative advatages

Answer 21

Medical technology

Chemicals and pharmaceuticals

Aerospace technology

Question 22

What is comparative advantage on a PPF

Answer 22

If same gradient for two countries, opportunity costs are the same, no comparative advantage

Question 23

What are renewable goods?

Answer 23

Resources that the rate of extraction is lower than rate of renewal

Question 24

Why is specialisation good in terms of trade?

Answer 24

Economies can specialise in what they have a competitive advantage in and total output rises

If they then trade for other product that they need they mutually benefit and have more of both products