Booklet One

Question 1

What is economics?

Answer 1

Economics is defined as the allocation of scarce resources

Question 2

What is the central purpose of economic activity?

Answer 2

The central purpose of economic activity is the production of goods and services to satisfy customer wants and needs

Question 3

How is economics is the same as social science?

Answer 3

.Both test for hypothesis
.Both try to change one variable at a time
.Both try to predict future events

Question 4

How is economics different to social science?

Answer 4

.Economists are influenced by value judgment (opinions)
.Economists have to consider moral and political factors
.Economists build models that use assumptions

Question 5

Define ceteris paribus?

Answer 5

All other things remain equal

Question 6

What type of resource is the environment?

Answer 6

The environment is a scarce resource

Question 7

Define scarcity

Answer 7

Choices have to be made about how scarce resources are allocated between different uses

Question 8

What is a positive statement?

Answer 8

Statement of fact
Can be tested

Question 9

What is a normative statement?

Answer 9

Subjective opinions that contain a value judgement
Can’t be tested

Question 10

Three types of economic agents?

Answer 10

Households/Consumers
Firms
Government

Question 11

What is utility?

Answer 11

The satisfaction derived from consuming a good or service

Question 12

Why are people not rational utility maximisers? (4)

Answer 12

.Information failure - when one party knows more about the true value of a product than another party
.Lack of affordability - consumer might have a limited disposable income
.Altruism - the selfless concerns for the well being of others
.Degree of addictivness

Question 13

What is the basic economic problem?

Answer 13

There are infinite human wants but we have limited resources

Question 14

What is a free market economy?

Answer 14

When resources are allocated through markets (those willing and able to pay the most get the resources)

Question 15

What is a mixed market economy?

Answer 15

Some resources are allocated through through the market will others are allocated by the government

Question 16

what is a planned/command economy?

Answer 16

when the government decides what to produce and how it will be allocated

Question 17

what is an initial factor endowment?

Answer 17

the amount of factors of production an economy has

Question 18

what are the 4 factors of production?

Answer 18

capital - man made aids to production
enterprise - risktakers who innovate and produce goods and services
land - natural recourses of the economy
labour - the human input into the production process

Question 19

three choices on how we allocate resources:

Answer 19

What to produce
How to produce
For whom to produce for

Question 20

what is opportunity cost?

Answer 20

The cost of the next best alternative foregone when a choice is made

Question 21

The amount an economy can produce depends on? (3)

Answer 21

the economies initial endowment factors of production
current technology
current productivity

Question 22

what does a PPF show?

Answer 22

the various combination of 2 goods /services that can be produced with given factors of production

Question 23

what is a trade-off?

Answer 23

a situation where an improvement in one variable lead to a deterioration in another

Question 24

what is a consumer durable good?

Answer 24

Tangible goods purchased by consumer that can be used more than once

Question 25

what is a consumer non durable good?

Answer 25

Tangible goods purchased by consumers that can only be used once

Question 26

what is productivity?

Answer 26

The number of output produced per worker or machine in a given time period

Question 27

productivity formula

Answer 27

total out put per time period / number of units of factors of production

Question 28

what is specialisation?

Answer 28

Focusing on one area of production

Question 29

advantages of higher productivity (5)

Answer 29

improved competitiveness in international markets
economic growth
higher real wages
low average costs
higher profits

Question 30

what is productive efficiency?

Answer 30

attained when a firms operates at minimum average costs, choosing an appropriate combination of inputs and providing the maximum output for its input

Question 31

average cost formula

Answer 31

total costs/number of units of output

Question 32

what is allocatively efficiency?

Answer 32

the economy is producing the combination of output that maximises consumer welfare

Question 33

what is pareto efficiency?

Answer 33

A situation where no body can be made better of without someone else being made worse off

Question 34

what is static efficiency?

Answer 34

being (allocatively or productively) efficient at a given moment in time

Question 35

define dynamic efficiency?

Answer 35

becoming more (productively) efficient over time usually as a result of investment

Question 36

what is X-inefficiency?

Answer 36

in uncompetitive markets, dominant firms lack the incentive to minimise their cost as they have the ability to increase prices

Question 37

define the division of labour

Answer 37

Breaking down a process into parts and allowing workers to specialise in one or more areas to increase productivity

Question 38

Disadvantages of specialisation and the division of labour (6)

Answer 38

.Gives rise to monopoly power
.Boredom is a problem
.Negative externalities
.Environmental damage
.Unemployment and mental health
.Climate change