Economic Problem, FoP, Specialisation, Opportunity cost, PPC, Martkets

Question 1

Define the economic problem?

Answer 1

How to allocate scarce resources among unlimited and competing wants

Question 2

Define opportunity cost?

Answer 2

The value of the next best alternative forgone when a choice is made.

Question 3

What are the 4 factors of production?

Answer 3

• Land
• Labour
• Capital
• Enterprise

Question 4

Define specialisation?

Answer 4

The concentration of a worker, firm , region or country on a narrow range of tasks or goods and services.

Question 5

What 3 questions come from the economic problem?

Answer 5

• What to produce?
• How to produce?
• For whom to produce?

Question 6

Benefits of specialisation?

Answer 6

• Specialisation leads to increased productivity, which enables economies to produce more goods and services and the people can enjoy a better standard of goods.
• Specialisation enables people to improve their skills and become more productive
• Countries can specialise in producing those goods and services they are best at. These countries have the comparative advantage over other countries.
• Increased trade leads to economic growth and development!

Question 7

Drawbacks of specialisation?

Answer 7

• Over specialisation can lead to unemployment, people become highly skilled and if demand for their skills in an economy falls, they can be made redundant.
• If a whole nation specialises in the production of a particular good and its demand falls, then unemployment will rise.
• These days workers need to be flexible and multi-skilled to keep up with technological development

Question 8

Define the Production Possibility curve?

Answer 8

The production possibility curve shows the maximum output combination of two goods and services that an economy can produce with all resources fully employed.

Question 9

What three things does the PPC show?

Answer 9

• A way of illustrating the concept of opportunity cost.
• The PPC shows the maximum output combination of two goods and services than an economy can produce with all resources fully employed.
• The PPC indicates the maximum productive capacity of an economy over a given period of time, assuming that the quality and quantity of resources as well as the state of technology do not change over that period of time.

Question 10

What does a point inside the PPC indicate?

Answer 10

Underproduction and unemployment. The economy is producing below its full capacity.

Question 11

What does a straight line PPC indicate? (in terms of opportunity cost)

Answer 11

The opportunity cost is constant

Question 12

What does a concave PPC indicate? (in terms of opportunity cost)

Answer 12

A concave PPC indicates that the opportunity cost is increasing

Question 13

What does a convex PPC indicate? (in terms of opportunity cost)

Answer 13

A convex PPC indicates that the opportunity cost is decreasing

Question 14

What will cause a shift in the PPC?

Answer 14

If quantity or quality of resources and / or the state of technology change, the country’s production capacity will change. This is shown diagrammatically as a shift in the PPC

Question 15

What are the three Economic systems?

Answer 15

• Planned economy
• Mixed economy
• Free market economy

Question 16

What’s the basis of the 3 types of economic systems?

Answer 16

• Planned economy: State ownership and control over the factors of production, in common interest
• Mixed Economy: Partly state controlled and partly consumer controlled.
• Free market economy: Consumer controls demand, and everyone works in their own self-interest. Privately owned.

Question 17

Define a market?

Answer 17

A market is any interaction between buyers and sellers for the exchange of goods and services

Question 18

What are the 5 types of markets?

Answer 18

• Goods and services
• Commodities
• Currencies
• Shares
• Labour

Question 19

What leads to a price rise in a market?

Answer 19

When demand exceeds supply, a shortage exists and price will tend to rise.

Question 20

What leads to falling prices in a market?

Answer 20

When supply exceeds demand, a surplus exists and price will tend to fall