Reasons for individuals, organisations and societies having to make choices

Question 1

Explain the economic problem

Answer 1

• Factors of products are scarce
• Infinite wants
• Most people would like to consume more but don’t have the income or time to do so.
• Scarcity, choice and opportunity cost
• Problem is how should be allocate scarce resources among alternative uses.

Question 2

Goods vs services

Answer 2

• Goods are tangible products

- Services are intangible products

Question 3

Describe ‘capital’

Answer 3

Man made aids to production

Question 4

Meaning of entrepreneurship

Answer 4

The willingness of an entrepreneur to…

• Take risks
• Organise production

Question 5

Explain opportunity cost

Answer 5

The next best alternative foregone

- This is a statement of the true cost of what has been sacrificed.

Question 6

What is specialisation

Answer 6

• Concentration by worker, firm, region or whole economy on making a narrow range of goods and services.
• Distinct from self sufficiency

Question 7

What allows specialisation to be possible?

Answer 7

• Trade, involving exchange of output, allows specialisation.
• Trade enables countries/workers/firms to specialise in producing what they are able to make relatively efficiently.
• ## Determined mainly by availability of factors of production.

Question 8

What are the benefits of specialisation

Answer 8

1. Increased output compared to self sufficiency
2. Enhances choice of goods available
3. Export led growth

Question 9

Risks of specialisation?

Answer 9

1. Depletion of finite resources unless investments made for future
2. De-industrialisation
3. Having a narrow source of income is risky
   - e.g. bad weather can destroy a year’s crop and devastate the incomes of farmers
   - Tastes or needs of consumers may change and specialised producers of these goods will face a drop in their income
4. Geopolitical risks of specialisation - increases interdependence between countries. e.g. Asian Tsunami, Ukraine-Russia Gas Disputes

Question 10

Define division of labour

Answer 10

Specialisation of labour where production process broken down into separate, simpler, parts

Question 11

Explain why the division of labour keeps labour costs competitive

Answer 11

• Increases efficiency of production if production processes is divided into a series of separate tasks.
• ## Each employee undertakes a simple task, which raises productivity.

Question 12

Define productivity

Answer 12

Output, per work (per hour)

Question 13

Disadvantages of the division of labour

Answer 13

• Low paid workers,
• Long working hours for a standard wage
• Monotonous work can lead to intense boredom, poor quality products
• Dissatisfied and unhappy labour force.

Question 14

What does a PPC show

Answer 14

• Shows maximum quantities of different combinations of output of two products
• Given current resources and current state of technology

Question 15

Factors which can shift PPC outwards

Answer 15

• Technological improvements

- Greater quantity and quality of factors of production available.