Unit 1

Question 1

What is an economic system?

Answer 1

This describes the combination of economic and social institutions and how they interact

Question 2

What is capitalism?

Answer 2

This is an economic system that is characterized by institutions built around private property, firms and markets

Question 3

What is communism?

Answer 3

This is common ownership of production means and absence of classes

Question 4

What is socialism?

Answer 4

This is focus on socializing production and socializing consumption(access to free goods)

Question 5

What is GDP per capita?

Answer 5

Its a measure of living standards and is found by :

GDP/population

Question 6

What are the problems with using it?

Answer 6

It doesn’t take inequality into account
It doesn’t measure wellbeing
There are some activities that take place that aren’t recorded

Question 7

How is inequality measured?

Answer 7

The 90/10 ratio

Question 8

How is growth rate measured?

Answer 8

Change in GDP/Original GDP

Question 9

What does history’s hockey stick represent?

Answer 9

The sustained rapid growth in GDP per capita experienced by countries

Question 10

What delayed the takeoff of African countries?

Answer 10

1. Colonialism
2. Failed economic policies
3. Lack of adequate quality data to measure economic growth
4. Extractive institutions

Question 11

What is the industrial revoloution?

Answer 11

The wave of technological advances and organizational changes that took place in Britain in the 18th century onwards

Question 12

What is a technology?

Answer 12

This is a process that uses a set of inputs to create a set of outputs

Question 13

What is technological progress?

Answer 13

A change resulting in less labour being used to produce the same amount of output

Question 14

What is a market?

Answer 14

This is a way of connecting people who mutually benefit by exchanging goods and services through a process of buying and selling

Question 15

What is a firm?

Answer 15

This is the way of organizing production

Question 16

How did capitalism improve living standards?

Answer 16

1. Specialization- Firms growing and markets expanding lead to division of labour
2. Technology - Competition meant that firms had to be more innovative and more productive to remain competitive

Question 17

What were the gains from specialization?

Answer 17

People were made more productive as the had a limited range of things to do:

• Learning by doing
• difference in ability
• economies of scale

Question 18

What is absolute advantage?

Answer 18

This is when a person of firm can produce the same amount of a good with less inputs compared to another

Question 19

What is comparative advantage?

Answer 19

This is when a person or country has a lower relative cost of producing one good in comparison to others

Question 20

When can capitalism fail to raise living standards?

Answer 20

1. Lack of competition in markets
2. Firms owned by someone with government connection
3. Private property isn’t secure