The economic problem + PPF

Question 1

4 categories resources are categorised into

Answer 1

Land – any natural resource
Labour – any human input
Capital – any man-made factor of production
Enterprise/Entrepreneur – the risk taker that organises the other factors of production

Question 2

The 3 economic problems as a result of resource sarcity

Answer 2

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

Question 3

Tertiary sector

Answer 3

Tertiary sector activity – the provision of services and the distribution and exchange of goods

Question 4

Primary sector

Answer 4

Primary sector activity – the extraction of resources in their rawest form

Question 5

Secondary sector

Answer 5

Secondary sector activity – the processing and manufacturing of these resources into goods and services

Question 6

Economic activity refers to the use of scarce resources in …

Answer 6

• Production - involves the conversion scarce resources into finished goods and services
• Distribution - refers to the movement of the raw resources or the finished goods and services to points of production and consumption
• Exchange - refers to any monetary or non-monetary transaction between a producer and a consumer
• Consumption - describes the using up of a good or service by a consumer in order to gain satisfaction or “utility”. It is the opposite of production (a form of economic destruction)

Question 7

Normative statements

Answer 7

Normative statements are subjective statements that contain value judgments and cannot be scientifically tested, falsified or verified

Question 8

Positive statements

Answer 8

Positive statements are objective and can be tested against evidence to see whether they are true or false

Question 9

Economics

Answer 9

Economics is the study of how best to allocate scarce resources across alternative uses.

Question 10

Opportunity cost

Answer 10

The opportunity cost of any decision is the next best alternative foregone

Question 11

3 things

The economic problem

Answer 11

1. Scarcity
2. Economic problem
3. Resource allocation

Question 12

Scarcity

Answer 12

A situation in which there are finite resources but infinite wants.

Question 13

Economic problem

Answer 13

How to allocate finite resources to meet infinite wants

Question 14

Resource allocation

Answer 14

The placement of land, labour, capital and enterprise into competing areas of production in an attempt to maximise social welfare

Question 15

Adam Smith

Answer 15

• Founding father of economics
• Wrote “The Wealth of Nations”
• Applied the theory of division of labour

Question 16

Self-suffiency

Definition

Answer 16

In primitive economies economic activity largely revolves around family or tribal units trying to meet all their economic needs through their own efforts rather than by specialising in particular areas.

Question 17

Specialisation

Definition

Answer 17

Specialisation is when a factor of production concentrates on a particular activity on a repetitive basis in order to improve productivity and efficiency.

Question 18

Productivity

Advantages

Answer 18

1. Productivity is measured by output per worker or per unit of time
   Productivity rises when:
   * Workers become efficient at tasks they perform regularly
   * Less time is wasted moving between different tasks
   * Less time is needed to train workers for particular tasks
   * Some workers are more suited to particular tasks than others

Question 19

Disadvantages of productivity

Answer 19

The main disadvantage of division of labour is that by specialising in narrow areas of activity work may become repetitive and boring for individual workers. It also makes workers vulnerable to unemployment if the demand for their skills disappears. This is equally true of nations that have over-specialised

Question 20

Ideal characteristics of money

Answer 20

• Acceptable - want/desire
• Portable
• Divisible
• Durable
• Homogeneous - same type, identical, therefore trustworthy
• Limited in supply - reducing inflation

Question 21

Functions of money

Answer 21

• A medium of exchange
• A store of value/store of wealth
• A measure of value/unit of account
• A means of deferred payment

Question 22

Barter

Definition

Answer 22

The direct exchange of goods/services for other goods/services

Question 23

A medium of exchange

Answer 23

Exchange through an intermediary adds one stage to transactions but is much more efficient because it removes the need for buyers and sellers to find a double coincidence of wants.

Question 24

Depreciation

Definition

Answer 24

The loss in value of an asset overtime

Question 25

PPF

Answer 25

A production possibility frontier shows the maximum possible output combinations of two goods/services given the current level of resources and the existing level of technology.

Question 26

Behind the PPF curve

Answer 26

Outputs that are productively inefficient because some resources are unemployed and the economy is not producing to its full potential

Question 27

Beyond the PPF curve

Answer 27

Outputs that are not attainable with the current level of resources and technology (hence the name, “frontier”)

Question 28

On the PPF curve

Answer 28

All outputs that are described as productively efficient because all scarce resources are fully employed and output is maximised