1.1 Nature of Economicss

• What is one consequence of exploitation through high prices?

  Access to higher standards of living is limited for most of the population
• How can exploitation through high prices be avoided?


  By implementing regulations and policies that control pricing
• What should you consider when answering structured questions about economic systems?

  • Discuss unique disadvantages of each system
  • Avoid stating disadvantages as mere opposites of advantages

  
• What is the role of government intervention in a mixed economy?


  Government intervention occurs mainly through taxation and spending
• What are some types of tax interventions in a mixed economy?

  Personal income tax, corporation tax, value-added tax, tariffs on imports, inheritance tax
• How is income redistributed in a mixed economy?

  Through the creation of a welfare system that includes unemployment benefits, healthcare, and pensions
• What is the focus of government spending in a mixed economy?

  Infrastructure, merit goods, and public goods
• What are the pros and cons of free market and command economies?

  Pros of Free Market:

  • Profit incentive motivates work
  • Greater variety of goods/services
  • Competition improves quality and lowers prices

  
  

  Cons of Free Market:

  • Wealth concentration increases inequality
  • Product quality may fall
  • Exploitation of workers and resources

  
  

  Pros of Command Economy:

  • Social equality is prioritized
  • Less unemployment
  • Resources can be directed quickly to urgent needs

  
  

  Cons of Command Economy:

  • Lack of competition reduces innovation
  • Disincentives for skill acquisition
  • Inefficiencies lead to surpluses or shortages

  
• What motivates people in a free market economy?

  The profit incentive
• What is a disadvantage of a free market economy regarding wealth?


  Wealth gets concentrated in the hands of the few
• What is a common issue in command economies related to wages?

  All workers receive the same wage irrespective of role or career
• What is a potential consequence of a lack of competition in a command economy?

  Less innovation and product development
• How do Adam Smith, Friedrich Hayek, and Karl Marx differ in their views on economic systems?

  Smith advocates for free markets, Hayek critiques command economies, and Marx emphasizes social equality
• What is the function of money as a medium of exchange?

  It facilitates the exchange of goods without the need for bartering
• What is a problem associated with bartering?

  It requires a double coincidence of wants
• How does money serve as a measure of value?

  It allows consumers and producers to make decisions based on prices
• What does it mean for money to be a store of value?

  Money holds its value over time, allowing for savings
• What is the significance of money as a method of deferred payment?


  It allows consumers to acquire goods now and pay for them later
• What do shifts in the Production Possibility Frontier (PPF) indicate?

  • Outward shifts indicate economic growth
  • Inward shifts indicate economic decline
• What causes an outward shift of the PPF?


  An increase in the productive potential of an economy
• How can the quality of a factor of production be improved?


  Through training and education
• What is an example of how the quantity of a factor of production can be increased?

  By changing migration policies to allow more foreign workers
• What is an example of economic decline affecting the PPF?

  The Japanese tsunami of 2011 shifted their PPF inwards
• Who is often referred to as the 'father of Economics'?

  Adam Smith
• What did Adam Smith discuss in 'The Wealth of Nations'?

  How to increase productivity and wealth
• What is the division of labour?


  When a task is broken up into several component tasks
• What is a benefit of the division of labour?

  It allows workers to specialize and gain significant skill
• What are the pros and cons of the division of labour and specialisation in production?

  Pros:

  • Higher productivity lowers costs
  • Lower costs can lead to lower prices for consumers
  • Increased productivity allows for international market access

  
  

  Cons:

  • Task repetition can lead to boredom
  • Decreased motivation may reduce productivity
  • Creates low-skilled jobs that may limit future employment opportunities

  
• What is a potential negative impact of specialisation on a country's resources?

  It may lead to resource depletion over time
• How does international trade benefit firms that can compete globally?


  It can result in increased exports and economic growth
• What is a consequence of structural unemployment?


  Many firms in an entire industry may close
• What is a potential risk of over-dependency on other countries' resources?

  It may cause problems if conflict arises
• What is a disadvantage of mass-produced products?

  They often lack variety and do not consider different consumer preferences
• What is a potential consequence of increased worker turnover rates?


  Workers may seek more stimulating roles
• What is the significance of the quote by Adam Smith regarding the butcher, brewer, and baker?

  It emphasizes that self-interest drives economic activity
• What is the impact of heavy government intervention according to Adam Smith?


  It threatens efficiency and economic growth
• What is required for a command economy to function?

  The abolition of private property and central planning by the state
• What are the three fundamental economic questions that any economic system must answer?

  What to produce, who to produce for, and how to produce it
• What is a characteristic of a free-market economy?

  There is no government intervention in the allocation of resources
• What defines a command economy?

  All resources are owned by the state and controlled by the government