1.1 The Nature of Economics

• What is the main focus of economics as a subject?


  Economics deals with all aspects of economic behaviour.
• How does economics broaden your perspective?


  It provides a way of thinking about the world around you.
• What are the key ideas introduced in the chapter on economics?

  • Nature and scope of economic analysis
  • Role of models and assumptions
  • Positive and normative statements
  • Importance of scarcity and choice
  • Concept of opportunity cost
  • Notion of factors of production
  • Distinction between renewable and non-renewable resources
  • Production possibility frontier
  • Concept of division of labour
  • Specialisation and productivity
  • Role of markets and mixed economy
  • Alternative resource allocation methods
  • Distinction between microeconomics and macroeconomics
• What is a model in economics?


  A model is a simplified representation of reality used to provide insight into economic decisions and events.
• Why do economists use models?


  To simplify reality and focus on key aspects for analysis.
• What does the term 'ceteris paribus' mean?


  It means 'other things being equal' and is used to focus on one variable while holding others constant.
• How does a model's realism affect its value in economics?


  A model does not need to be totally realistic; its value lies in its ability to provide insights or predict behavior.
• What is the difference between positive and normative statements in economics?


  A positive statement is about facts and is testable, while a normative statement involves opinions or value judgments.
• If the government is investigating the effects of a tax increase on cigarette consumption, what type of statement is this?


  It is a positive investigation.
• What indicates a normative statement?


  Words like 'should' or 'ought to' indicate a normative statement.
• What is the fundamental economic problem faced by all societies?


  The fundamental economic problem is scarcity.
• How does scarcity affect individuals and governments?


  Scarcity forces individuals and governments to make choices about resource allocation.
• What is the difference between wants and needs?


  Needs are essential for survival, while wants are desires for additional goods and services.
• What are free goods and economic goods?


  Free goods are not scarce, while economic goods are scarce.
• What is opportunity cost?


  Opportunity cost is the value of the next-best alternative forgone when making a decision.
• If you choose to study instead of going out with friends, what is your opportunity cost?


  Your opportunity cost is the enjoyment and experiences you would have had with your friends.
• How does marginal analysis relate to decision-making?


  Marginal analysis involves considering small changes to evaluate the benefits and costs of decisions.
• What is an example of opportunity cost in a household decision?


  Choosing to buy a new car incurs the opportunity cost of not going on a holiday.
• What are the key terms related to scarcity and opportunity cost?


  • Scarcity: Limited resources vs. unlimited wants
  • Free goods: Not regarded as scarce
  • Economic goods: Goods that are scarce
  • Poverty: Lack of basic necessities
  • Opportunity cost: Value of the next-best alternative forgone
• What is the role of economic analysis?


  Economic analysis examines the choices made by individuals, firms, and governments.
• How do economists gather insights into economic behavior?


  Economists conduct experiments and rely on observations and assumptions.
• What challenges do economists face compared to physical scientists?


  Economists cannot conduct controlled experiments in many situations like physical scientists can.
• What is the significance of positive analysis in economics?


  Positive analysis helps inform normative judgments by providing factual insights.
• What is the relationship between value judgments and economic decision-making?


  Value judgments influence economic decision-making and policy.
• How do economists view disagreements among themselves?


  Economists may disagree on normative issues but generally agree on positive analysis.
• What is the focus of Chapter 5 in relation to taxation?


  Chapter 5 examines the effect of a tax on cigarettes.
• What is the significance of the economic problem of scarcity in society?


  Scarcity necessitates choices about resource allocation at both individual and government levels.
• How does the concept of opportunity cost apply to everyday decisions?


  Opportunity cost applies whenever a choice is made, as it involves forgoing the next best alternative.
• What is the relationship between opportunity cost and marginal analysis?


  Opportunity cost is considered in marginal analysis when evaluating the benefits of small changes in decisions.
• What is the opportunity cost of Asif choosing French over English?


  Asif's opportunity cost is the value of the English course he did not choose.
• What are some possible elements of opportunity cost for building a new sports hall?


  Opportunity costs may include funds that could be used for other projects or services.
• What are the key concepts related to economic agents?


  • Individuals: Make consumption choices
  • Businesses: Decide on production and pricing
  • Governments: Make policy and taxation decisions
• What subjects has Asif chosen for his A level courses?


  Economics, Mathematics, and French
• What is Asif’s opportunity cost of choosing French?


  The value of the next-best alternative, which is English
• How does the concept of opportunity cost apply to a household buying a new car?


  They forgo the possibility of going on a holiday
• What opportunity cost does a farmer face when choosing to grow onions?


  The inability to grow potatoes
• What are the three key groups of economic agents responsible for making decisions?

  • Consumers
  • Producers
  • Government
• What choices do consumers make in the economy?


  Choices about their expenditure and supply of labor
• What is the role of producers in the economy?


  To produce output of goods or services
• What is the dual role of firms in economic analysis?


  Producing goods and purchasing machines and raw materials