Nature of Economics

• What is specialisation in economics?

  Workers complete specific tasks in production
• Who famously stated the concept of specialisation?

  Adam Smith
• How does the division of labour affect productivity?

  It increases worker productivity
• What advantage do firms gain from increased efficiency?

  Lower average costs of production
• How many distinct operations are involved in making a pin according to Smith?

  About eighteen distinct operations
• What is the significance of dividing the production of pins into tasks?

  It significantly increases output
• Who can achieve specialisation?

  Individuals, businesses, regions, or countries
• What are the advantages of specialisation?

  • Higher output and potentially higher quality
  • Greater variety of goods and services
  • Opportunities for economies of scale
  • Increased competition leading to lower costs
• What are the disadvantages of specialisation?

  • Repetitive work may lower motivation
  • Potential for structural unemployment
  • Decreased variety for consumers
  • Higher worker turnover rates
• What is one function of money as a medium of exchange?

  It eliminates bartering problems
• What does money measure in terms of value?

  The relative values of goods and services
• How does money serve as a store of value?

  It holds value over time
• What is a method of deferred payment in relation to money?

  Allows debts to be created
• What are the functions of money?

  1. Medium of exchange
  2. Measure of value (unit of account)
  3. Store of value
  4. Method of deferred payment
• What are free market economies also known as?

  Laissez-faire economies
• How do free market economies allocate scarce resources?

  Through market forces of supply and demand
• Who makes economic decisions in a free market economy?

  Private individuals and firms
• What is a characteristic of ownership in free market economies?

  Private individuals own everything
• What is the role of government in a true free market economy?

  There is no government intervention
• What do governments typically implement in free market economies?

  Laws and public services
• Who are two famous free market economists?

  Adam Smith and Friedrich Hayek