1 Flashcards
economic problem
our wants are infinite, but resources are finite, therefore, we have to choose how to best allocate our scarce resources in order to best maximise utility
renewable resources
resources that are being replaced the same or faster than they are being consumed
non-renewable resources
resources consumed faster than they are being replaced by natural means
opportunity cost
the benefit foregone when choosing the next best alternative
pareto efficiency
when an economy has its resources and goods allocated to the maximum level of efficiency, and no change can be made without making someone worse off
Production possibility frontier
The PPF line shows the maximum potential output of an economy if all FoP are fully utilised
concave shaped PPF
imperfect factor substitution
straight line PPF
constant opportunity cost, perfect factor substitution
actual economic growth
a rise in the amount of goods and services produced → shown by a movement towards the PPF line
specialisation
the production of a limited range of goods by a company/country which means that trade is essential as it is the only way they are able to access all that they need
division of labour
when labour becomes specialised in a particular part of the production process
Adam Smith
States that division of labour and specialisation can increase labour productivity, allowing firms to increase efficiency and lower their costs of production
Law of diminishing marginal utility
As we consume more, the need / want is satisfied more and more. The only way to persuade me ( consumer ) to buy more is to lower price to compensate for lower level of satisfaction
Marginal utility
additional utility ( satisfaction ) from consuming one additional unit, rate of change increases but at a slower rate
Income effect
same amount of money buys more rice, real disposable income has increased
