1. Nature of economic Flashcards
positive statement
objective, can be tested (look for words such as ‘will’ and ‘is’)
normative statement
subjective, based on value judgement (look for words like ‘should’)
the economic problem
how to satisfy limited, scarce resources with unlimited wants and needs
factors of production
Capital
Entrepreneurship
Labour
Land
what is a PPf
it depicts the maximum productive potential of an economy
advantages of specialisation and the division of labour
-higher output
-greater variety
-economies of scale
-more competition
disadvantages of specialisation and the division of labour
-lack of motivation due to repetitiveness
-structural unemployment
functions of money
-a medium of exchange
-a measure of value
-a store of value
-a method of deferred payment
free market economies
government leaves the market to its own devices, so the market forces of supply and demand allocate scarce resources
advantages of free market economies
-firms likely to be efficient to meet consumers demand
-avoids government intervention
-freedom of a free economy leads to more personal freedom
disadvantages of free market economies
-it ignores inequality
-benefits this with the most wealth
-monopolies can exploit the market by charging higher prices
-over consumption of demerit goods
command economies
government allocates all scarce resources in an economy to where they think there is a greater need
advantages of command economies
-easier to coordinate resources
-increase equality
-reduce abuse of monopoly power
disadvantages of command economies
-increased corruption
-increased crime
-may not meet consumer preferences
people in economics
Adam smith (invisible hand)
Hayek (criticised government intervention)
Marx (free market is unstable, very communist)
