1.1 Flashcards
Uses of opportunity cost (3)
- consumers use to decide what to spend money on
- producers use to decide what/how to produce goods and services
- government use it to decide what politics to choose
Causes of economic growth (3)
- increase in quantity of factors of production
- increase in quality of factors of production
- a combination of both
What things can cause a point to be under the PPF curve? (2)
- inefficient use of resources
- underutilisation of resources
What does increased productivity lead to? (3)
- higher output + quality
- higher living standards
- more efficient use of resources
Advantages of division of labour? (4)
- Workers become more skilled through repetition of tasks
- the productivity of workers rises, so output rises
- workers are more efficient so time is saved
- workers are easier and cheaper to train
- higher quality of goods
Disadvantages of the division of labour? (2)
- Repetition may result in boredom ->lower morale -> lower quality of goods
- simplified roles could result in a reduction in workers pride
- workforce does not have wide industrial training and thus could suffer from structural unemployment
Advantages of specialisation (3)
- better quality + quantity
- efficient resource use
- higher economic growth -> better living standards
- comparative advantage = greater output
Disadvantages of specialisation (4)
- over reliance on a few industries is risky
- increased interdependence reduces self sufficiency
- workers receive little training = struggle to find work = suffer structural unemployment.
- Mass-produced standardised goods may lack variety which damages consumer welfare.
Results of firms in free markets having profit motive
- Firms can develop own new products
- Firms incentivised to meet consumer demand
what type of science is economics and why?
Economics is a social science which means it studies society and relationships between people
what are positive statements?
Positive statements are objective statements that can be refuted
what are normative statements?
Normative statements are subjective statements – i.e. they carry value judgments
What is microeconomics?
Microeconomics considers the economics of everyday life such as the decisions that we as households take and the impact of businesses in different and related industries
what is the economic problem?
The basic economic problem is finding efficient and fair ways to meet infinite wants with finite resources.
Factors of Production
- Land: The stock of natural factor resources available for production
- Labour: The quantity/quality of human input available for production process.
- Capital: Man-made goods used to supply other products
- Enterprise: Entrepreneurs organise inputs and take risks when seeking to exploit market opportunities.
What is automation?
Automation is a production technique that uses capital machinery & new technology to replace or enhance human labour
what does the rate of extraction of non renewable resources depend on?
The rate of extraction of finite resources depends in part on the current market price.
- Higher prices = incentive to increase rate of extraction since there is an opportunity to make higher profits.
difference between micro ppf and macro ppf?
micro - look at two specific products
macro - choices an economy might have between capital goods and consumer goods
what is a Pareto efficient outcome?
if the only way to make one person better off is to make another person worse off.
what can cause a PPF to shift inwards?
- natural disaster effects
- war
- large scale net migration out of the country
- long term productivity fall
four main functions of money?
- medium of exchange
- store of value
- unit of account
- standard of deferred payment
free market economy
markets allocate scarce resources through the price mechanism
command economy
associated with communism, government distributes scarce resources
mixed economy
some resources owned by public sector, some resources owned by private sector
advantages of free market competition?
- efficient allocation of resources
- competitive prices
- innovative dynamism
- profit motive invites investment
disadvantages of free market
- can lead to wealth inequality
- businesses can develop monopoly power
- user/non provision of our public goods
- under provision of merit goods, such as health and education
- externalities
disadvantages of central planning
- lack of incentives = less productivity
- lack of innovation
- slow to react to changing wants and needs of customers
Ceteris paribus definition
Holding all other factors/variables constant
Each factor of production and their reward
Land - rent
Labour - wages
Capital - interest
Enterprise - profits
Define PPF
Production possibility frontier:
- maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed
Define specialisation and and who backed it
Specialisation - when each worker completes a specific task in the production process
Adam smith believed this would lead to increased worker productivity
Value judgements can influence
Economic decision making
Define PPF
Maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology
The government’s role in a mixed economy:
- creating a framework of rules
- supplements and modifies the price system
- redistributes income
- stabilises the economy.
