1.1 Flashcards
What does Ceteris paribus mean?
That when the effect of a change in one variable is considered, it is assumed that all other variables are held constant.
What is a positive statement?
Objective statements based on evidence or facts that can be proved or disproved.
What is a Normative economic statement?
Subjective statements based on value judgments and cannot be proved or disproved.
What is the economic problem?
Unlimited wants but limited resources
What are the economic questions due to scarcity?
1 - What to produce and how much to produce?
2 - How should the goods and services be produced?
3 - How should the goods produced be allocated?
What are the factors of production?
Capital, Enterprise, Land, Labour
What are non renewable resources?
Finite resources that will eventually run out, e.g oil.
What are renewable resources?
Resources that can be replaced naturally after use and thus stock levels can be maintained.
Definite opportunity cost.
The value of the next best alternative forgone when a choice is made
What does a production possibility frontier illustrate?
The maximum potential output of an economy when all resources are fully employed.
Define consumer goods
Goods that provide utility to consumers.
Define capital goods
Goods that are required to produce other goods e.g machinery
Define economic growth
An increase in the productive capacity of the economy indicating an increase in real output.
Define economic decline
A decrease in the productive capacity of the economy indicating a decrease in real output.
What factors cause an outward shift in the ppf?
1- Discovery of new natural resources.
2 - Development of new methods of production that increase productivity advances in technology.
3 - Improvements in education and training that increase the productivity of the work force.
4 - Factors that lead to an increase in the size of the workforce
What factors cause an inward shift in ppf?
1 - Natural disasters
2 - Depletion of natural resources
3 - Factors causing a reduction in the size of the workforce.
4 - A deep recession that results in a loss of productive capacity
What is the division of labour?
When work is split into small specialised tasks.
What are advantages of specialisation and the division of labour for production?
1- Each worker may specialise in tasks which they are best suited.
2- Workers only have to be trained in one task.
3- less time is wasted because a worker no longer has to move from one task to another.
4- Enables the use if production lines, this helps increase productivity and reduce average costs of production.
What are the disadvantages of specialisation and the division of labour for production?
1- Monotony and boredom for workers
2- loss of skills: workers trained in one task may have limited skills
3- lack of variety because all goods produced on a production line are identical
What is an advantage of a country specialising in the production of goods and services to trade?
Larger quantity of goods and services that can be produced.
Can decide to outsource production resulting in lower prices and greater choice.
What are disadvantages of specialisation in trade
It may mean a country becomes over dependent on resources from another country.
What are the 4 functions of money?
1- Medium of exchange
2- Store of value
3- A measure of value
4- A means of deferred payments
Define a free market economy
Economic system where prices are determined by market forces ( supply and demand). Resources are privately owned and the government has little control
What are the characteristics of a free market economy?
1- private ownership of resources
2- market forces determine prices
3- producers aim to maximise profits
4- consumers aim to maximise utility
5- resources are allocated by the price mechanism
Define a command economy
A economic system in which a central government/state allocates all resources
What are characteristics of a command economy?
1- State ownership of resources.
2- State determines price.
3- Producers aim to meet production targets set by the state
4- state allocates resources.
5- greater equality of income and wealth in a free market economy.
Define a mixed economy
A combination of a free market economy and a command economy.
What are advantages of a free market economy?
1- Consumer spending determines what is produced.
2- Flexibility: the free market system can respond quickly to changes in consumer wants.
3- Efficiency: competition and the profit motive help promote an efficient allocation of resources
4- Increased choice: consumers have s wide choice of goods and services compared with a command economy.
5- Economic and political freedom: consumers and producers have the right to own resources.
6- No bureaucracy.
