1.1 Flashcards
What would happen to the PPF if some factors of production are unemployed? e.g labour is unemployed
What would happen in the long run?
The PPF would not shift. Fcators of production being unemployed shows we are operating at a pont inside the PPF, and we are not using our resources efficiently, as some resources are unemployed.
In the long run, if workers stay unemployed for a long time, they may lose skills, an when they get back to work, they are being less productive and less efficient, and in this case, the PPF would shift inwards.
What are capital goods and what are consumer goods?
Capital goods are physical assets used by businesses to produce consumer goods and services, such as machinery, tools, and equipment. Consumer goods are finished products intended for direct consumption by individuals, such as food, clothing, and electronics.
What causes an outwards shift in the PPF?
- Discovery of natural resources
- Development of methods that increase production
- Technology
- Increase in education and skills of workforce and their productivity
- Fcators that lead to an increase in the size of the worforce e.g : immigration, increase in retirment age
What factors cause the PPF to shift inwards?
- Natural disasters
- Depletion of natural resources
- Factors that cause a decrease in the size of the workforce e.g : emigration
What is the division of labour?
When the production process is broken into smaller specialised tasks.
Adam Smith believed that the divison of labour would increase economic growth.
Advantages of specialisation and the division of labour
Increased Productivity – Workers become skilled in their specific tasks, leading to faster and more efficient production.
Higher Quality Output – Specialisation allows workers to master their tasks, reducing errors and improving product quality.
Time-Saving – Less time is wasted switching between different tasks, leading to smoother workflow and faster production.
Lower Training Costs – Training workers for a specific task is quicker and more cost-effective than training them for multiple roles.
Economic growth - Specialisation leads to higher productivity, less wastage, so goods can be produced at lower costs, which makes exports more competitive, increasing economic growth.
Disadvantages of specialisation and the division of labour:
Work Monotony – Repeating the same task can become boring and demotivating for workers, reducing job satisfaction.
Overdependence on Workers – If a specialised worker is absent, production can be disrupted as others may not have the required skills.
Loss of Skills (structural unemployment) – Workers become highly skilled in one area but may lose the ability to perform other tasks, reducing flexibility.
Increased Risk of Unemployment – If a specialised job becomes obsolete due to automation or economic changes, workers may struggle to find new employment.
Limited Creativity – Specialisation restricts workers from thinking outside their specific tasks, reducing overall innovation.
Exploitation of Workers – Employers may take advantage of workers by paying low wages for repetitive jobs with minimal skill development.
What are the 4 functions of money?
Medium of Exchange – Money is used to facilitate transactions by eliminating the need for barter, making trade more efficient.
A measure of value – It provides a standard measure for pricing goods and services, allowing for easy comparison of value.
Store of Value – Money retains its value over time, enabling people to save and use it for future transactions.
Standard of Deferred Payment – It allows for transactions to be settled at a later date, making credit and loans possible.
What are the charcateristics of a free market economy?
- Private ownership of resources
- Prices are set by maret forces (supply and demand)
- Resources are allocated by the price mechanism
- Cosnumers aim to maximise utility and producers aim to maximise profits
Adam Smith and Friedrich Hayek defended free market economys. They believed in capitalism.
What are the characteristics of a command economy?
- State ownership of reources
- State determines prices
- State allocated resources
- Greater equality
Karl marx defended command economies. He believed in communism.
Advantages of free market economies:
Efficient Allocation of Resources – Businesses produce goods and services based on demand, ensuring resources are used efficiently.
Consumer Choice – Individuals have a wide variety of products and services to choose from, increasing satisfaction.
Innovation and Economic Growth – Competition encourages businesses to innovate, leading to better technology and economic development.
Higher Productivity – Profit motives drive businesses to be more productive and cost-effective.
Lower Prices Through Competition – Companies compete to offer better quality goods at lower prices, benefiting consumers.
Disadvantages of free market economys
Income Inequality – Wealth tends to concentrate among the most successful businesses and individuals, leading to economic disparities.
Market Failures – Free markets may fail to provide essential services like healthcare, education, and infrastructure, leading to inefficiencies.
Exploitation of Workers – Businesses focused on profit may offer low wages and poor working conditions to maximize profits.
Lack of Public Goods – Services like public transportation, roads, and defense may be underprovided because they are not profitable.
Monopoly Power – Some companies may dominate industries, reducing competition and leading to higher prices and lower quality products.
Adv of command economies
Equal Distribution of Wealth – The government controls income distribution, reducing income inequality.
Provision of Public Goods – Essential services like healthcare, education, and infrastructure are provided to all citizens.
Stable Economy – Government planning prevents economic fluctuations like recessions and inflation.
Full Employment – The state ensures jobs for everyone, reducing unemployment.
Monopoly prevention – The government owns major industries like energy and transportation, preventing monopolies and ensuring fair pricing.
Disadv of comman economies
Lack of Incentives – With no profit motive, businesses and individuals may lack the motivation to innovate, improve efficiency, or work hard.
Inefficiency in Resource Allocation – Centralized planning can lead to poor decisions, with resources being allocated in ways that don’t reflect actual demand or needs.
Limited Consumer Choice – The government controls production, often resulting in fewer products and less variety for consumers.
Suppressed Entrepreneurship – The lack of private ownership and competition discourages entrepreneurship and innovation.
Poor Quality of Goods and Services – Without competition, there’s less incentive to produce high-quality goods, leading to lower standards.
What is the role of the state in a mixed economy?
Provider of Public Goods and Services – The state provides essential services such as education, healthcare, infrastructure, and national defense that may not be efficiently supplied by the private sector.
Redistributor of Income – The government works to
reduce economic inequality by using taxation and welfare programs (e.g., unemployment benefits, social security) to redistribute wealth and support those in need.
Defense and internal security
What are positive and normative statements?
Positive statements are those that are factural, and can be proven. They are SUBJECTIVE, and not influenced by opinions.
Normative statements are those that require value judgements, and are influenced by opinions, therefore they are OBJECTIVE.
What si the economic problem and the questions that arise from it?
Resource are scarce, but there are unlimited wants.
This causes economists to question:
- WHAT should be produced?
- WHO should goods be produced for?
- HOW should these goods be produced?
What is an economic good VS free good ?
A free good is a resource or product that is plentiful and available without any cost or scarcity, meaning it can be consumed without reducing its availability to others, like clean air, while an economic good is a limited resource that requires effort, resources, or money to produce and is subject to supply and demand, such as food, clothing, or electronics.
