1.1 nature of economics Flashcards
what are the two factors that determine demands?
- one’s utility
- your wealth - whether you can afford it or not
what are scarce resources?
resources are limited in supply so choices have to be made about their uses
what is the economic problem?
as humans we have infinite wanted but finite resources
therefore, resources have to be allocated between competing uses because wants are infinite and resources are not
what are renewable resources?
resources which can be exploited over and over again because they have the potential to renew themselves
what are non-renewable resources?
resources like coal and oil, which once exploited cannot be replaced
what are sustainable resources?
renewable resource which are being economically exploited in such a way that they can be replaced
what is an opportunity cost?
the benefits of the next best alternative which has been given up due to a choice being made. it exists as a product of every choice, as a result of the economic problem
what are the 4 factors of production?
- land: the space required for any physical business
- labour: work force
- capital: physical things required to operate a business eg. machinery
- enterprise: someone who is willing to take a risk on their capital to start a business, based on an incentive
what are the rewards for production?
- land // rent
- labour // salary
- capital // interest
- enterprise // profit
what is a positive statement?
- factual statements - that can be proved true or false
- they can be proven - objective
what is a normative statement?
- an opinion based on judgement - subjective
what is a production possibility frontier?
the frontier in which all factors of production are being used to their full potential
what is the shape of a PPF curve?
- usually concave to the origin -> as more resources are allocated, extra output gets smaller, less profit
- the shape is explained by increasing marginal opportunity cost -> occurs because not all factors of production are equally suited to producing certain goods
what is the marginal tax rate?
being taxed for every extra £ that one earns
what does marginal mean?
at the next unit
what is the law of diminishing returns?
the law that the more factors of production you deploy at the margin, the less you will get in terms of returns