1.1 Nature of Economics Flashcards
What is the difference between normative statements and positive statements?
Normative statements are usually subjective and based of opinion.
Positive statements are usually objective and factual
What is the economic problem?
The economic problem is scarcity, where there is unlimited wants and needs but only a finite quantity of goods and services.
What is specialisation?
Specialisation is production of limited range of goods by a entity which means trade is essential to access all needed
What is division of labour?
Division of labour is when labour becomes specialised in a particular part of production process.
Advantages of specialisation and division of labour
Labour productivity increased
- Workers quicker better efficient, experienced
Higher quality products
- Workers more skilled
Cost effective
- Money saved on training, workers only trained for specific task
Disadvantages of specialisation of labour
Boring for workers
- Employee morale decreases; poorer quality work
Delays
- If one process is delayed, every other task has to stop till solved
Structural unemployment
- When tasks are replaced with capital, workers suffer from structural unemployment; their skills aren’t useful anymore
What are functions of money?
Medium of exchange
- Used to buy/sell products
Measure of value
- Compare value of 2 goods/labour
Store of value
- Able to keep its value; kept for a long time
Method of deferred payment
- Monet allows for debt to be created; people pay for things without money present; pay back later.
What is a free market economy?
When individuals are free to make their own choices and own the FoPs without government intervention.
An economy that has no govt intervention in allocation of resources
How are resources allocated in a free market economy?
Resources allocated by price mechanisms and market forces of supply and demand.
Adv of free market economy
Automatic system
- Invisible hand; resources moved out of production of good when ppl stop wanting/costs too high
Freedom of choice*
- Increase in consumer sovereignty
Disadv of free market economy
Inequality
- Richer people own more FoPs; hoard their money; no distribution
No control over externalities
- Demerit goods overproduced; merit goods not produced
What is a command economy?
All FoPs is owned by state and labour directed by state.
Adv of command economy
Less inequality
- Minimum standard of living
Less wastage of resources
- No competitive services
Standardised products
- Produced cost effectively
Externalities managed
- Limits on demerit goods; increased production of merit goods
Wellbeing of country
- Firms w profit motive absent
Disadv of command economy
Bribery/corruption
- Government may aim for own welfare
Less freedom/sovereignty
- Lose their freedom; more dictatorship
What is a mixed economy?
Both free market mechanism and government planning allocate resources in the country.
