1.1 Nature of economics Flashcards
What is Ceteris Paribus
all other variables remain constant’
What is a Positive Statement
Facts that be can proven true or false
What is a Normative Statement
Judgements or beliefs about economic decisions
What is the Basic Economic Problem
That there are finite resources available and infinite wants and needs
What is Opportunity Cost
The next best alternative foregone
What does each point of the PPF curve show
Inside- Inefficient
Outside- Unattainable
On line- Efficient
What causes a shift ON the PPF curve
A change in the allocation of resources
What is Economic Growth
When there is a shift in the productive potential of the economy
Causes of an outwards PPF shift
Increase in quality or quantity of the available factors of production
How to improve quality of FoPs
Training and education on labour
Division of Labour
Tasks broken up into several component tasks
Specialisation
Focusing on one specific task or product
Pros of Specialisation and Division of Labour
-High labour productivity … lower unit costs
-Lower costs are passed to consumers
-Lower costs … higher profits … higher wages?
-Creates many low skilled jobs
Cons of Specialisation and Division of Labour
-Repetitive tasks … demotivation … less productivity … lower quality
-Hard to switch jobs as they know one skill
-No variety of products
Free Market Economy?
A market with no government intervention in the allocation of g/s
Command Economy?
Government control the distrubution of g/s
Mixed Economy?
mix of individuals and government allocate resources
Pros of Free Market
-Profit incentive … innovation
- Competition … lower prices for consumers
-Profits are unlimited … better standard of living
Cons of Free Market
-Creates inequalities
-Lower quality as firms want to increase profits
-Workers exploited
-Creation of monopolies
Pros of Command Economy
-Lower unemployment
-Less inequality as everyone gets same wages
-Exploitation of workers can be avoided
Cons of Command Economy
-same wages disincentives people to get high skill jobs
-Lack of competetion … low innovation
-Access to higher standard of living is limited
