1.1 Nature of Economics Flashcards
Positive statement
One that can be proven or disproven and made WITHOUT any judgment or emotions
Ceteris Paribus meaning
All other things remaining equal
Normative statement
One that is subjective and based upon opinion so cannot be proven or disproven
What is the basic economic problem?
Scarcity - people have finite needs but infinite wants
Opportunity cost
Cost of one thing in terms of the next best option which has to be given up
4 factors of productions
Land
Labour
Capital
Enterprise
Production possibility frontiers - PPF - What does it show?
Shows the maximum productive potential of an economy
What does a movement along the PPF show?
A change in the combination of goods produced
What does a shift in the PPF indicate
A change in the productive potential of the economy
What are the axis of a PPF?
Consumer goods and Capital goods
What is specialisation?
When a company becomes specialised in producing a certain product
What is division of labour?
How a task is divided up throughout the process of it being complete
Advantages of division of labour and specialisation
Labour productivity is increased
Time is not wasted
Higher quality of goods and services
Disadvantages of specialisation and division of labour
Structural unemployment because they aren’t skilled for other jobs
Boredom = reduction in quality
3 types of economy
Free market
Mixed economy
Command economy
Free market economy characteristics
Free to make their own choice and own the factors of production
Resources are allocated through the price mechanism
Advantages of free market:
System is automatic due to the invisible hand
Political freedom
What is it called when consumer have freedom of choice?
Consumer sovereignty
Disadvantages of free market
Higher levels of inequality
Externalities and monopolies
Command economy characteristics
All factors of productions except labour is owned by the state
No private property
Advantages of command economy
Minimum standard of living
Less wastage of resources
Disadvantages of command economy
Consumers loose freedom
Less efficiency
