1.1 - Nature of economics Flashcards
positive statement
Statements that are objective and can be tested with factual evidence.
Normative statements
Based on value judgements that are subjective and based on opinion
basic economic problem
wants are unlimited, resources are finite
opportunity cost
value of the next best alternative forgone
capital - FOPs
machinery, building ect
capital reward
interest from owner(lender), rent ect
entrepreneur - FOPs
someone who takes risks, innovates and uses FOPs
entrepreneur reward
profit
land - FOPs
natural resource, factory
land reward
rent
labour - FOPs
workforce
labour reward
wages/salaries
What do PPF show?
max potential of an economy and opportunity cost of using scarce resources
law of diminishing returns
profits/benefits gained from something (investment) are smaller than what is invested originally
capital goods
goods used to produce other goods
consumer goods
goods which are used by end-user, final product
who came up with the idea of specialisation?
Adam Smith, eg. pin example
who can achieve specialisation?
individuals, businesses, regions, countries
advantages of specialisation
- labour productivity increases (workers focus on one task, more efficient and develop skills)
- higher quality of goods/services
- time not wasted
- only need to train staff for a specific task
disadvantages of specialisation
- lack of moral = poor quality
- reduce craftsmanship, more of a standard product
- one delay can affect entire production
- suffer from structural employment
4 functions of money
medium of exchange, measure of value, store of value, method of deferred payment
free market economists
- Adam Smith
- Friedrich Hayek
what is free market?
- no govt. intervention
- private allocate resources according to demand and supply
advantage of free markets
- consumers have freedom of choice (consumer sovereignty)
- high motivation, due to potential high rewards
- political freedom
- higher growth
