1.1 Nature of economics LS1-6 Flashcards
Economy definition?
The goods and services produced in an area
Factors of production and definitions?
Capital - machinery etc used to make goods and services
Enterprise - the willingness of people in business to take risks to make a profit
Land - natural resources such as oil, forests and land
Labour - all of the work done by humans
Economic agents and definitions?
Groups that participate in the economy
Producers - create goods and services
Consumers - buy goods and services
Government - set rules that other economic agents must follow, also produces some goods and services such as roads, schools and healthcare
What’s it called when economists assume all other variables remain constant to isolate a single variable in order to conduct an experiment?
Ceteris Paribus
Opportunity cost and uses?
The value of the next best alternative (as a result of the choice made)
Consumers to decide what to spend their income on
Producers to decide what and how to produce their goods and services
Governments to decide what policies to choose
Empirical vs Theoretical model
Empirical based on data, theoretical is based on theory
PPF?
Production Possibility Frontier
Shows the maximum potential output of a combo of two goods or services an economy can achieve when all its resources are fully and efficiently employed
+ve and -ve economic growth and how can this be shown on a PPF?
+ve: an increase in the production of goods and services in an economy (PPF shifts outwards)
-ve: a decrease in the production of goods and services in an economy (PPF shifts inwards)
Consumer goods vs capital goods
Capital goods produce other goods and services whereas consumer goods do not and are only used to satisfy people’s wants and needs
Whats it called when an economy isnt at a point on the PPF (is inside the arc)?
Underemployed/underutilised allocation of resources
Positive vs normative statements
Positive = objective, can be proven true or false
Normative = subjective, express opinions, cannot be proven true or false (fair, unfair, should, better, worse)
Specialisation definition
When an individual, firm, region or countries concentrates on the production of a limited range of goods and services.
e.g. UK specialises in financial industry and insurance, doctors specialise in a particular department
Why does specialisation allow individuals to become more skilled?
Concentrated time/energy into a sector means an increase in quality and quantity of skills
Division of labour definition?
The specialisation of workers on specific tasks in the production process
Productivity definition?
The effectiveness of productive effort, usually measured in terms of rate of output per unit of input
