1.1) nature of economies Flashcards
what is ceteris paribus?
all things being held equal/constant
what are positive statements?
Positive statements are objective. They can be tested with factual evidence,
and can consequently be rejected or accepted.
what are normative statements?
Normative statements are based on value judgements. These are subjective
and based on opinion rather than factual evidence.
what is the basic economic problem?
The basic economic problem is scarcity. Wants are unlimited and resources
are finite, so choices have to be made. Resources have to be used and
distributed optimally.
what are the 4 factors of production?
capital, land, labour, enterprise
what are renewable resources?
Renewable resources can be replenished, so the stock level of the resources can be
maintained over a period of time
what are non renewable resources?
the resource is consumed faster than it is
renewed, the stock of the resource will decline over time.
what are capital goods?
Capital goods are goods which can be used to produce other goods, such as
machinery.
what are consumer goods?
Consumer goods are goods which cannot be used to produce other goods, such as
clothing.
why is specialisation good?
Firms can then take
advantage of increased efficiency and lower average costs of production.
what are the three economic agents?
consumers, producers, governments
three key questions of economics?
what, how and for whom
what is a production possibility frontier?
a curve showing the maximum combinations of goods and services that can be produced in a given period with available resources
what occurs to ppf when economy expands?
the curve shifts outwards
advantages of division of labour ?
increased productivity, training costs cheapen as they only have to be trained in one section,
disadvantages on division of labour?
task may become repetitive and boring, if team becomes overly specialised then they could become inflexible.
what is the definition of a market
a set of arrangements that allow transactions to take place.
why is money important?
it acts as a medium of exchange and allows a bypass to the double coincidence of wants of trading goods.
what are the four key functions of money?
1) medium of exchange
2) stores value over time
3) measure of value of goods
4) method of deferred payments-wages
what are the three types of economy’s?
command- state allocates resources - karl marx
free market- price mechanisms allocate resources - Adam smith
mixed economy - government intervention in the free market - john Maynard Keynes
define the gross domestic product?
the total value added produced by firms in domestic economy during a period
define the opportunity cost?
the value of the next best alternative forgone
what happens on the ppf when the economy retracts
the ppf shifts inward
what does the shape of a ppf show?
the curve of the ppf shows that opportunity cost is not constant throughout the whole of production
if country is operating on the ppf what type of efficiency is that?
productively efficient
if the country is operating inside the ppf then what does this mean?
it is not using all factors of production available