1.1. The Nature of Economics Flashcards
Explain the difference between “need” and “want”
“need” (finite) - what a human needs to live.
“want” (infinite) - what a human wants to improve living.
Define “opportunity cost”
The benefits forgone on the next best alternative
List the 4 factors of production
land
labour
capital
enterprise
Explain “ceteris paribus”
All factors remaining constant
Explain what a Production Possibility Frontier (PPF) shows
The maximum amount of goods that can be produced by an economy, with its existing resources
Explain factors that would lead a PPF to shift outwards (5)
Investment in Capital Immigration of younger skilled workers Discovery of new natural resources Improved education, training, healthcare Innovations that improve output
Explain the difference between “capital” and “consumer” goods
Capital goods - used to make consumer good
Consumer goods - used to directly satisfy needs and wants
Explain what a “command economy” is
Production, Investment and the allocation of capital goods is decided by the government, who decide the most socially efficient approach
The government may also set prices and directly supply rations
Explain what a “free-market economy” is
Consumer demand decides which goods are produced
Profit rewards those who are successful for the taking risks
Explain the advantages of a command economy
It is easier to prevent monopolies
Unprofitable public goods can be produced for the benefit of society
Everyone has access to necessities
Mass unemployment is less likely
Explain the disadvantages of a command economy
Governments can have poor information on what needs to be supplied
Goods can be produced unnecessarily
Government power can inhibit an individual’s ability to pursue economic objectives
Bureaucracy can cause slow and ineffective communication
Explain the advantages of a free economy
Competition leads to better products and more efficient production
Gives consumers the ability to choose
Explain the disadvantages of a free market
Consumers may buy goods that are not good for them or society
Large firms can dominate a market and exploit consumers and suppliers to maximise profit
Suppliers may reduce expenses which can lead to pollution
Public goods could be undersupplied due to a lack of incentives
Explain how workers, firms and regions specialise
By assigning a specific job to a specific group of people
Explain the advantage of specialisation and division of labour
Higher output of goods and services
Increased productivity keeps prices low
Creates bigger markets to sell in - economies of scale
