1.1 the nature of economics Flashcards
ceteris paribus
assumption in economics that everything is equal
positive statement
factual statement, can be tested and verified
normative statement
statements which involve an opinion or value judgement
the economic problem
wants are unlimited and resources are limited (scarcity) so choices have to be made
renewable resources
natural resources that can be replenished over time
non-renewable resources
natural resources that cannot be replaced once used
opportunity cost
the value of the next best alternative forgone in decision making
trade-off
a situation in which the choice of one alternative requires the sacrifice of another
economic agents
consumers(individuals), producers(firms), government - decision makers
factors of production
resources used in the production process:
- capital (assets)
- enterprise (entrepreneurs)
- land (natural resources)
- labour (human resources)
CELL
production possibility frontier (PPF)
a curve showing the maximum combination of goods or services that can be produced in a given period with given resources
PPF outward shift
economic growth
any point on the curve (PPF)
making full use of resources (efficient)
any point inside the curve (PPF)
unemployment of some resources (inefficient)
any point beyond the curve (PPF)
unattainable
capital goods
goods used as part of the production process for investment such as machinery
consumer goods
goods produced for present use (consumption)
specialisation
when workers are assigned specific tasks within a production process
division of labour
a process whereby the production procedure is broken down into stages and workers are assigned to a particular stage - introduced by Adam Smith
advantages of division of labour/specialisation
- workers only have to focus on the task they perform well so could lead to increased productivity, better quality, higher output
- could reduce training costs as only need to know how to perform limited tasks
disadvantages of division of labour/specialisation
- repetitive tasks lead to boredom and decreased motivation which could result in low worker retention and increased costs for finding and training new workers
- firms could become vulnerable if demand decreases
market
a setting in which buyers and sellers interact to exchange goods, services or resources (doesn’t have to be a physical place)
GDP (gross domestic product)
a measure of the economic activity carried out in an economy over a period
7 characteristics of money
- generally accepted
- portable
- divisible
- durable
- homogenous (the same)
- hard to replicate
- limited in quantity
4 functions of money
- medium of exchange
- store of value
- unit of account (measure of value)
- method of deferred payment
SUMM
medium of exchange
money is accepted as an exchange for a good/service
store of value
must be possible to use it for future transactions
unit of account (measure of value)
goods/services can be compared with each other
method of deferred payment
agreement to pay for something at a later date but acquire now
free market economy
an economy in which market forces are allowed to guide the allocation of resources (eg: USA, Singapore) - Adam Smith and Frederick Hayek
advantages of a free market economy
- efficient allocation of resources
- promotes innovation
- increases consumer choice
disadvantages of a free market economy
- can lead to income inequality
- market failures
- lack of public goods such as healthcare, education
command economy
an economy in which decisions on resource allocation are guided by government/state (Eg: North Korea) - Karl Marx
advantages of a command economy
- economic equality
- job security
disadvantages of a command economy
- inefficiency
- lack of innovation
- lack of consumer choice
- lower economic growth
- lower living standards
- corruption
mixed economy
an economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state/government - a mix of command and free market economies (eg: UK)
