1.1.4-1.1.6 Flashcards
What does a PPF show?
Maximum possible output of 2 goods/services, with given factors of production.
What does the PPF curve show?
Shows the maximum possible production.
What does a Concave Curve show?
Increasing opportunity cost.
What is Increasing Opportunity cost?
As we move further along the curve a company beings to specialise to the specific good. They will produce less of the other good.
What happens if a PPF is drawn linear?
Opportunity cost remains unchanged no matter how much units are produced.
What are the three types of Efficiency?
Productive
Allocative
Pareto
What is Productive Efficiency?
When all given factors of production are being fully utilised with no waste.
What is Productive Inefficiency?
Where factors of production are not being fully utilized.
What is the Allocative Efficiency?
Whether the amount of goods being produced are satisfying demand.
Why can Allocative Efficiency not be seen be a PPF curve?
There is no demand curve.
What is Pareto Efficiency?
No one can get better off, without someone being worse off.
What is specialization?
Concentration of production on a narrow range of goods and services.
3 Benefits for Specialisation?
Allows countries to concentrate on things they are best at.
Quality can increase as you become an expert.
Output increases
What is ‘Division Of Labour’?
The division of labour occurs where production process is broken down into many separate tasks
What is 3 Advantages of the Division of Labour?
Workers are highly productive
Higher quality
Lower prices
What are 3 Disadvantages of Division of Labour?
Demotivating workers
Higher worker turnover
No transferable Skills
What is a Free market Economy?
The free market is an economic system based on supply and demand with no government control.
What is a Command Economy?
A command economy is one in which a centralized government controls production and determines output levels.
What are Free Markets remembered with and what does it stand for?
E- Efficient (Allocative)
P-Productivity (Lots of competing)
I- innovation
C- Competition (more innovation)
3 Advantages of Free market?
No risk of gov failure
Allocative efficiency
Innovation
3 Disadvantages of Free Market Economy?
Public goods will not be allocated
Externalities are not compensated for
Markets can fail
What is a Mixed Economy?
A blend of free market and command market.
3 Advantages of a Command Economy?
Social equality rather than profit maximization
Less unemployment
Gov owns monopolies so no consumer exploitation.
3 Disadvantages of Command Economy?
Lack of competition=less innovation
Black Markets increase
Receiving same wage demotivates people from aiming for high skill jobs.
Allocatively inefficient
What is the role of a Mixed Economy?
Government funding is raised through taxation and spent on public goods and merit goods.
What did Adam Smith advocate for and why?
Free markets with low level of gov interaction, due to merit and public goods benefiting significantly. But there isn’t enough of them.
What did Fredrick Hayek Advocate for and why?
Mixed economies, due to Command economies and Free markets have information gaps which lead to surpluses or shortages in goods/services.
What did Karl Marx believe?
Command Economies, due to Free markets leading to capitalism and eventually exploiting workers and leading to inequality.
What are the 4 Functions of Money?
Standard of Deferred payment.
Store of Value.
Measure value
Medium of Exchange
Standard of Deferred payment?
Allows money to be used as loans, you can buy now and purchase later. The person loaning must be confident they will get a equivilant value back.
What is the Store of Value?
Money can hold its value overtime, this means money can be saved and still be valuable in the future.
What is Measure Value?
Ascribes value to goods and services, allowing buyer and seller to understand its value, in order to make decisions in best interest of both.
What is Medium of exchange?
Eliminates the problem of bartering, instead of exchanging goods that two people would not mutually want. This allows money to facilitate the exchange of goods.
