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Micro Economics > 1.1.4-1.1.6 > Flashcards

1.1.4-1.1.6 Flashcards

1
Q

What does a PPF show?

A

Maximum possible output of 2 goods/services, with given factors of production.

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2
Q

What does the PPF curve show?

A

Shows the maximum possible production.

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3
Q

What does a Concave Curve show?

A

Increasing opportunity cost.

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4
Q

What is Increasing Opportunity cost?

A

As we move further along the curve a company beings to specialise to the specific good. They will produce less of the other good.

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5
Q

What happens if a PPF is drawn linear?

A

Opportunity cost remains unchanged no matter how much units are produced.

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6
Q

What are the three types of Efficiency?

A

Productive
Allocative
Pareto

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6
Q

What is Productive Efficiency?

A

Using all factors of production to its full levels, with no waste.

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7
Q

What happens when there is a movement on the curve?

A

The reduction of one of the goods, while another good is increasing.

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8
Q

What is Productive Inefficiency?

A

Where factors of production are not being fully utilized.

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9
Q

What is the Allocative Efficiency?

A

Whether the amount of goods being produced are satisfying demand.

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10
Q

Why can Allocative Efficiency not be seen?

A

There is no demand curve.

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11
Q

What is Pareto Efficiency?

A

No one can get better off, without someone being worse off.

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12
Q

What is specialization?

A

Concentration of production on a narrow range of goods and services.

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13
Q

3 Benefits for Specialisation?

A

Allows countries to concentrate on things they are best at.

Quality can increase as you become an expert.

Output increases

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14
Q

2 Negatives of specialisation?

A

Tastes can change

Cost of product or services increase.

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15
Q

What is ‘Division Of Labour’?

A

After specialisation takes place, breaking down process into smaller tasks.

16
Q

What is 3 Advantages of the Division of Labour?

A

Workers are highly productive
Higher quality
Lower prices

17
Q

What are 3 Disadvantages of Division of Labour?

A

Demotivating workers
Higher worker turnover
No transferable Skills

18
Q

What is a Free market Economy?

A

Any place buyers meet sellers to exchange goods with no government interaction.

19
Q

What is a Command Economy?

A

All resources are owned by economy and government controls distribution of goods and services.

20
Q

What are Free Markets remembered with and what does it stand for?

A

E- Efficient (Allocative)
P-Productivity (Lots of competing)
I-Incentives ( re-invest to hit higher profits)
C- Competition (more innovation)

21
Q

3 Advantages of Free market?

A

No risk of gov failure
Allocative efficiency
Innovation

22
Q

3 Disadvantages of Free Market Economy?

A

Public goods will not be allocated
Externalities are not compensated for
Markets can fail

23
Q

What is a Mixed Economy?

A

A blend of free market and command market.

24
Q

3 Advantages of a Command Economy?

A

Social equality rather than profit maximization
Less unemployment
Gov owns monopolies so no consumer exploitation.

25
Q

3 Disadvantages of Command Economy?

A

Lack of competition=less innovation
Black Markets increase
Receiving same wage demotivates people from aiming for high skill jobs.

26
Q

What is the role of a Mixed Economy?

A

Government funding is raised through taxation and spent on public goods and merit goods.

27
Q

What did Adam Smith advocate for and why?

A

Free markets with low level of gov interaction, due to merit and public goods benefiting significantly. But there isn’t enough of them.

28
Q

What did Fredrick Hayek Advocate for and why?

A

Mixed economies, due to Command economies were flawed due to shortages and surpluses.

29
Q

What did Karl Marx believe?

A

Command Economies, due to Free markets leading to capitalism and eventually exploiting workers and leading to inequality.

29
Q

What are the 4 Functions of Money?

A

Standard of Deferred payment.
Store of Value.
Measure value
Medium of Exchange

29
Q

Standard of Deferred payment?

A

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.

29
Q

What is the Store of Value?

A

Money can hold its value overtime, this means money can be saved and still be valuable in the future.

29
Q

What is Measure Value?

A

Ascribes value to goods and services, allowing buyer and seller to understand its value, in order to make decisions in best interest of both.

30
Q

What is Medium of exchange?

A

Eliminates the problem of bartering, instead of exchanging goods that two people would mutually want. This allows money to facilitate the exchange of goods.

Micro Economics (7 decks)

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