2 - Nature of Economics Flashcards
Define ‘positive statement’
Statement that is factual, can be challenged and testable against facts.
Define ‘normative statement’
Statement which include value judgement, cannot be testable against facts.
Define ‘opportunity cost’
Value of the next best alternative forgone
Define ‘renewable resources’ and ‘non-renewable resources’
Renewable: Natural resources that can be replenish over time.
Non renewable: Renewable resources that once used, cannot be replenish
Define ‘capital’, ‘enterprise’, ‘land’, ‘labour’
Capital: Man-made resources for further production
Enterprise: entrepreneur who bears business risk and organisation. Takes account the other 3 F.O.P.
Land: raw materials used for production
Labour: human effort used in production
What are the 3 basic economic questions?
What, how, and for whom to produce.
Define ‘production possibility frontier’
Curve that shows the maximum combination of goods and services that can be produced in a set period of time given available resources.
Define ‘consumer goods’
Goods consumed by consumers.
Define ‘producer/capital goods’
Man-made resources/goods for further production
Define ‘division of labour’
Production broken down into sequences of stages, workers assigned to a particular stage.
Define ‘specialisation’
Concentration of worker, firm, region on a narrow range of goods and services.
Define ‘productivity’
The amount of output produced per unit of input.
Define the ‘functions of money’
Median of exchange
Store of value
Unit of account, measure of account
Means of deferred payment
Define ‘free market’, ‘command economy’, ‘mixed economy;
Free market: resources within society are allocated via market forces in a market
Command economy: resource allocation is decided by the central government
Mixed economy: resources are allocated partly through price signals and partly on the basis of direction by the government
Define ‘consumer sovereignty’
Consumer spending decisions decide what is being produced.
Advantages and disadvantages of division of labour for production
- Production increases because workers repeat the same task (practice makes perfect)
- Reduces cost of production due to less training and capital cost
- Production decreases as workers get boarded of same task
- Production becomes more interdependent of each other
Advantages and disadvantages of specialisation for trade and output
- Lower price and more choices for consumers
- Diseconomies of scale may occur, higher prices to consumers
