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Economics Theme 1 Micro > Chapter 5-7 > Flashcards

Chapter 5-7 Flashcards

1
Q

Specialisation

A

➜ production of limited range of goods by an individual/ firm/ country in co-operation with others

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2
Q

What is division of labour?

A

➜ specialisation by individuals

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3
Q

What are the 4 advantages of specialisation?

A

➜ enables workers to gain skills in a narrow range of tasks
- enable individual workers to be far more productive than if they were able to do a little of everything
➜ cost-effective to provide workers with specialist tools
➜ save time because less moving around from place to place + using diff machinery
➜ workers can specialise in tasks which they’re best suited for

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4
Q

What does an increase in productivity arise from?

A

➜ ⇡in labour productivity + capital productivity

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5
Q

What is productivity?

A

➜ output per unit of input employed

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6
Q

What are the issues with specialisation?

A

➜ jobs are divided too much - tedious + monotonous work
- workers feel alienated from their work -> poor quality of work + less output per person
➜break down in a part of chain can cause chaos
➜ issue to find other jobs if current job is no longer required in society

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7
Q

Primary sector

A

➜ raw materials are extracted + food is grown

eg. agriculture, forestry, fishing, oil extraction + mining

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8
Q

Secondary/ manufacturing sector

A

➜ raw materials are transformed into goods

eg. food processing, furniture making + steel production

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9
Q

Tertiary sector

A

➜ services such as transport, education + health, sport etc.

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10
Q

Public sector

A

➜ state or government sector of the economy

- production of goods + services is achieved by gov. departments, local authorities or state owned businesses

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11
Q

Private sector

A

➜ part of the economy owned by private individuals, companies and charities
➜ private school
➜ private health care

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12
Q

Market

A

➜ any convenient set of arrangement by which buyers and sellers communicate to exchange goods + services

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13
Q

Sub-markets

A

➜ a market within a larger market

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14
Q

Barter

A

➜ swapping one good for another

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15
Q

Disadvantage of barter

A

➜ impossible to run a modern sophisticated economy using barter as a means pr medium of exchange
➜ development of money that enabled trade + specialisation
➜ requires a double coincidence of wants
➜ requires that each party has what the other wants - costly + difficult

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16
Q

What are the 4 functions of money?

A

➜ medium of exchange
➜ measure of value
➜ a store of value
➜ a method of deferred payment

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17
Q

a medium of exchange

A

➜ most important function of money.
➜ money is used to buy and sell goods + services
eg. worker accepts payment in money as it can be used to purchase goods

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18
Q

a measure of value

A

➜ money acts as a unit of account
eg. one dress= £30, skirt is £15 -> a dress = 2 skirts
➜ at high inflation, it ceases to be a unit of account

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19
Q

a store of value

A

➜ money links the present + future
➜ inflation destroys the link
eg. defer spending now to spend later

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20
Q

a method of deferred payment

A

➜ people lend money on the premise of getting the same number of goods back when returned
➜ money must link different time periods when it comes to borrowed and saved money

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21
Q

What are the 5 forms of money?

A 
➜ cash 
➜ money in current accounts
➜ near monies
➜ non-money financial assets
➜ money substitutes
22
Q

Cash

A

➜ notes + coins
➜ token money - little or no intrinsic value
➜ issued by the government
➜ makes cash a legal tender - must be accepted by the law as payment

23
Q

Money in current accounts

A

➜ cash can be withdrawn on demand from acc if it is in credit
➜ deposits can immediately be converted into money
➜ cheque book + debit card = purchase items
➜ little or no interest is offered on accounts - bad store of value

24
Q

Near Monies

A

➜ assets which fulfill some of the functions of money
- measures of value + store of value
➜ can be converted into a medium of exchange quickly + with little cost
eg. time deposits with banks and building societies
➜ pay higher rates of interest than current accounts
- more for saving

25
Q

Liquidity

A

➜ ease with which the asset can be converted into money without loss of value

26
Q

Time deposits

A

➜ need to give notice to withdraw money

27
Q

Non-money financial assets

A

➜ converted into money
- but potential penalties are great
➜ can be a long waiting time for withdrawal + considerable loss of money from conversion
➜ impairs their functions as measures of value + stores of value
➜ do not classify these assets as money
eg. shares (not a good store of value or deferred method of payment) -> fluctuates

28
Q

Money substitutes

A

➜ charge cards and credit cards (used instead of money)
➜ not stores of value
➜ only represents ability to borrow money instantly

29
Q

Economic system

A

➜ complex network of individuals, organisation + institutions which allocate resource

30
Q

Individuals

A

➜ consumers + workers

- may own factors of production, which are then supplied (labour)

31
Q

Groups

A

➜ firms, families, political parties

32
Q

Government

A

➜ local council, local police authority, parliament etc.

33
Q

What are the 2 main ways that resources are allocated?

A

➜ market mechanism

➜ planning

34
Q

Market mechanism

A

➜ allocates resources through bringing together buyers + sellers who agree on a price for the product
eg. teachers sell labour + school hire teachers

35
Q

Planning

A

➜ allocates resources through administrative decisions
- firms are planned economies where managers decide how to allocate resources
➜ government bodies such as the NHS allocate resources through planning

36
Q

Free market economies

A

➜ majority of resources are allocated through markets

➜ no government intervention

37
Q

Mixed economies

A

➜ economy where both the free market mechanism and the government planning process allocate the resources

38
Q

Command economy

A

➜ gov, through a planning process, allocate resources in society

39
Q

Choice

A

➜ citizens have more choice in free markets
➜ limits to choice- dependent on income, level of education
command:
➜ planning tends to produce uniform products
➜ no variety
➜ allocated jobs
➜ less income

40
Q

Quality and innovation

A

➜ produce high quality goods+ new inventions for free market

➜ however many markets are dominated by a few large producers - manipulate the market through advertisements

41
Q

Efficiency

A

➜ planned economies are inefficient
➜ workers have little incentive
➜ meet minimum work targets + guaranteed jobs
➜ markets have greater efficiency due to competition as firms need to make a profit to remain in the market
➜ limited competition as large firms tend to dominate - mini-planned economies
➜ struggle to maintain efficient production

42
Q

Distribution of income and wealth

A

➜ free market economies tend to have higher levels of inequality than mixed or planned economies
- resources produced by government through the planning process tend to be distributed more equally than in a free market
➜ higher income earners tend to pay larger proportion in taxes for mixed than free

43
Q

Risk

A

➜ free market economies have more risks for citizens
- less provision for bad health, unemployment and old age
➜ rich can use money
➜ poor have no healthcare, no job, no house etc.

44
Q

Political freedom

A

➜ planned economies have curbed political freedom for control

45
Q

Adam Smith opinions

A

➜ explained how the invisible hand of the market would allocate resources to everyone’s advantage
- pursuit of profit by everyone= benefit was maximised
➜ advocate of free market economies
➜ state did however have a role to play: defend poor from property owners, provide the whole legal and judicial framework for enforcing property law, roads etc.

eg. employers would drive down wages, business combine to raise price etc.

46
Q

Friedrich Hayek

A

➜ greater control of the economy by the state leads to totalitarianism and the loss of freedom by the individual
➜ central planning by gov leads to small minority of individuals ideas being imposed onto society
- agrees with free economies

47
Q

Karl Marx

A

➜ favoured government intervention. Economic decisions ought to be carefully managed by the state to ensure that everyone benefits. (mixed)
➜ criticised the private ownership of factors of production

48
Q

Rational

A

➜ able to rank the order of different outcomes from an action in terms of the benefits to them

49
Q

Utility/economic welfare

A

➜ benefit derived from consuming a good

50
Q

Economic welfare

A

➜ level of well-being/ living standards of an individual

Economics Theme 1 Micro (3 decks)

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