Chapter 5-7 Flashcards
Specialisation
➜ production of limited range of goods by an individual/ firm/ country in co-operation with others
What is division of labour?
➜ specialisation by individuals
What are the 4 advantages of specialisation?
➜ 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
What does an increase in productivity arise from?
➜ ⇡in labour productivity + capital productivity
What is productivity?
➜ output per unit of input employed
What are the issues with specialisation?
➜ 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
Primary sector
➜ raw materials are extracted + food is grown
eg. agriculture, forestry, fishing, oil extraction + mining
Secondary/ manufacturing sector
➜ raw materials are transformed into goods
eg. food processing, furniture making + steel production
Tertiary sector
➜ services such as transport, education + health, sport etc.
Public sector
➜ state or government sector of the economy
- production of goods + services is achieved by gov. departments, local authorities or state owned businesses
Private sector
➜ part of the economy owned by private individuals, companies and charities
➜ private school
➜ private health care
Market
➜ any convenient set of arrangement by which buyers and sellers communicate to exchange goods + services
Sub-markets
➜ a market within a larger market
Barter
➜ swapping one good for another
Disadvantage of barter
➜ 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
What are the 4 functions of money?
➜ medium of exchange
➜ measure of value
➜ a store of value
➜ a method of deferred payment
a medium of exchange
➜ 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
a measure of value
➜ 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
a store of value
➜ money links the present + future
➜ inflation destroys the link
eg. defer spending now to spend later
a method of deferred payment
➜ 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
What are the 5 forms of money?
➜ cash ➜ money in current accounts ➜ near monies ➜ non-money financial assets ➜ money substitutes
Cash
➜ 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
Money in current accounts
➜ 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
Near Monies
➜ 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
Liquidity
➜ ease with which the asset can be converted into money without loss of value
Time deposits
➜ need to give notice to withdraw money
Non-money financial assets
➜ 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
Money substitutes
➜ charge cards and credit cards (used instead of money)
➜ not stores of value
➜ only represents ability to borrow money instantly
Economic system
➜ complex network of individuals, organisation + institutions which allocate resource
Individuals
➜ consumers + workers
- may own factors of production, which are then supplied (labour)
Groups
➜ firms, families, political parties
Government
➜ local council, local police authority, parliament etc.
What are the 2 main ways that resources are allocated?
➜ market mechanism
➜ planning
Market mechanism
➜ allocates resources through bringing together buyers + sellers who agree on a price for the product
eg. teachers sell labour + school hire teachers
Planning
➜ 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
Free market economies
➜ majority of resources are allocated through markets
➜ no government intervention
Mixed economies
➜ economy where both the free market mechanism and the government planning process allocate the resources
Command economy
➜ gov, through a planning process, allocate resources in society
Choice
➜ 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
Quality and innovation
➜ produce high quality goods+ new inventions for free market
➜ however many markets are dominated by a few large producers - manipulate the market through advertisements
Efficiency
➜ 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
Distribution of income and wealth
➜ 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
Risk
➜ 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.
Political freedom
➜ planned economies have curbed political freedom for control
Adam Smith opinions
➜ 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.
Friedrich Hayek
➜ 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
Karl Marx
➜ 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
Rational
➜ able to rank the order of different outcomes from an action in terms of the benefits to them
Utility/economic welfare
➜ benefit derived from consuming a good
Economic welfare
➜ level of well-being/ living standards of an individual
