Intodruction To Econmoics Flashcards
What is a positive statement
A statement that is testable by data
What is a normative statement
A statement that is opinionated or concerned with someone’s judgement
What is opportunity cost
The benefit lost from the next best alternative
Example of consumer opportunity cost
The OC of a large chips is 3 chocolate bars
Example of producer opportunity cost
The opportunity cost to produce 3 jumpers is the same as a pair of shoes
Example of government opportunity cost
The opportunity cost to build 3 new schools is the same as running a hospital for a year
What is an economy
A system that works to solve the economic problem
What is the general economic problem
What is to be produced
How should it be produced
For whom is production taking place
What are the 4 main types of resources
Land
Labour
Capital
Enterprise
What are renewable resources
Is one that can be used repeatably and does not run out as it is naturally replaced
What are free goods
Goods that have no opportunity cost upon consumption/ production
What are economic goods
Goods and services that are scarce because using those resources means they cannot be used elsewhere
What is productive efficiency
Maximised output/ happiness
Allocative efficiency
Fully using resources but not in the most efficient way
What is economic growth
A rise in a countries productive capacity causes the PPF to shift outwards. This allows an increase in supply and goods
What are capital goods
Goods that are used to make consumer goods and services
E.g
What are consumer goods
Goods and services that satisfy costumer wants directly
What is an investment
Spending on capital goods
What causes outwards shift in PPF
More land - more area to produce consumer goods
Education - invention of new products
Machinery - more output ( faster)
High land production - increases output
Causes of inwards shifts of the nations PPF
Natural disaster
Civil war
Outwards labour migrations due to the drain of skilled workers
Decline in productivity of labourers
Production
Is a measure of the value of the outputs of goods and services
Productivity
A measure of the efficiency of factors of production.
Measure by output per person (hour)
What is the division of labour
The assignment of different parts of a manufacturing process or task to different people in order to improve efficiency
What is specialisation
The process of concentrating and becoming an expert in a particular field
What is a market
A place where buyers and sellers can meet to facilitate exchange of goods or services
3 ways division of labour increases productivity
People work faster when they can focus on one job ( no movement down a production line)
People learn to perfect the task
Increase in productivity = more products which decreases scarcity
Advantages of specialisation
Higher output
More variety for costumers
Bigger market
Competition which = lower prices
What is a free market
Competition
Limited government intervention
Motivation and self interest
Command market
No competition
Lots of government intervention
Producers aims are to meet production targets
Resources are allocated by the state
Disadvantages of specialisation
- repetition creates boredom, high turnover in staff and therefore training costs
- breaking down production makes it easier for a machine to replace workers
- specialisation creates interdependence, meaning if one area fails the whole production is stopped
Functions of money
Medium of exchange
Measure of value
Store of value
Method of deferred payment
Advantages of free market
Competition means that firms have to try and keep production costs down
Firms constantly trying to improve Quality of products
Move variety for choices
Financial incentives
Disadvantages of a free market
- monopolies may form, rivals get taken over
- inequality
- external costs and benefits are ignored
- information gaps
- insufficient quantity of public goods and merit goods
- erratic swings in business cycle
Advantages of command economy
- cooperation between firms leads to high level of output
- reduction in inequality
- government limit external costs
- government fund public goods such as defence
- government has more control over the economy, smaller swings in business cycle
Disadvantages of command economy
- price mechanism cannot operate
- lack of competition, low productivity, low quality of products, less choice,
- lack of financial incentives, management do not take risks for profits, labours do not work hard
