Introduction to markets and market failure 1.1 Flashcards
What is the problem of the PPF?
It gives not indication of which combination of goods is best and so countries have choice of what to produce.
Using the diagram, what is the opportunity cost of producing one consumer good and one capital good.
-The opportunity cost of producing one consumer good is 3 capital goods because 600/200=3. This means for every consumer good produced, 3 capital goods are lost.
-The opportunity cost of producing one capital good is 1/3 of a consumer good as 200/600 = 1/3. For evert 1 capital good produced, 1/3 of a consumer good is lost.
How can economic growth occur on the PPF?
The economy is able to produce more of both goods. This growth may be achieved by increasing the quantity and quality of resources.
How can economic decline occur on the PPF?
What causes this economic decline?
The economy produces less goods than previously. This could be caused by a number of factors such as; natural disasters; natural resources running out; a decrease in the quantity/quality of labour, war, migration or a fall in the spending of education.
Describe point A
Describe point B
Describe point C
-Point A is possible and efficient production. All factors of production are being used to their maximum level.
-Point B is possible but inefficient, as the economy is producing within the curve so not maximising output.
-Point C is unobtainable production, because the economy can’t product beyond the PPF given the factors of production.
What does this diagram show?
This diagram shows a fall in capital production but no change in consumer production. This shows a fall in the efficiency or a change in resources that only affects capital good manufacture.
What does this diagram show?
The diagram below shows an increase in the ability to produce consumer goods but no change in capital goods. This could be due to an improvement in technology that makes production of consumer goods more efficient.
What does a movement along the PPF indicate?
A movement along the curve indicates a change in the combination of goods produced: more consumer goods are produced and less capital goods are produced, or vice versa. The same amount of resources are allocated amongst the two goods differently.
What does a shift of the PPF curve indicate?
A shift of the PPF curve indicates a change in the productive potential of the economy: more consumer goods and capital goods can be produced or less consumer goods and capital goods can be produced. There has been change in the number of resources and the technology available to the country so their potential output has changed.
What must a country do to maximise the amount of goods and services it can produce?
They need to ensure that all factors of production, including workers, undertake the tasks they are best at.
What did Adam Smith state about the concept of specialisation and the division of labour?
Adam Smith showed how specialisation and the division of labour can increase labour productivity (output per workers), allowing firms to increase efficiency and lower their costs of production.
How does division of labour and specialisation enable labour productivity and quality of goods/services to be increased?
(organising production)
Workers will be quicker, better and more efficient as they are concentrating on one thing and so can quickly develop their skills. It is also likely they will have natural abilities or talents in their task. This may also lead to a higher quality of goods and services, since workers are more skilled at their jobs.
How does division of labour and specialisation save time and money?
(organising production)
-It is more cost effective to develop specialist tools, improving speed or quality.
-Time is not wasted moving between jobs and getting out tools.
-Workers only need to be trained to do one specific task, rather than many, saving time and money.
How does division of labour and specialisation lead to poor quality of work?
(organising production)
If someone is only doing one specific task, it can make work very boring which will lead to a poor quality of work and people leaving the business. However, firms can take some action to reduce boredom, for example buy playing music.
Furthermore, there is a reduction of craftsmanship and a much for standardised product because of mechanisation.
What is the problem of division of labour and specialisation if one production process is delayed?
(organising production)
If production in one process is delayed, every other task must stop until that problem is solved.
What is the problem of division of labour and specialisation if workforce does not have wide industrial training?
(organising production)
If the workforce does not have wide industrial training, there could be structural unemployment,
What does the degree of division of labour and specialisation depend on?
(organising production, evaluation)
The degree to which specialisation or the division of labour is possible will depend on the nature of the task and the size of the firm.
What is a command economy?
In a command economy, all factors of production, except labour, is owned by the state. Labour is directed by the state. There is no private property and everyone is assumed to be selfless, working for a common good.
How does resource allocation work in a command economy?
Resource allocation is carried out by the government rather than the price mechanism. The government’s allocation may represent the wishes of the consumer and often focuses on the need to expand certain areas of the economy, such as weapon building. However, planning is so complex that some decisions are left up to the consumer.
