Micro 1.1.5+6 Flashcards
Normative statements?
Opinionated
Positive statements?
Fact
Why is economics a social science?
Uses scientific methods to build theories
Problem of scarcity?
Unlimited wants, finite resources
Factors of production?
Land
Labour
Capital
Enterprise
What is a free good
No opportunity cost
Difference between command and market economies
Planning mechanism allocates resources vs price mechanism allocates resources
Socialist vs capitalist economies
Means of production state owned vs privately owned
1940s UK economy ?
State ownership coal, rail, steel
1944 Creation of NHS
1960s/70s UK economy?
People said public sector inefficient and wealth consuming
1980s/90s
Privatisation, deregulation, marketisation (changing market price for goods)
What did Adam smith believe?
Capitalist economy good
People should pursue their self interest with government repression
They act like they are controlled by an “invisible hand” to guide and create the most common good if acting in self interest
But if self interest lead to greed and oppression, gov should intervene
What did Friedrich Hayek believe?
Too complex to organise big economic regulation
Theory of “minimum state”
Redistribution of wealth through public treasury
Neoliberalism
What did Karl Marx believe?
Communism.
No private property or controlling central authority
Common means of production
What are value judgements ?
An assessment of something as good or bad in terms of one’s standards or priorities
Advantages/disadvantages of free market economy
Freedom to innovate
Customers drive choices
But
Market failure
Dangers of profit motive
What is specialisation
Division of labour, Adam Smith
Breaks down large jobs into tiny components
Each worker becomes expert in isolated area, more efficient
Advantages of specialisation in organising production
More efficient
Better capital employed
What is absolute advantage
When a country can produce more of a good with fewer resources
Look at numbers
What is comparative advantage
Relative efficiency
A country has it when it can produce a good at a low opportunity cost
David Ricardo developed idea
What are the UK’s comparative advatages
Medical technology
Chemicals and pharmaceuticals
Aerospace technology
What is comparative advantage on a PPF
If same gradient for two countries, opportunity costs are the same, no comparative advantage
What are renewable goods?
Resources that the rate of extraction is lower than rate of renewal
Why is specialisation good in terms of trade?
Economies can specialise in what they have a competitive advantage in and total output rises
If they then trade for other product that they need they mutually benefit and have more of both products
