Micro Book 1 Flashcards
Economic Methodology, Production, Basic Economic Problem, Productivity, Efficiency, Specialisation and the Division of Labour
Economics is defined as
the allocation of scarces resources
Why is it difficult to conduct experiments
It isn’t practical or ethical to carry out
Economists can’t have control variables
What does ceteris paribus do?
Assume that “all other things being equal”
What is utility?
The benefit gained from something
Why might someone not maximise their utility?
Habits
Mental Health
Long-run vs Short-run
Viewpoints
Lack of information
Other people
Are positive statements based on opinions
No
Can Positive statements be tested
Yes
Normative statements are based on?
Effectively based on opinions
What is the basic economic problem
There are infinite human wants and limited resources with competing uses
What is a Land resource
Any natural resource
What is Labour in production
Any physical or mental effort from workers
What is Capital in production
A man made aid to production
What is Enterprise in production
Someone taking a risk to join together all the factors of production
What is Trade off
Any situation where you can only make more of one thing by having less of another
What is an opportunity cost
The benefit forgone from the next best alternative
What does a PPF illustrate
The production capacity of the economy
How to find out productivity
Productivity = (Total output per time period)/ (Number of unit of factor of production)
When is technical efficiency achieved
The maximum possible amount of output is being produced for the given level of input
What is allocative efficiency and how is it achieved
The economy is producing the combination of output that maximise consumer welfare
Price = Marginal Cost
What is the concept of Pareto efficiency
A situation where nobody can be made any better off without someone being made better off
Why could a PPF’s lines be straight
It means that the opportunity cost of producing two goods are constant
How do you show if an opportunity cost on one axis is greater or lower
The flatter the curve, the greater the cost on the vertical axis. The steeper the curve the greater cost on the horizonal axis
What are the advantages of higher productivity
Lower average costs
Improved competitiveness in international markets
Higher real wages
Economic growth
How can X-inefficiency occur
Dominant firms lack the incentive to minimise their costs because they have the ability to increase prices
What is the division of Labour
Production is divided into a number of different stages and workers are only working on one of the tasks
What is specialisation
People focus on things that they do best
