Micro LS1- LS10 Flashcards
Factors of production
Capital
Enterprise
Land
Labour
The economic problem
How to use the available scarce resources to satisfy people’s infinite needs and wants as effectively as possible
Three key questions
What to produce?
How to produce it?
For whom to produce it?
What are economic agents
Groups that participate in the economy
Producers
Aka firms, create goods or services
Consumers
Buy goods and services made by firms. Firms and individuals can be consumers.
Government
Sets the rules that other economic agents must follow, also produces some goods and services like roads and health care.
Models in economics
Economists explain how the economy works by developing models.
These can be used to predict the impact of economic change.
Ceteris Paribus
Assuming other variables remain constant
Opportunity cost
The opportunity cost of a decision is the value of the next best alternative forgone (as a result of the choice made).
What do they use opportunity cost for
Consumers- to decide what to spend incomes on
Firms - to decide what and how to produce goods and services
Government - to decide what policies to choose
PPF
Production Possibility Frontier
What does a PPF show
The maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully and efficiently employed, given the current level of technology
Economic growth
An increase in the production of goods and services in an economy.
Negative economic growth
A decrease in the production of goods and services in an economy.
Consumer goods
Goods which do not produce other goods. They are used by people to satisfy their wants and needs.
Capital goods
Goods which are used to produce other goods and services.
If an economy is at any point on its PPF
there is an efficient allocation of goods and services.
Why might an economy not be at a point on its PPF
- An inefficient use of resources
- Underutilised/unemployed resources
Positive economic statements
can be proved true or false. They are objective.
Normative economic statements
express opinions and cannot be proven true or false. They are subjective statements.
In decision making, governments:
- make value judgements on economic issues
- use positive analysis to help them make decisions
Specialisation
occurs when an individual, firm, region or country concentrates on the production of a limited range of goods and services
Division of labour
is the specialisation of workers on specific tasks in the production process.
Productivity
The effectiveness of productive effort- usually measured in terms of the rate of output per unit of input.
Benefits of increased productivity
It leads to:
- Higher output and higher quality
- Higher standard of living
- More efficient use of resources
Advantages of division of labour
Workers become more skilled through repetition of tasks.
The productivity of workers rises so output increases.
Workers are easier and cheaper to train.
Benefit for firms (DOL)
Greater quantity and higher quality of output
Benefit for workers (DOL)
Higher skill levels and potentially higher wages
Disadvantages of division of labour
Repetition of tasks can lead to boredom thereby causing quality and morale to drop.
Simplified job roles can reduce the pride workers feel in their jobs.
Specialisation advantages
Better quality and higher quantity of products.
More efficient use of scarce resources.
Higher trade with other countries.
Higher economic growth-> higher living standards.
Specialisation disadvantages
Over-reliance on a few industries is risky
Increased interdependence reduces self sufficiency .
Two methods of trading
Barter and money
Medium of exchange-
something commonly accepted in exchange for goods
Measure of value-
price of a good reveals its value
Store of value
Value is maintained and can be kept for a long time
Method of deferred payment
Allows debt to be created
