nature of economics Flashcards
ceteris paribus
all other things being equal
positive statement meaning
objective statement that can be tested for. it can be accepted or denied
normative statement meaning
subjective statement which is a value based judgement
scarce resources meaning
resources that are limited in supply
needs meaning
minimum that is necessary for a person to survive
basic economic problem
infinite wants and scarce resources
opportunity cost meaning
Next best alternative forgone
renewable resources meaning
resources that can be repeatedly exploited as they have the potential to renew themselves
non-renewable resources meaning
resources which once exploited cannot be replaced
sustainable resources meaning
resources which can be exploited in a way that they will not run out
4 factors of production
land
labour
capital
enterprise
land meaning
natural resources available for production
labour meaning
human input into the production process
human capital meaning
value of the productive potential of a worker
capital meaning
stock of manufactured resources used in the production process
enterprise meaning
individuals seeking out profitable opportunities for production and taking risks in an attempt to make a profit. organise production
Production possibility frontiers meaning
a curve that shows the maximum combinations of 2 goods or services that can be produced when all resources are fully and efficiently employed
Productive capacity of an economy
law of diminishing marginal returns meaning
after a certain point adding additional factor of production results a smaller increase in output
what causes an outwards shift in the PPF
increased productivity - increases output per input
better management of FOP- increase efficency, decrease waste
increasing the FOP
discovery of new raw materials
tech advancements- better machinery
what causes an inwards shift in the PPF
labour leaving the country
damaging FOP e.g. war , natural disasters
lack of investment
lack of natural resources
consumer goods meaning
goods and services that are used by people to satisfy their needs and wants
capital goods meaning
goods that are used in the production of other goods
what does it mean when production is taking place on the line
that all the resources are being used efficiently
productive efficiency meaning
production takes place at the lowest cost
allocative efficiency meaning
social welfare is maximised.
specialisation meaning
when an individual/ firm/ country produce a narrow range of goods
pro of specialisation
increased productivity as person can focus on improving one skill
better quality goods
decrease costs
con of specialisation
mass production of standardised goods
lack of variety for consumer
change in demand could lead to a loss
overspecialisation can lead to structural unemployment
Alienation
Decrease production as repetitive
One person fails whole production process stoped
division of labour meaning
when labour becomes specialised in a particular part of the production process
division of labour pro
cost effective as labour becomes specialised and each person doesn’t require every tool
time efficient as workers aren’t changing tasks
narrow range of skill so increases their productivity
more profits
increase in wages
workers become experts at their field
division of labour con
lack of motivation- lower productivity
less pride in work- lower quality
dissatisfaction from work causes high turnover
limited skill set- structural unemployment
standardised goods
breakdown in the chain stops whole production process
functions of money
medium of exchange
measure of value
store of value
method of deferred payment
medium of exchange meaning
can be used to buy and sell goods and services and is accepted everywhere
measure of value meaning
compares value of 2 goods
puts value on labour
store of value meaning
able to keep its value and can be kept for a long time
method of deferred payment meaning
allows for debts to be created
people can pay of things without having money
function of an economy
what to produce
how is it produced
for whom is it to be produced
free market economy meaning
where there is little to no government intervention and scarce resources are allocated by the market mechanisms of supply and demand
pro of free market
economic efficiency as high competition
quality and innovation as competition
freedom of choice as variety of goods available
high motivation- more work = more money
political freedom
high rates of economic growth
con of free market
high levels of income and wealth inequality
lack of merit goods
little control of merit goods
wasted resources e.g. ads
monopolies
negative externalities
volatile economic cycle
high risk
no welfare
command economy meaning
where government allocates resources
command economy pro
more income and wealth equality
less wastage
standardised products are cost effective
gov motivated by well being of people
command economy con
lack of motivation and efficiency as same wage
lack of innovation
lack of choice
many decisions to be made lead to slow growth and wrong choices
mixed economy meaning
both free markets mechanisms and the government allocate scarce resources and factors of production
role of the gov in a mixed economy
create rules and regulations
provide merit and public goods
limit demerit goods
correct market failure
provide welfare
decrease inequality
