Nature of Economics Flashcards
Ceteris Paribus
All other things remaining equal
Why is economics different to natural science
Other variables in the world that economic data relies on are always changing so setting up experiments or certain conclusions are difficult
Positive Statement
Statement that is objective and factual can be proven and disproven, doesn’t contain opinion
Normative Statements
Subjective and based on opinion
Basic economic problem
scarcity, resources are finite and limited but consumer want are infinite, allocation of these resources
value judgments
Evaluative statement of how good or bad something is
Opportunity costs
cost of choosing one thing over the next best option that was given up
Consumer opportunity cost
choosing how to spend income
Producer opportunity cost
choose what to do with limited resources in order to earn the most profit
Government opportunity cost
Government chooses to spend limited funds and tax revenue to maximise social welfare
PPF what does it show
maximum possible combination of capital and consumer goods an economy can produce with its current resources and tech
what is the x and y of the ppf
y = capital goods
x = consumer goods
What is PPF good for being able to work out
opportunity cost
When is the PPF curve shifted
When capacity in the economy grows, LRAS shifts right, when when quantity or quality of CELL increases
When is an economy on the the ppf curve
When it is producing at its most efficient possible at that time
What does movement along the PPF indicate
Change in combination of goods produced, capital or consumer
consumer goods
Goods created for and demanded by households
capital goods
goods produced in order to aid production of consumer goods
division of labour
When labour becomes specialised to a specific part of the production process
How can an economy maximise production
ensure CELL is being used as efficiently as possible
Advantages of division of labour
- Increases labour producitivy as workers are better and quicker at their role
- Higher quality goods
- Reduces time wastage by switching between roles
- reduces time and money spent on training for multiple roles
Disadvantages of division of labour
- Makes the job very boring resulting in poor quality and productivity
- reduction in craftsmanship with standardised products
- One bad process affects all others badly
- ## lack of occupational mobility as workers are trained at one thing causing structural unemployment
Advantages of specialising in production of goods and services for trade
- comparative advantage theory leads to greater global output as countries produce the product they have the smallest opportunity cost to produce
- greater productivity
- lower costs
- increased global trade
- more variety
Disadvantages of specialising in production of goods and services for trade
- Overdependence on one product and industry increasing susceptibility to supply and demand changes
- countries that specialise in non renewable resources aren’t sustainable
- ## Over interdependence will cause problems when trade is interrupted
