NATURE OF ECONOMICS Flashcards
What is meant by opportunity cost
Benefit given up of the next best alternative
What are the factors of production
land, labour, capital, entrepreneurship
What is the problem of scarcity / the economic problem
We have infinite wants but only scarce resources.
Why isn’t money included as one of the four factors of production?
Factors of productions are resources which can be used to produce things.
Money can’t be used to produce anything. It can be used to buy factors of production, and those factors can be used to make things.
What is the definition of Enterprise/Entrepreneurship
An entrepreneur combines and organises land, labour and capital to produce a good
Definition of land
All the earth’s natural resources i.e. physical land but also raw materials
Definition of labour
Human workers used to produce a good
What happens to a ppf if unemployment increases
the ppf remains the same, we move to a point within the curve.
What does a straight line ppf show
constant oppurtunity cost
If Russia produces more capital goods now, in the future what will happen to its ppf curve
Russia’s ppf will shift outwards
Opportunity cost diagram question
Sketch the effects of swine flu on a PPF with constant opportunity cost for ham and vegetarian pizzas.
describe a diagram to show the effects of improvements in fertiliser on a PPF for crops and fish.
What does a ppf show
Shows all possible combinations of two goods that can be produced, using all resources efficiently
What are the functions of money
deferred payment, unit of account, medium of exchange and store of value.
What is meant by deferred payment
You can borrow money to buy goods now, and then pay the money back in the future
However, specialisation can have negative effects if we over-specialise because
It means if there’s any big change in our economy, like coal mines being shut down, we struggle to adapt because we’re specialised in just one industry.
An advantage of specialisation and trade is that:
We can produce more output. Because we’re all specialised in producing what we’re best at producing, we can make more stuff overall
Definition of division of labour
When a firm splits up its production process into smaller separate tasks, and assigns different workers to each of these tasks.
Write the definition of specialisation
When a worker, firm or economy concentrates on producing a limited range of goods and services.
What is meant by unit of account
Money helps us compare prices of different products
What are 3 pros about division of labour
Can increase productivity and output by specialising and using specialist equipment
Can decrease unit costs because workers are more efficient
Can help firms save on training costs because each worker needs to be trained in fewer skills
What are 4 cons of division of labour
Demotivation can decrease productivity and output
Demotivation can decrease quality because workers will take less pride in their work
Can increase absenteeism, staff turnover and recruitment costs
Specialised workers will have only one skill so may end up unemployed if they lose their jobs
Pros of specialisation and trade
Wider variety of goods and services from trade
Can increase overall output
Can increase trade
Cons of specialisation and trade
if a region over-specialises and their specialist industry shuts down, workers will have no other work, leading to unemployment
countries can over-specialise and deplete their natural resources
We become vulnerable because if people specialised in producing a certain good or service go on strike or stop trading, we’re left without the goods and services we need
Economists assume that consumers
Want to maximise utility (happiness)
What is meant by herd behaviour
Consumers are influenced by the behaviour of others.
What is meant by habitual behaviour
When consumers are in the habit of making certain decisions.
Weakness at computation
Consumers are bad at making calculations, estimating probabilities and working out future benefits/costs.
