Nature of economics Flashcards
Ceteris Paribus
All other things being equal
Opportunity Cost
the next best alternative foregone
Positive statement
Can be tested
Normative statement
Opinion
value judgements are found within them
Need
things people can’t live without
Wants
Things people desire but can live without
Three economic agents are?
-producers
-consumers
-government
Producers ?
firms that produce/supply services
Consumers?
People who purchase the good or service
Government?
Set rules for an economy
producers are…
incentivise by profit
Government are..
incentivised by maximising social welfare
allocative efficiency
a specific point on the ppf curve that maximises social welfare
Productively efficient
any point on the ppf curve
static efficiency
Refers to the efficiency at a point in time
what happens if the PPF shift’s outwards?
There is economic growth as the productive capacity of the economy has increased
specialisation meaning
Work has become more fishing at their task, improving the productivity of the entire production process
Division of labour meaning
this is where modern businesses divide their labour force allocating specific tasks to individuals
disadvantages of specialisation
-specialised firms are often not flexible
-workers may become bored which could reduce productivity
-countries may be less sufficient and struggle when trade suffers
Advantages specialisation
-it reduces the cost of trading workers because they only have to be trained for their particular job
-it can increase labour productivity as workers do task they’re good at so they should produce it at a better quality or a higher quantity
what is the free market?
this is where I consumers have a choice over how resources are allocated
what is the command economy?
This is where government is in charge of resource allocation
positives of a command economy
Correct inequality that exists in the free market
- it could reduce unemployment
-can break up monopolies
Negatives of command economies
-less efficient
-choice restriction
-asymmetrical information
negatives of the free market
-inequality
-missing market
-monopolies may rise
Consumers are…
incentivised by utility
Why is the PPF curved?
Because of the law of diminishing marginal returns
what is the function of money?
A store of value
