Nature of Economics Flashcards
What is a positive statement
A statement that can be tested
What is a normative statement
A subjective value judgement
What does ‘ceteris paribus’ mean
All other factors remain equal
What is the economic problem
How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible
What is opportunity cost
The benefit of the next best alternative forgone
What is a PPF
A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
What happens if someone is operating under the PPF
They aren’t using all their resources as efficiently as possible
What is the rule regarding PPFs
Their can never be a point outside the PPF because there isn’t enough resources
If someone is using their resources as efficiently as possible where would they be on a PPF
On the PPF curve
How do economics describe somone who is on the PPF line
Productively efficient
What is the opportunity cost of moving from point A to point Z
6-2 = 4
So the opportunity cost is 4 english flashcards
What is the opportunity cost to moving from point A to point B
3-1 = 2
So the opportunity cost is 2 english flashcards
If you want to find the opportunity cost of producing a third good what point on the PPF should you start at
The point where two goods are being produced
What is constant opportunity cost
When the opportunity cost of producing one more good is the same each time
What type of opportunity cost do straight line PPFs have
Constant opportunity cost
Why does increasing opportunity cost happen in real life
At first the opportunity cost of giving up a little bit of good A to produce a little bit of good B
But as you increase to the production of good B you have to divert more resources from A to B production
What causes a PPF to shrink inwards
A decrease in resources
What causes a shift to a point that is inwards of the PPF
A use of resources that is not productively efficient
What can long term unemployment do to a PPF
Will cause the PPF to shrink inwards because the workers will become less efficient because they have been unemployed for so long
What are consumer goods
Goods that are consumed
What are the four factors of production
Land
Labour
Capital
Enterprise
What are capital goods
Goods we use to produce consumer goods
What are the two types of goods
Capital
Consumer
On a macroeconomic PPF what are the axis
Capital goods = y axis
Consumer goods = x axis
What is the division of labour
When a firm splits up its production processes into smaller separate tasks and assign workers to each task
What are the pros of division of labour
Enables specialisation which increases output
Workers are specialised so it improves quality
As specialised workers become efficient unit costs decrease
Can save on training costs - each worker needs to be trained in only one skill
What are the cons of division of labour
Repetition may cause demotivation which may reduce productivity and may cause workers to care about the product
Demotivation may increase absenteeism
Workers may quit - if certain specialised workers quit then production process is broken down
When workers leave you need to pay for recruitment and retraining costs - this could cause costs to increase
Workers are specialised so may find it difficult to find another job
