Pack 2 Flashcards
Define the term ‘production possibility frontier’.
A curve showing the maximum potential level output of combinations of 2 goods or services that an economy can produce, assuming all available resources are used fully and efficiently. It can be used to illustrate scarcity and opportunity cost.
For a scenario of your choice, use a PPF to represent inefficient use of resources, efficient use of resources, impossible output point.
Inefficient use = below the PPF
Efficient use = on PPF
Impossible output point = above the PPF.
For a scenario of your choice use a PPF to show an opportunity cost.
2 points and the difference
For a scenario of your choice use a PPF to represent,
A) more resources available for both products
B) less available for both
2 PPFs one going out and one going in.
For scenario of your choice use a PPF to represent more resources available for the production of one product only.
The PPF will have another line that is the same for one product but extended for another.
Explain with an example the difference between a capital and consumer good.
Capital goods are goods that are used to produce consumer goods or other Capital goods. An example would be a machine that produces water bottles.
Consumer goods are goods like water bottles that directly provides satisfaction (utility) to consumers. It is wanted by consumers for personal usage.
Explain why PPFs are normally drawn as a curved shape (rather than a straight).
Bowed PPFs show that as more of one good is produced, an increasing amount of the other is sacrificed. i.e an increasing opportunity cost.
Straight PPFs assumes that resources are equally suited to the production of both goods. Resources are easily transferred between goods. It shows a constant opportunity cost.
Explain the use of models to economists.
It is a simplified view of reality that is used by economists as a means of explaining economic relationships.
Explain with an example the idea and usefulness of ceteris paribus as an assumption.
‘All other things being equal’ or ‘All other things remaining the same’. It makes PPFs possible as in reality there are many other factors that effect the production of goods.
How is productivity calculated? Use a numerical example.
Productivity = total output/ number of workers.
E.g. paid £10 an hour and 15 units made so £10 ÷ 15 = 66.66p
What happens to average costs as productivity changes? Why?
As productivity increases, average costs decreases as the employer can increase the number of units made by each worker without changing their wage.
Give atleast 2 ways of increasing productivity.
- specialisation/division of labour
- training schemes to improve workers.
Outline what specialisation is.
When an individual, firm, region or country concentrates on the production of a limited range of goods and services.
Give atleast 2 benefits of an economy specialising.
- The nation can chose to produce only what it is naturally good at.
- It will be more productive and effective.
Give atleast 2 drawbacks of an economy specialising.
- A rival can be better so countries may trade with them instead.
Outline what division of labour is.
The specialisation of workers on specific tasks in the production process.
Give atleast 3 pros and cons of a firm using division of labour.
Pros = productivity, less time wasted, training costs.
Cons = repetition, inflexibility, worker power.
Who came up with the idea of division of labour as a way of increasing productivity? In which setting did he do this experiment.
Adam Smith - referred to production in a pin factory. If production was broken down into 18 different specialist tasks, each carried out by a different worker, output of pins would increase by 2000%.
List and explain the 4 functions of money.
Medium of exchange, measure of value, store of value, method of deferred payment.
1 buying and selling of products
2 enables value/worth to be placed on products.
3 A convenient way of storing wealth.
4 borrowing and lending
