saturday- first hour of AS revision Flashcards
what is a positive statement?
can be tested using evidence
fact based
objective - can work out if its true or false
what is a normative statement?
opinion based
cant be tested
look for words such as ‘should’ or if the statement is suggesting one action is better than another
what is the basic economic problem?
have finite resources but infinite wants
cant have everything so have to make choices
what is opportunity cost
the benefit lost from the next best alternative that was given up
what is a PPF ?
shows all the possible combination of two goods we can produce using all of the factors of production efficiently
what does it mean if a firm is producing inside the PPF curve?
arent using resources efficiently
productively inefficient
what does it mean if a firm is producing on the PPF curve?
producing efficiently
what is resource depletion?
where there are fewer resources because resources are destroyed/ used up
what is potential growth?
where maximum possible output increases because of increased resources/ better tech
PPF shifts outwards
what is actual growth?
where the amount of output produced increases because existing facotr are being used more effectively
shows by drawing a new point further outwards on PPF
what does it mean if the PPF curve is concave
if factors arent perfectly substitutable the PPF is concave to the origin
what is a factor mobility?
switching our resources from one use to another
what is occupational mobility?
how well factors can switch from one job to another
what is geographical mobility?
how well factors can be moved around
what are wages?
what is a salary?
any payment for labour- wage
fixed pay per period of time- salary
what are consumer + capital goods
consumer- consumed directly for their utility
capital- goods which are used to make other goods
what is specialisation?
when production process is split up
employees given specific tasks
workers specialise in these special tasks
what is the advantages of the division of labour?
higher efficiency/ productivity
higher quality
lower prices
better use of scarce resources
potential higher pay for workers
more profit so owners can buy more machines
what are the disadvantages of the division of labour?
bored of job - fall in quality and quantity of goods
fewer people will want to work there - absenteeism
businesses profit my fall
difficult to see workers which are doing well
workers have less pride in their work
less flexibility if someone is absent/leaves
workers may not have as many transferrable skills if firm shuts down
what is the circular flow?
a model of the economy where the major exchanges are represented as flows of money, goods and services between economic agents
what is it assumed that households own?
own all factors of P (LLC)
households sell these to firms to earn rent, wages and profit
all money earnt is then spent on goods produced by firm
what are the 3 injections into the economy?
govt spending
exports
investment
what are the 3 withdrawals?
taxation
spending on imports
saving
what are the effects of injections ?
rise in GDP
value of multiplier will increase
what are the effects of the withdrawals?
reduce size of national income
reduce disposable income
what are the factors of production and its rewards?
land- rent
labour- wages
capital- interest
enterprise- profit
what is income?
amount if money received on a regular basis
what is wealth
accumulation of assets
what are the 3 methods of measuring GDP
income method
output method
expenditure method
what is the income method?
measures wages, dividends and rental income
what is the output method?
measures the goods and services as economies develop their service sector
what is the expenditure method
includes spending groups (households, firms, govt, (x-m)
what is nominal value?
refers to the unadjusted rate or current prices without taking inflation or other factors into account
what is real value?
nominal value adjusted for inflation
obtained by removing the effect of price level changed from nominal value data
what does per capita mean?
divides the total by the population
what does value mean? what does volume mean?
value- market value in monetary terms of goods and services
volume- quantity + number of items being produced
what is GDP?
market value of all final goods and services produced in a given country
what are intermediate goods?
those used to produce other goods
what doesnt count in GDP?
only goods which are purchased new are included
doesnt count intermediate goods as the value of the final good includes the value of the intermediate good
this avoids double counting
what is GNI?
measures income (wages, salaries, investents) generated by the countries citisens
what is GNP
what is the difference between GDP and GNP?
adv of GDP
limitations of GDP
what influences living stadards
income
environment
employment
education
healthcare
leisure time
what is the subsistence trap
benefits of growth
costs of growth
evaluations of the impact of economic growth
why do economists use PPP?
because GDP has many limitations
what is PPP?
compares a basket of goods and services + changes in price, to reflect different costs of living + inflation rates between economies
how do you calculate PPP?
volume of goods produced in each country x price of the good in the US
what are the benefits of PPP?
provides a base for comparison
no discrepancies (disagreements)
What are the problems with PPP?
not all goods and services have a direct equivalent in the US
what is the balassa-samuelson effect?
price of services are cheaper in poorer countries so it isnt easily tradeable as labour/services is immobile
what is arbitrage?
price of goods in US are more expensive in the US because people may buy the good from somewhere where its cheaper and resell it elsewhere for a higher price
what is arbitrage?
price of goods in US are more expensive in the US because people may buy the good from somewhere where its cheaper and resell it elsewhere for a higher price
what is purchasing power
amount of good you can get for one unit of currency
