Section A Flashcards
Microeconomics =
The study of economic decisions taken by individual economic agents, including households and firms
Scarcity=
A situation that arises when people have unlimited wants in the fact of limited resources.
3 Key Questions =
1) What? (should be produced) 2) How? (Should the resources be used) 3) For Whom? (How should they be allocated
3 Economic agents=
1)Consumers 2) Firms 3) Government
Factors of Production=
Resources used in the production process including Land, Labour, Capital, Entrepreneurship. (CELL)
Renewable Resources= Non Renewable Resources=
Natural resources that can be replenished such as forests that can be replanted, or solar energy that does not get used up Natural resources that are used that cannot be replenished i.e Coal
Economic Model=
A simplified representation of reality used to provide insight into economic decisions and events
Marginal analysis=
An approach to economic decision making based on considering the additional marginal costs or benefits of the change in behaviour
Ceteris Paribus=
Other things being equal
Positive statement Normative statement=
Objective statements that can be verified by referring to data A statement that involves value judgement about what ought to be
Opportunity cost
The value or the next best oppurtunity forgone
PPF=
A curve showing the maximum combinations of goods or services that can be produced given a certain period with available resources.
What can PPF’s be used for?
1) Measuring Opp Cost 2) Resource allocation 3) Consumption and Investment 4) Productive efficiency
Economic Growth=
An expansion in the productive capacity of the economy
GDP=
A measure of the economic activity carried out in an economy over a period
Division of labour=
A Process whereby the production process is broken down into a sequence of stages, and workers are assigned to a particular stage.
Advantages of DoL
1)Higher Output (more repetition-more skilled) 2)Quality improved 3)Lower training costs 4) Fewer resources used
Disadvantages of DoL
1)Lower Output (arguments-strike) 2) More resources used (bored) 3) Production stops if one specialist is away
Specialisation=
Concentration on a single/ narrow range of goods or tasks. DoL is a type of specialisation
Specialisation: Advantages= Disadvantages=
‘Practise makes perfect’ ‘All your eggs in one basket’ - what happens if there is a fall in demand for the one good produced
Market=
A set of arrangements that allows transactions to take place between the buyer and seller
Function of the price mechanism
The interaction of buyers and sellers in markets enables goods and resources to be allocated prices. Changes in prices reflect forces of demand and supply.
3 Functions of the price Mechanism?
1) Rationing - Greater the scarcity, higher the price and the more it is rationed. 2) Signalling - Firms receive signals from consumers about changing preferences through price changes. 3)Incentive - higher prices provide an incentive to produce more.
Barter economy=
Where goods are traded directly for other goods
Barter economy problem=
Problem with barter economy is that you need a double coincidence of wants (someone wants what you have and you want what they have)
Function of money=
Money is needed as a: 1) Medium of exchange 2) Measure of Value 3) Store of value 3) Standard of deferred payment
Market economy=
An economy in which market forces are allowed to guide the allocation of resources
Advantages of free market economy:
1) Competition (lower prices, better quality) 2) Less costly for Govt 3) Lower taxes 4) Efficiently allocates resources
Disadvantages of Free Market economy:
1) Open to abuse by powerful firms 2) Pollution and negative side 3) Information failure 4) Unfair distribution of income
Command Economy=
An Economy in which decisions on resource allocation are divided by the state
Advantages of command economy:
1) Fairer distribution of wealth 2) More likely to take into account all costs and benefits 3) Profit incentive not the over-riding goal
Disadvantages of Command Economy:
1) Open to abuse by Govt 2) Slow to respond to market changes 3) Costly for govt (More tax) 4)Lack if innovation because not driven to win consumers to gain profit
Mixed Economy=
An economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state
