The economic problem Flashcards
What is a positive statement?
A statement which can be proven true or false.
What is a normative statement?
A valued judgement which is opinion based.
Is the statement, ‘the average pensioner has a disposable income of 40% of
the average worker’ - positive or normative?
Positive
Is the statement, ‘the government should increase the state pension’, positive or normative?
Normative
What is the economic problem?
Scarcity, we have unlimited wants and needs with limited resources.
What are the 4 factors of production?
Capital, Entrepreneurship, Land, Labour
What is the opportunity cost?
The next best alternative that is foregone.
What is a renewable resource?
A resource that can be used repeatably and replaced naturally.
What is a non-renewable resource?
A naturally formed energy substance with limited availability.
What is the PPF?
The production possibility frontier (PPF) shows the maximum potential output of an economy.
What does producing on the PPF line show?
Full use of resources used (efficient allocations of resources)
What does producing within the PPF line show?
Under use of resources (Inefficiency, not all resources being used)
What does producing outside the PPF line show?
Simply unobtainable, not enough resources to be working there
What shifts the PPF outwards?
Higher productivity, Increase in stock of capital and labour supply, etc.
What shifts the PPF inwards?
Natura disasters, destruction, a trend decline, etc.
What is specialisation?
When an individual, firm, region or country concentrates on the production of a limited
range of goods and services
What is division of labour?
A process whereby the production procedure is broken down into sequence stages, and
workers are assigned to a particular stage. (eg, when car making, different people will do the wheels, tires, etc.)
What is an advantage of specialisation and division of labour?
Maximise productivity, Increase efficiency, Increase profitability, etc
What is a disadvantage of specialisation and division of labour?
Absenteeism increase, lower motivation (lower productivity), leads to structural unemployment.
What is the free market economy?
A free market economy is based on supply and demand where prices set freely between seller and consumer, without intervention from the government.
What is an advantage of the free market economy?
More competition (more choice for consumers), High quality (a lot of innovation to be the best).
What is a disadvantage of the free market economy?
Leads to monopolies, distribution of wealth becomes unequal.
What is the command economy?
A command economy is one in which a centralized government controls the means of production and determines output levels.
What is an advantage of the command economy?
Government has more control (less unemployment), reduction in inequality (government controls wages).
What is a disadvantage of the command economy?
Lack of competition, lack of productivity
What is the mixed economy?
A mixed economic system is a system that combines aspects of both capitalism and socialism
