The economic problem Flashcards
What is the basic economic problem?
- How to allocate scarce resources given unlimited wants…
- Forces choices to be made - What, How and for Whom
What are the factors of production and their rewards?
Capital - Interest
Enterprise - Profit
Land - Rent
Labour - Wages
What is opportunity cost?
The cost of the next best alternative foregone when a choice is made
What are positive and normative statements?
Positive - Objective statements, tend to be a statement of fact and can be proven to be true or false
Normative - Value judgements, tend to be opinions and beliefs
What are renewable and non-renewable resources?
Renewable - Can be used repeatedly and naturally replenished
Non-renewable - Cannot be naturally replenished at a pace that keeps up with consumption
What is production possibility frontiers?
PPF - An economic model that considers the maximum possible production that a country can produce it is uses all of its FoPs to produce only two goods/services
How is a PPF used for depicting maximum productive potential of an economy?
The curve demonstrates the possible combinations of maximum output this economy can produce using all of its resources
How is a PPF used for depicting opportunity cost using marginal analysis?
To produce one more unit of capital goods, this economy must give up production of some units of consumer goods (limited resources)
How can a PPF be used to depict efficiency, inefficiency, attainable and unattainable production
Producing at any point on the curve shows productive efficiency
Any points inside the curve represent inefficiency
Using the current level of resources attainable, production is on or inside the curve and any point outside the curve is unattainable
What is specialisation and division of labour?
Division of labour - A task is broken up into several component tasks, allows workers to specialise in one task
Results in higher output per worker and so increases productivity
What are the advantages of division of labour?
- lower costs mean lower prices for consumers
- lower costs mean higher profits - higher wages?
- increased productivity means firms can sell more output
- creates jobs
- lower costs per unit for firms
What are the disadvantages of division of labour?
- repetitive tasks often lead to boredom and decreased worker motivation
- less productivity can mean poorer manufacturing quality
- may increase worker turnover
- mass produced products often lack variety
What are the functions of money?
Medium of exchange
Measure of value
Method of deferred payment
What are free markets, command economies and mixed economies?
Free market - No gov intervention in the allocation of resources or the distribution of g/s
Command economies - All resources are owned by the state and the gov controls distribution of g/s
Mixed economies - Blend of free markets and command economies, firms and gov own factors of production
