The Economic Problem Flashcards
What is opportunity cost?
The next best alternative given up when an economic decision is made.
Amount of time for A
Over
Amount of time for B
What is the difference between positive and normative statements?
Positive= factual, can be tested against real world data
Normative= subjective, opinions that require value judgements (non-testable)
What are the 4 economic resources?
Capital= stock of goods used to make other goods e.g tools and machinery
INTEREST
Enterprise= entrepreneurs prepared to organise the other 3 factors together by taking risks
PROFIT
Labour= all potential workforce, not just skills but ability and intelligence
WAGES
Land= all resources taken from the world, can be minerals or land itself or animals e.g fish, forestry, air
RENT
What is economic welfare?
Benefit or satisfaction an individual or society gains from the allocation of resources.
What are free goods?
What are economic goods?
Free= goods that have no opportunity cost e.g air
Economic= goods that are scarce therefore have an opportunity cost e.g oil
What is the free market economy?
An economy where there is very limited government involvement in providing goods and services, instead their role is to ensure the rules of the market are fair.
What does the PPF boundary represent?
Maximum possible output that can be achieved.
What is productive efficiency?
When a firm operates at a minimum average total cost producing the maximum output.
What is allocative efficiency?
Happens in an economy where it is not possible to produce more of one good without making less of another.
What can cause a left (less) shift in the PPF curve?
- lower factors of production (CELL) e.g fall in population
- existing machinery not maintained
What can cause a right (more) shift in the PPF curve?
- improving technology as raises productivity
- finding more resources for the factors of production e.g increase in population
- better management of resources via division of labour and specialisation
