The Nature of Economics Flashcards
What is a production possibility frontier?
-shows combinations of two goods which could be produced by an economy if all of its resources were employed fully and efficiently.
What are consumer and capital goods?
-consumer goods: those that give satisfaction/utility to consumers
-capital goods: those required to produce other goods.
What would a point inside/outside of the PPF mean?
-inside: there are unemployed resources in the economy
-outside: unobtainable, only become obtainable if there was economic growth
How does economic growth/decline correlate with PPFs?
-a DECREASE in consumer goods implies a fall int the current living standards however in the long run, the extra capital goods will cause an increase in the productive capacity of the economy and therefore cause a rightward shift in the PPF.
-economic decline would be associated with MORE consumer goods as there would be insufficient production of capital goods to cover depreciation so reduces the productive capacity of the economy. Causes an inward shift in the PPF.
What are factors causing an outward shift in the PPF (4)?
-discovery of natural resources
-advances in technology
-improvement in education and training
-immigration
What are factors causing an inward shift in the PPF (4)?
-natural disasters
-depreciation of natural resources
-emigration
-recession
What are advantages and disadvantages of division of labour to the firms (3 A, 2 D)?
-each worker specialises in tasks that he/she is best at.
-in manufacturing such an approach enables production line methods to be employed and allows an increased use of machinery.
-increases productivity and avg costs of production.
-monotony and boredom for the worker, resulting in a decrease in productivity.
-a strike by one group of workers can bring the entire production facility to a standstill.
What are advantages and disadvantages of division of labour to the country (1 each) ?
-if a country specialises in the production of certain goods and services and then trades these in exchange for goods and services it does not produce, then it can benefit from increased output, greater choice and lower prices.
-such specialisation might mean that a country becomes over-dependent on imported goods and services. If its goods and services are uncompetitive, then unemployment could result and the country’s value of imports may persistently exceed the value of its exports.
What are limits to the division of labour (2)?
-if there’s only a small market, then it’ll be more difficult to specialise.
-designer fashion products are likely to be unique and not suitable for division of labour
What are the functions of money (4)?
-medium of exchange
-a store of value
-a measure of value
-a means of deferred payment
What are features of a free market economy (5)?
-private ownership of resources
-market forces
-producers aim to maximise profits
-consumers aim to maximise satisfaction
-resources are allocated by the price mechanism
What are features of a command economy (4)?
-public ownership of resources
-price determination by the state
-resources are allocated by the state
-there is a greater equality of income and wealth than in a free market economy.
What are features of a mixed economy (2)?
-mixture of the free market economy and the command economy.
-resources are allocated by the price mechanism while others are allocated by the state.
What are advantages and disadvantages of free market economies (4 each)?
-consumer sovereigncy
-flexibility
-increased choice
-economic and political freedom
-inequality
-monopolies
-trade cycle
-externalities
What are advantages and disadvantages of command economies (4 each)?
-greater equality
-macroeconomic stability
-full employment
-no exploitation
-shortages and surpluses
-lack of incentives to take risks
-inefficiency
-restrictions on freedom of choice
