Theme 1 JSL Flashcards
What is the purpose of economic activity?
the central purpose of economic activity is the production of goods and services to satisfy our ever-changing needs and wants.
What is the basic economic problem?
The economic problem is the issue of scarcity and what is the best way to produce and distribute these scarce resources.
Ceteris paribus
- “All other things being equal”
- the effect of one economic variable on another. Assuming everything else stays the same.
Positive statement
Factual
May contain figures
Correct statement
Can be tested
Normative statements
Opinion/ value judgement
I think
You should
The four factors of production
- Land(natural resources)
- labour
- Capital(technology)
- Enterprise
Opportunity cost
The cost of an activity expressed in terms of the next best alternative, which has to be given up when making the choice.
What does a PPF show?
The PPF is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources. The PPF shows the output combinations that are working efficiently.
The PPF demonstrates…
- the production of one commodity may increase only if the production of the other commodity decreases
- this shows their is an opportunity cost
Absolute advantage
Being able to produce more of something than another country
Comparative Advantage
Being able to produce something at a much lower opportunity cost than another country
So country’s can go on and trade with each other
Problems with specialisation:
- If there’s a huge decrease in demand for the product, workers may lose jobs and become redundant.
- may have a surplus of labour uf the workers are only trained in one thing
- lack of entrepreneurship
- struggle to grow as a business with the same product
Division of labour
Specialisation of labour into separate tasks
Clear benefits of specialisation of workers
Spot mistakes easily
Maximises production per worker
Increases output speed
Problems of specialisation
Division of labour
- Expensive to train staff
- No multi-skilling
- Recruitment is made harder
The functions of money
- a medium of exchange (between suppliers and customers)
- A measure of value (price tags)
- A store of value(wages)
- A method of settling debts
A what is Adam smiths invisible hand?
He suggested that if people were allowed to trade freely, self interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand.
The invisible hand brings buyers and sellers together through self interest
Karl Marx believed…
- capitalists control the capital
- they are motivated by profit
- They pay poor wages
- long term capitalists fail
- a better idea is sharing the wealth
Fredrich Hayek
- only buyers and sellers understand the market
- the government may try to help
- but any policy unintentionally makes things worse
- better off leaving the market alone
What are the 3 types of economies?
Centralised - resources allocated by the government
Free market- The market looks after itself (laisse Faire)
Mixed economy - free market with some government intervention
Traditional market
What is produced?
What people NEED to survive (food, shelter and tools)
Command market
What is produced?
-Whatever the government decides
Market economy
What is produced?
Whatever people are willing to buy and sell
