topic 1 - theme 1 Flashcards
the nature of economics
what is a positive statement?
a statement that can be scientifically tested
what is a normative statement?
a statement that is an opinion and cannot be scientifically tested
what is opportunity cost?
the cost in terms of the next best alternative forgone (the option you give up)
what is the fundamental economic problem?
unlimited wants, scarce resources
what is marginal analysis?
economic decision making based on considering the additional (marginal) benefits or costs of a change in behaviour
why do companies use marginal analysis?
in order to help them maximise potential profit
how would a country achieve an outward shift on the PPF?
- an increase in factor resources
- increase in productivity
- improvements in technology
why is the PPC concave?
the PPC is concave because you cannot perfectly substitute factors of production
what does diminishing returns mean?
proportionally smaller profits or benefits derived from something as more money or energy is invested into it
what is a linear PPF an indication of?
perfect factor substituting of resources
what is the division of labour?
the production procedure is broken down into a sequence of stages and workers are assigned to a particular stage
what are the three economic agents?
- households (and individuals) make choices about expenditure (the action of spending funds) and their supply of labour
- firms produce goods and services and employ labour
- governments undertake expenditure, tax and regulate
what are the factors of production?
- land
- labour
- capital
- enterprise
what is a renewable resource?
natural resources that can be replenished
what is a non-renewable resource?
natural resources that, once used, cannot be replenished
what does the PPF show?
the maximum combination of goods/services that can be produced with a given quantity of resources
what did Adam Smith (economist) believe?
resources would be allocated fairly under a free market economy due to the existence of the ‘invisible hand’
what did Karl Marx (economist) believe?
under a capitalist system, firms would exploit their position, at the expense of labour, eventually leading to a revolution
what is resource depreciation?
when existing resources become less productive because of wear and tear and age
e.g. machinery, buildings
what is resource depletion?
the consumption of a resource faster than it can be replenished
e.g. deforestation, natural disasters
