Unit 1 Flashcards
What is an economic system?
This describes the combination of economic and social institutions and how they interact
What is capitalism?
This is an economic system that is characterized by institutions built around private property, firms and markets
What is communism?
This is common ownership of production means and absence of classes
What is socialism?
This is focus on socializing production and socializing consumption(access to free goods)
What is GDP per capita?
Its a measure of living standards and is found by :
GDP/population
What are the problems with using it?
It doesn’t take inequality into account
It doesn’t measure wellbeing
There are some activities that take place that aren’t recorded
How is inequality measured?
The 90/10 ratio
How is growth rate measured?
Change in GDP/Original GDP
What does history’s hockey stick represent?
The sustained rapid growth in GDP per capita experienced by countries
What delayed the takeoff of African countries?
- Colonialism
- Failed economic policies
- Lack of adequate quality data to measure economic growth
- Extractive institutions
What is the industrial revoloution?
The wave of technological advances and organizational changes that took place in Britain in the 18th century onwards
What is a technology?
This is a process that uses a set of inputs to create a set of outputs
What is technological progress?
A change resulting in less labour being used to produce the same amount of output
What is a market?
This is a way of connecting people who mutually benefit by exchanging goods and services through a process of buying and selling
What is a firm?
This is the way of organizing production
How did capitalism improve living standards?
- Specialization- Firms growing and markets expanding lead to division of labour
- Technology - Competition meant that firms had to be more innovative and more productive to remain competitive
What were the gains from specialization?
People were made more productive as the had a limited range of things to do:
- Learning by doing
- difference in ability
- economies of scale
What is absolute advantage?
This is when a person of firm can produce the same amount of a good with less inputs compared to another
What is comparative advantage?
This is when a person or country has a lower relative cost of producing one good in comparison to others
When can capitalism fail to raise living standards?
- Lack of competition in markets
- Firms owned by someone with government connection
- Private property isn’t secure
