Week 1 Flashcards
What is comparative advantage?
When one group/individual can produce a good/service at a lower opportunity cost than another group/individual
What is absolute advantage?
When one group/individual is able to produce a particular good/service better or more efficiently than another group/individual (ie at a lower total cost)
What is the connection between specialisation and markets?
Specialisation in an economy enables greater output, but this only works if all producers can acquire the other goods/services they need. Markets facilitate the exchange of goods/services between producers enabling all groups to produce their specialised g/s and acquire their other needs through trade.
If party A is specialising in the production of a good over party B, does that necessarily mean party A can produce that good at a lower cost than party B?
No. Party A may produce a good at a higher cost than party B but overall Party A and B can collectively produce greater output (ie lower opportunity cost) by specialising in the production processes that they have a comparative advantage in rather than Party B doing both. In this instance it means that the overall economy limits its loss or opportunity cost by allocated party A to produce that particular good.
What are the 4 causes for a difference/divergence in economic growth through capitalism?
Not all economies will be equally successful at capitalism because:
1. their incentives for growth may not be correct or conducive to growth promotion
2. economic conditions within the key institutions (ie private property, firms, markets) may fail
3. their political conditions may not be well suited
4. the government needs to be providing essential goods and services (eg infrastructure and education) to make up for market failures
Which political system does capitalism most commonly coexist with?
Democracy. This is because this is where private property rights are usually met and the correct incentives are able to be enforced.
What drove the Technological Revolution?
The scarcity of time
What is the shape of economic growth that all regions of the globe underwent in the last 300 years?
The hockey stick growth shape
What revolution was a key driver of rapid global growth and economic development?
The Technological Revolution (the industrial revolution is a subset)
What are the three institutions in capitalism?
Private Property, Markets, Firms
What is an ‘institution’?
The laws and social customs governing the production and distribution of goods and services
Why was there a divergence in hockey stick growth around the world?
Many countries didn’t begin to flourish until they gained independence from colonial rule or interference from European nations.
What is the ‘hockeystick growth’ phenomenon?
The rapid, sustained increase in income and living standards over the past 3 centuries that has been most commonly reflected by the rapid, sustained increase in economic growth.
