1 nature of economicsc Flashcards
(29 cards)
whats microecon?
microecon is the study of individuals, households and firms behaviour and decision making and the allocation of resources
what is the basic economic problem?
scarcity - that there is unlimited wants but limited / finite resources.
what is a good ?
a good is a tangible item that satisfy wants and needs (chocolate bar)
what is a service ?
an intangible activity that other people or businesses do for you that satisfy wants and needs (plumbing)
what is opportunity cost ?
the value of the second best option foregone
what is a free good?
a good that is not scarce, it has unlimited supply and no opportunity cost (sea water) (air)
what are the 4 factors of production?
- land = all that nature provides (water air)
. - labour = human skills and physical efforts of people
. - capital = all man made goods which help to produce goods and services (the creation of capital is called investment)
. - enterprise = the entrepreneur that takes risks and uses all the other factors of production to make profit in the most efficient way
what is the definition for PPF?
production possibility frontier shows the maximum possible output combinations of two goods and services an economy can produce when all recourses are fully employed.
what causes the PPF to shift inwards ?
- natural disasters destroying capital
- emigration (out)
- failure to invest
- resources run out
what causes the PPF to shift outwards ?
- advancements in technology = increases productivity
- better management of existing resources
- increase in factors of production available due to increase in size of the workforce
what is specialisation?
firms or households are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others
what is division of labour ?
specialisation by workers where the production process of a good is broken up into many separete tasks each performed by one person.
what are the benefits of specialisation?
- quicker, no turnover between different equipment and tasks
- specialised equipment
- more efficient , higher productivity
- lower unit costs
- higher profits
- workers earn more
what are the costs of specialisation?
boring and tedius , this could eventually lead to them bein less efficient due to loss of motivation.
- people leave their jobs (labour turnover)
- firms my become reliant on certain recourses so can become vulnerable to a fall in demand
what is productivity ?
the output per unit of input employed over a given time period
what is meant by the term market?
a convenient set of arrangements by which buyers and sellers communicate to exchange goods and services
what are the four functions of money?
- store of value (can be saved)
- medium for exchange (used to buy g/s)
- method of defered payment (money can be borrowed)
- measure of value (compare prices of goods)
every economic system must consider 3 questions?
- what to produce ?
- how to produce ?
- for who to produce ?
what are the main economic agents/actors?
- producers
- consumers
- firms
- government
what is a command / planned economy ?
an economic system where government, through a planning process allocated resources in society through rationing.
- state decides what is produced and how anf for whom.
EXAMPLE IS NORTH KOREA
example of a planned/command economist ?
Karl Marx
what is a free market economy ?
an economic system where recourses are allocated by the price mechanism ‘invisible hand’ (Adam Smith)
- the forces of supply and demand, without any governemnt intervention determine how recourses are allocated.
EXAMPLE IS SINGAPORE
what are the advantages of a command/planned economy ?
(they are the disadvantages of a free market)
- Greater equality
- full employment
- key services such as defence provided
- prevents consumer exploitation by producers
- basic necessities such as food and water provided
what are the advantages of a free market economy ?
(they are the disadvantages of a planned/command economy)
- greater choice
- consumers choose whats produces
- greater productivity (something to strive towards)
- risk taking
- innovation (new ideas)
