1.1-Nature of Economics Flashcards
What is the theory of Ceteris Paribus
This assumption is that other things are being held equal or constant, so nothing else changes
What is the basic economic Problem
Wants are unlimited and resources are finite
What are the Factors of Production
Capital
Entrepreneurship
Land
Labour
Renewable Resources
A resource that can be replenished so the stock level of the resource can be maintained over a period of time.
Non-Renewable Resources
The stock level decreases over time as it’s consumed
What is Production Possibility Frontiers (PPFs)
depicts the maximum productive potential of an economy,using two goods or services
What are Capital Goods
goods which can be used to produce other goods, such as machinery
What are Consumer Goods
Goods which cannot be used to produce other goods, such as clothing
What is Specialisation?
is the production of a limited range of goods by a company/individual/country which means that trade is essential as it is the only way
they are able to access all that they need.
What is Division of Labour?
the separation of a work process into a number of tasks, with each task performed by a separate person or group of persons who is specialised in that task to increase productivity
Advantages of Specialisation and Division of Labour
● This may also lead to a higher quality of goods and services, since workers are more skilled at their jobs.
● It is more cost effective to develop specialist tools, improving speed or quality.
● Time is not wasted moving between jobs and getting out tools etc.
● Workers only need to be trained to do one specific task , rather than many, saving time and money
Disadvantages of Specialisation
● If someone is only doing one specific task, it can make work very boring which will lead to poor quality of work and people leaving the business.
● There is a reduction of craftsmanship and a much more standardised product
because of mechanisation.
● If for some reason production in one process is delayed, every other task has to stop
until that problem is solved.
● The workforce do not have wide industrial training and could therefore suffer from
structural unemployment.
Advantages of Specialising in the production of goods and services to trade
The theory of comparative advantage states countries should specialise in
producing those goods where they have a lower opportunity cost, and so they are relatively best at producing. This will help them boost their economy. On the whole, there is greater output globally.
Disadvantages of Specialising in the Production of goods and services to trade
● Countries may become over-dependent on one particular export and if this fails their economy may collapse. For example, many developing countries specialise in farming and if crops fail due to weather they will have no income . Areas such as Manchester suffered high unemployment as traditional areas of employment, like shipbuilding, became less important.
● Other countries specialise in non-renewable resources and these could run out, which will result in a huge loss of income for that country. It will also mean the loss of these resources.
● There will be high interdependence and this will cause problems if trade is prevented, for example because of war.
● Some say that increased specialisation means there will be more competition to cut
costs and therefore wages will fall, but this is not necessarily true.
Functions of Money
-A medium of exchange
-A measure of value
-A store of value
-A method for deferred Payment
