Production, economic growth and trade Flashcards
Basic economic questions:
What goods and services are to be produced? How are they to be produced? Who will receive them?
Distribution
The way the economy allocates the goods and services it produces to consumers
Capitalist/market economy
Private individuals/firms own most of the resources. The basic economic questions are determined by individual desires for products and profit-making deductions by firms. Government role is protect the property rights, enforcing contracts and so on.
Planned/command/communist economy
Most of resources are owned by government decisions how to use it is also made by the government
Production
Turning resources into products or services that people want to buy
Land
Natural resources as well as land itself. The payment to use the land is rent
Labor
the mental and physical abilities of people to produce goods. The payment is wages
Capital
Manufactured products, tools, equipment. Payments to owners of capital is interest
Entrepreneur abilities
Combine land, labor and capital to produce goods and they assume the risks. Earn profits
Productivity
Measure of the efficiency determined by the amount of output given to the amount of input used
The production possibilities frontier (ppf) граница производственных возможностей
Shows the different combinations of goods that a fully employed economy can produce, given its available techs and resources
Short-run
Movement from the inside of ppf to outside. An economy recovering from recession is likely to experience short-runs
Long-run
Economy which expand its capacity to produce. Push ppf outwards
Absolute advantage
Phenomenon which exists when one country can produce more of a good than another country using the same amount of resources
Comparative advantage
Phenomenon which exists when one country can produce a good at a lower opportunity cost than another country
