Booklet 1 Micro Y12 Flashcards
(27 cards)
Ceteris Paribus
“All other things being equal”
What are the 3 economic agents?
Households/Consumers
Firms
Government
Why might we not maximise utility?
Habits
Substance Abuse
Prioritising short-term benefits
Moral, political, religious beliefs
Cost-benefit Principle
Action should only be taken if the benefit outweighs the cost.
Rational utility maximisers will never give themselves disutility.
Positive VS Normative Statement
Positive: Fact
Normative: Opinion
What’s the basic economic problem?
Infinite human wants, finite resources
What are the 3 ways of allocating resources?
Free market
Mixed economy
Planned economy (government)
What are the 4 factors of production?
CAPITAL
ENTERPRISE
LAND
LABOUR
The 4 kinds of output made by production?
SERVICES
CAPITAL GOODS
CONSUMER DURABLES
CONSUMER NON-DURABLES
Trade-Off
A situation where an improvement in one variable leads to deterioration in another
Opportunity Cost
The benefit foregone for the next best alternative
What does a PPF illustrate?
The productive capacity of the economy
How do you calculate productivity?
How can labor productivity be improved?
Through training, specialization, or supervision.
What are the benefits of higher productivity?
Lower costs,
improved competitiveness,
higher profits,
investments,
and higher wages
What does economic growth result in?
A shift of the Production Possibility Frontier (PPF) outward.
What is average cost?
Total cost divided by the number of output.
What is allocative efficiency?
Producing the combination of output that maximizes consumer welfare.
To be productively efficient the economy must be…
- TECHNICALLY EFFICIENT - Producing maximum output
- Minimising costs
What is Pareto efficiency?
Nobody can be made better off without someone being made worse off.
What is statically efficient?
Efficient at any one time (e.g., productive + allocative efficiency).
What is dynamically efficient?
Becoming more efficient over time (e.g., investments).
What is x-inefficiency?
A firm’s inability to fully utilize their resources. Lack of incentive to minimize costs as they are able to increase prices.
What is specialization?
Focusing on one area of production.
