Micro Flashcards
(32 cards)
Absolute Advantage
Occurs when a country can produce more of a product than another nation, assuming the same factors of production
Comparative Advantage
When relative opportunity cost to make a good or service is lower than another country.
And when a country is relatively more productively efficient than another country
Specialisation
Specialistion is the concentration of production into a narrow range of goods and services
3 Specialisation Pros
1) Higher output of trade/ growth
2) Greater allocative efficiency
3) Wider range of goods/services within the specialised area
3 Specialisation cons
1) Finite resources/ resource depletion
2) Changes in consumer demand
3) National Interdependence
Division of labour
Breaking down the production process into separate tasks upon specialisation
Division of labour pros
1) Higher worker productivity
2) Specialist capital goods for workers
3) Lower prices, higher quality
Division of labour cons
1)Demotivation of workers
2) High worker turnover
3) Highly standardised good/ services
Ceteris paribus
assuming all other things are equal
PPF
A model that shows the alternative combinations of two goods that are obtained using the same amount of resources that are fully and efficiently employed
What does a PPF on a straight line indicate
Perfect factor sustainability of resources
Opportunity cost
The forgone benefit that would have been derived from an option not chosen
Why is a PPF not straight
A straight line would suggest production is perfectly efficient, and there are no diminishing marginal returns, it is curved due to increased opportunity cost
2 Factors to cause a PPF shift to the left
1) Natural disaster so loss of land so less input factors so output decreases
2) Migration could create a deficit of skilled workers so productivity decrease
2 Factors to cause a PPF shift to the right
1) More natural resources, so more factor inputs, so output increases
2) More skilled labour, eg immigration, so productivity
Positive vs normative statements
a positive statement is a descriptive or factual assertion while a normative statement is prescriptive or value judgment
Economy definition
The system that decides how to allocate resources and who to allocate them to
Diminishing marginal returns cause
Occurs because not all factor inputs are equally suited to producing items leading to lower productivity
homo economicus characteristics
- Self interested
- Fixed preferences
- Isolated
- Calculative
- Dominant
Factors of production in terms of short and long run economic growrh
Short run - fixed FOP
Long run - flexible FOP
Capital vs consumer goods
Capital goods are goods that are used to make consumer goods and services. Consumer goods and services are products which satisfy our needs and wants directly.
Short term economic growth
Growth of real output resulting from idle resources including labour, thereby taking up the slack in the economy
Long term economic growth
An expansion of an economy’s productive potential
Reasons for a outward shift in a PPF
Increased labour supply
Increased capital investment
