Micro L1 - 6 Flashcards
(44 cards)
Economy
All the good + services produced in an area
Factors of production and what they can be split into:
- Land
- Labour: Renewable and Non-renewable
- Enterprise
- Capital: Machinery and Tools
What is the economic problem?
How to use the available scarce resources to satisfy people’s infinite needs as effectively as possible
What are the two types of models, what are they and why are they developed?
- Theoretical model –> Qualitative and based on theory
- Empirical model –> Quantitive and based on data
They are developed to explain and predict economic phenomena, since scientific experiments cannot be conducted
What is ceteris paribus and why is it used?
If all other factors do not change/ are equal
This is used to overcome the problem of multiple factors affecting economic activity, which is why scientific experiments cannot be conducted
What is an opportunity cost?
Value of the next best alternative
What is a PPF
Production possibility frontier, which is the max potential output of a combo of 2 goods/services an economy can achieve
What causes economic growth?
- An increase in the quality of the factors of production
- An improvement in the quantity of the factors of production
- A combo of the two
How is economic growth and negative economic growth shown on a PPF?
If the curve shifts outward then there is economic growth.
If the curve shifts inward then there is negative economic growth
What does it mean when an economy is below the PPF curve?
There is a misallocation of resources which could be:
- inefficient use
- underutilisation
What are consumer goods?
Goods that do not produce other goods that are present to satisfy needs and wants
What are capital goods?
Goods that produce other goods and services
What will an increase in capital goods result in?
A long term increase in PPF
Positive economic statement:
- Can be proven true/false
- Objective
- Based on facts
Normative economic statement:
- Cannot be proven true/false
- Subjective
- Based on feelings
Duty:
Tax on imported goods
Specialisation:
Individual/firm concentrates on production of limited range of goods + services
Division of labour:
Specialisation of workers on specific tasks
How does division of labour increase productivity?
They are more skilled due to repetition of tasks so there is higher productivity ( better quality + greater quantity) and therefore greater output
Why does capital tend to increase labour productivity?
Automation has zero human error so it is more effective, leading to an increase in productivity
What does increased productivity lead to?
- Higher output
- Higher living standards
Productivity equation:
Productivity = output produced/ total inputs used
Advantages of division of labour:
- Cheaper to train workers
- Increased efficiency (time is saved)
- Increased productivity
- Workers more skilled
Disadvantages of division of labour:
- Repetitive tasks can lead to boredom, poor morale and therefore poor quality
- Simplified job roles can lead to little pride in job
