Nature Of Economics (1.1) Flashcards
(26 cards)
Ceteris Paribus
All other things remaining equal
Normative Statement
A statement which is subjective and based on opinion so cannot be proven or disproven
Positive Statement
A statement which is objective and made without any obvious value judgements or emotions . They can be tested to be proven or disproven
Problem of Scarcity
People have finite needs but infinite wants but resources are finite and limited
Renewable Resource
A resource of economic value that can be replenished or replaced on a level equal to consumption
Non-renewable Resource
A resource of economic value that cannot be readily replaced by natural means on a level equal to consumption
Opportunity Cost
The cost of one thing in terms of the next best option which has been given up
Factors of Production
Land
Labour
Capital
Entrepreneurship
Production Possibility Frontiers
The maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology
Capital Goods
Goods that are produced in order to aid the production of consumer goods in the future
Consumer Goods
Goods that are demanded and bought by households and individuals
Specialisation
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
Division of Labour
When labour becomes specialised in a particular part of the production process
Advantages of Specialisation
- labour productivity is increased
- higher quality of goods and services
- only need to be trained to do one specific task
Disadvantages of Specialisation
- boring, repetitive work
- can lead to structural unemployment
- reduction of craftsmanship
Advantages of specialisation for trade
Leads to greater output globally
Disadvantages of specialisation for trade
- countries may become over-dependent on one particular export
- there will be high interdependence which will cause problems if trade is prevented
- countries specialising in on renewable resources could end up running out
Functions of money
- a medium of exchange
- a measure of value
- a store of value
- a method for deferred payment
Free Market Economy
Individuals are free to make their own choices and own the factors of production without government interference. Resources are allocated through the price mechanism
Advantages of a Free Market Economy
- the system is automatic due to the invisible hand
- consumers have a freedom of choice
- there is high motivation to work
Disadvantages of a Free Market Economy
- tends to be high level of inequality
- may be a lack of merit goods and little control of demerit goods
- resources could be wasted on unproductive expenses
Command Economy
All factors of production, except labour is owned by the state and labour is directed by the state. There is no private property and everyone is assumed to be working for a common good. Resource allocation is carried out by the government
Advantages of a Command Economy
- the state provides a minimum standard of living
- there is less wastage of resources
- standardised products means that they are prod under cost effectively
Disadvantages of a Command Economy
- wrong decisions could lead to over or under supply of resources
- decision making will be slow and could lead to corruption
- consumers lose their freedom
