Nature of Economics Flashcards
(21 cards)
What is scarcity?
Resources are limited, but wants are infinite.
What is the Basic Economic Problem?
Deciding how to allocate scarce resources.
What are the three fundamental economic questions?
- What to produce?
- How to produce?
- For whom to produce?
What is opportunity cost?
The next best alternative forgone.
What is the definition of Land in factors of production?
Natural resources
Reward: Rent
What is the definition of Labour in factors of production?
Human effort
Reward: Wages
What is the definition of Capital in factors of production?
Man-made goods used in production
Reward: Interest
What is the definition of Enterprise in factors of production?
Organises production, takes risk
Reward: Profit
What does the Production Possibility Frontier (PPF) show?
Maximum combinations of two goods an economy can produce using all resources efficiently.
What does an outward shift in the PPF indicate?
Economic growth.
What does an inward shift in the PPF indicate?
Resource loss or inefficiency.
What is specialisation?
Concentrating on a specific product or task to improve productivity.
What is division of labour?
Splitting work into separate tasks.
Advantages of division labour
Increased Efficiency
Higher Output and lower costs
Disadvantages of division of labour
Worker boredom
Risk of over-dependence
What is a Free Market economy?
Allocation by price mechanism (supply & demand).
What is a Command Economy?
Government controls resource allocation.
What is a Mixed Economy?
Combination of market forces and government.
What is a Positive Statement?
Fact-based, can be tested.
What is a Normative Statement?
Opinion-based, value judgments.
What are Value Judgements?
They influence economic decision-making and policy outcomes.
