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Flashcards in Nature of Economics Deck (28):

Ceteris Paribus

a Latin phrase meaning "all things being equal"; it is used in economics when we focus on changes in one variable while holding other influences constant


Postive economic statement

a statement based on fact which can be tested as true or false and are value-free


Nominative economic statement

a statement based on VALUE JUDGEMENTS which cannot be test as true or false.


what indicates a nominative economic statement

value laden words: ought, should, fair, unfair, better or worse)


Economic problem

a problem based on the problem of scarcity i.e. when there are UNLIMITED WANTS but FINITE RESOURCES with which to SATISFY them. Therefore, choices have to be made and resources have to be allocated between competing uses


Opportunity cost

the value forgone of the next best alternative


economic agents

groups within the economy


Factors of production

C optical
E nterprise
L abour
L and


Renewable resource

natural resources that can be replenished e.g. solar energy that does not get used up


The catch with renewable resources

renewable resources may decline over time if consumed at a faster rate than the environment can replenish them


non-renewable resources

natural resources that once used cannot be replenished e.g. coal or oil



a Production Possibility Frontier is a curve showing the maximum potential output for two goods or services that an economy can achieve when all its resources are fully and efficiently employed


marginal costs

the cost of producing an additional unit of output


opportunity cost w/ a straight line PPF

opportunity cost of a straight line PPF is constant b/c resources are of equal quality and equally suited to the production of both goods


opportunity cost w/ concave line

the opportunity cost increases = the more of one good is produced, an increasing amount of the other good is forgone b/c not all resources are as efficient as other resources in the production of both goods = diminishing returns (after a period of time, you gain less return for the same input)


consumer good

a good which directly provides utility to consumers


capital good

a good which is used to produce consumer goods or services


PPF graph - outward shifts causes

economic growth / anything that improves the quality / quantity of the factors of production (i.e. an advancement in technology or mass immigration)


PPF graph - inward shifts

economics shrinks, war, natural disasters, depression unemployment


PPF graph - employment

'X' under the line = unemployment
'X' on the line = full employment (b/c def of PPF)
'X' over the line - over employment


PPF graph - increase in productivity in the production of ONE good

outward shift that increases as you make more of that good



occurs when an individual / firm / region / country concentration on the production of a limited range of goods or services


advantages of specialisation

increases output / productivity and living standards across the world


disadvantages of specialisation (4)

1. resource depletion
2. over-reliance on imports
3. a fall in demand may = significant increase in structural employment
4. developing countries may face an unfavourable exchange rate


Divison of labour

a process whereby the production procedure is broken down into a sequence of stages and workers are assigned to a particular stage


advantages of division of labour (3)

1. increased output
2. increased productivity = higher living standards + reduce the cost per unit of output = efficiency of resources
3. worker becomes specialised and higher skilled in that task due to repetition = less wastage of material + less time spent on tasks


disadvantages of division of labour (3)

1. creates monotony and boredom = decrease incentive to work = reduction in productivity AND when Henry Ford put this into practise so boring = demand higher wages to compensate = increase production costs
2. breaking down production into different tasks = easier to replace skilled workers with machines = structural unemployment
3. specialisation = inter/dependence in production = if one group of workers goes on strike = halt the whole production process


productivity eqt

output / input