Scarcity And Choice Flashcards
(10 cards)
What is a normative statement?
A statement that is based on valued judgements that cannot be proven
What is a positive statement?
A statement that can be tested true or false using evidence
Describe the basic economic problem faced by each economic agent
Households have limited income and therefore have to make decisions on how to allocate the income.
Firms have a limited amount of resources in the short run and therefore have to make decisions on how to allocate these resources (factors of production).
Governments have a limited budget generated from tax revenue and therefore have to make decisions on spending to provide public service demands from the population.
Define opportunity cost
The sacrifice of the next best alternative forgone when a choice is made.
What diagram is used to show opportunity cost?
Production possibility frontier
What would cause the PPF to shift?
Increase in the quantity or quality of factors of production.
What are the three levels specialisation can take place on?
Individual, firm or national level.
What forms of specialisation are there?
Specialisation by process
Specialisation by role
Specialisation by product
What are the benefits of specialisation?
Increased output as specialised workers are more productive and therefore produce goods and services at a quicker rate (a skill acquired for repeating the same task) which is likely to increase a firms output.
Improved quality as workers are most likely to be specialised in producing the output they are best at, resulting in better quality goods and services being produced. This improves customer satisfaction and therefore increases demand and possibly a firms profit.
Can help maximise trade through comparative advantage.
What are the disadvantages of specialisation?
- Specialisation may lead to functional inflexiblity and occupational immobility.
- May lead to over reliance on workers and thus workers will have greater bargaining power.
- Boredom in workers.
