The Nature of Econimcs Flashcards
(32 cards)
Economics
The allocation of scarce resources to provide for unlimited human wants.
Ceteris paribus
“All other things being equal”.
Normative Economic statement
Based on value judgements that cannot be tested as either true or false.
Scarcity
There are finite resources compared to infinite human wants so choices have to be made about how to use these resources.
Renewable resource
A resource who’s stock level can be replenished naturally over a period of time.
Non-renewable resource
A resource who’s stock level decreases over time as it is consumed.
Capital good
A good that is used to produce consumer goods or services, such as a machine that helps make chocolate bars. It is not wanted for its own sake but rather for the consumer goods and services it can produce.
Production possibility frontier
The maximum potential output of a combination of goods an economy can achieve when all its resources are fully and efficiently employed, given the current level of technology.
Positive Economic statement
Based on facts that can be tested as true or false and are value free.
Opportunity cost
The value of the next best alternative forgone.cost
Consumer good
A good (such as a chocolate bar) that directly provides utility (benefit) to consumers. It is wanted for the satisfaction it gives.
Specialisation
When an individual, firm, region or country concentrates on the production of a limited range of goods and services.
Division of Labour
The specialisation of workers on specific tasks in the production process.
Money
Anything that is generally acceptable in the payment of a good or service, or of a debt.
Free market Economy
Where all resources are privately owned and allocated via the price mechanism. There is minimal government intervention.
Command Economy
Where there is public ownership of resources and these are allocated by the government
Mixed Economy
Where some resources are owned and allocated by the public sector and some by the private sector.
What is the opportunity cost of you staying on at school to study A levels?
The opportunity cost is the next best alternative foregone. For example, earning income from a job or joining an apprenticeship scheme to learn a trade.
How might opportunity cost be shown on a production possibility frontier?
Opportunity cost can be shown by a movement along a production possibility frontier, for example, from position A to B. An extra 10 units of manufactured goods are obtained at the expense of 5 units of services.
What is the state of the economy if it is operating at a point within its production possibility frontier?
There must be unemployed resources in the economy - spare capacity exists.
Outline the factors that might lead to an outward shift of the production possibility frontier for a country
An outward shift of the production possibility frontier might be caused by an increase in the quality or quantity of labour, an increase in capital goods (investment), new technology, enterprise and discovery of natural resources.
Why does the Division of Labour increase productivity or output per head?
The division of Labour means workers become more skilled at what they do through experience and repetition of tasks. it thereby leads to greater output.
Which type of economic system best describes the UK?
The UK is a mixed economy since both private enterprise and government decide how resources are allocated for production and distribution.
Production Possibility Frontier
Shows the maximum potential level of output for two goods or services that an economy can achieve when all of its resources are fully an efficiently employed, given the level of technology available.
