An objective statement which can be proven or disproven
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What is a normative statement?
A subjective statement based on a value judgement
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What is the basic problem of economics?
Scarcity - there are infinite wants and finite resources
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What is a renewable resource?
A resource which can be replenished or replaced at a rate quicker than or equal to consumption
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What is a non-renewable resource?
A resource which cannot be replaced at a rate equal to consumption
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What is an opportunity cost?
The cost of one option in terms of the next best option given up
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What are the four factors of production?
Land, labour, capital, entrepreneurship
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What are the factor rewards?
Rent, wages, interest, profit
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What does PPF stand for?
Production possibility frontier
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What does a PPF show?
The maximum possible combinations of two goods that the economy can produce with its current resources and technology
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How does a movement and a shift of the PPF curve differ?
A movement means a new combination of the goods is being produced
A shift indicates a change in the productive potential of the economy
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What is specialisation?
Production of a limited range of goods, meaning trade is required for other goods
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What is the division of labour?
When labour becomes specialised in a particular part of the production process
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Who stated that this concept can increase labour productivity?
Adam Smith
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What are the advantages of specialisation and the division of labour?
Increased labour productivity
Higher quality of goods and services
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What are the disadvantages of specialisation and the division of labour?
Can lead to boredom and poor quality of work
The workforce may suffer from structural unemployment
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What are the advantages of specialising in the production of goods/services to trade?
Theory of comparative advantage states countries should specialise in producing goods which gives them the lowest opportunity cost
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What are the disadvantages of specialising in the production of good/services to trade?
Countries can become over-dependent on the export of one good
High interdependence between countries
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What are the functions of money?
Medium of exchange
Measure of value
Store of value
Method for deferred payment
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What is are the characteristics of a free market economy?
Individuals are free to make their own choices and own the factors of production
Resources allocated through price mechanism
Consumers make decisions which
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Which economists believed in the free market?
Adam Smith, Friedrich Hayek
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What are the advantages of a free market?
High motivation
Freedom of choice and politics
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What are the disadvantages of a free market?
There may be inequality
Lack of merit goods and overproduction of demerit goods
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What is a command economy?
All factors of production, apart from labour, is owned by the state
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Which economist believed in the command economy?
Karl Marx
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What are the advantages of a command economy?
Less inequality between rich and poor
Less wastage of resources
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What are the disadvantages of a command economy?
Could be bribery or corruption
Consumers lose freedom
Workers lose motivation
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What is a mixed economy?
Where both the free market mechanism and the government planning process allocate a significant amount of total resources in the country
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What is the government’s role in a mixed economy?
Creating a framework of rules
Redistributes income
Stabilise the economy
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Other cards in this set
Card 2
Front
What is a positive statement?
Back
An objective statement which can be proven or disproven
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