Chapter 1 - The Economic Problem

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  • Created by: Nathan S
  • Created on: 26-04-13 18:41
What are the 3 key economic questions? (P3)
What should we produce? How should we produce it? For whom should it be produced?
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What is the fundamental economic problem? (P4)
There are infinite wants, but limited resources.
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What's the difference between 'Economic goods' and 'Free goods'? (P4)
Economic goods are scare, and therefore involve an opportunity cost. Free goods have no opportunity cost.
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What are the 'Factors of Production'? (P4)
They are Land, Labour, Capital and Enterprise. They are the different resources available for production.
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What is 'Land'? (P5)
Land refers to goods like mineral, land itself and all resources taken from the world, e.g fish, forestry and air.
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What is 'Labour'? (P5)
Labour includes all the potential workforce, but also their skill and abilities and intelligence.
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What is 'Capital'? (P5)
The stock of goods used to make other goods and services, e.g. roads, machines and computers. (It does not mean money).
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What is 'Enterprise'? (P5)
This refers to risk takers who work to bring the other factors of production together to produce goods and services.
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What are the 3 key functions of prices and profits? (P9)
They are; Incentive function, Rationing function and Signalling function.
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How do these functions work? (P9)
When prices rise consumers to to RATION there demand. THe high prices SIGNALS to prodcuers that there is a shortage, or scarcity, and this creates an INCENTIVE to increase supply.
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How can the PPB (Production Possibility Boundary) shift outwards? (P12)
An increase in resources (factors of production), technology or understanding needs to improve, or an improvement in the quality of resources and management of them (human capital investment and division of labour, specialisation).
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How can the PPB shift left? (P14)
This is far less common, but emigration may cause this. An example is in Zimbabwe, where farmers moved out (loss of people and knowledge) due to reclamation of farms. Machinery was also not maintained, and malnutrition and HIV was high.
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What is a value judgement? (P15)
Statements or opinions which are not testable or cannot be verified, and depend on the views of the individual. They are normative statements.
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What is a positive statement? (P15)
This is the opposite of a normative statement and can be tested against real-world data.
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Other cards in this set

Card 2

Front

What is the fundamental economic problem? (P4)

Back

There are infinite wants, but limited resources.

Card 3

Front

What's the difference between 'Economic goods' and 'Free goods'? (P4)

Back

Preview of the front of card 3

Card 4

Front

What are the 'Factors of Production'? (P4)

Back

Preview of the front of card 4

Card 5

Front

What is 'Land'? (P5)

Back

Preview of the front of card 5
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