E1.1 - nature of economics

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how economies try to solve the economic problem
what to produce (consumer/capital). how much to produce. for whom to produce (private/public sector). how to produce (labour/capital intensive)
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opportunity costs
the cost of the next best forgone alternative. cost over gain. consumers try to maximise utility through choices w limited income. producers maximise profit w limited resources. government maximise social welfare w limited tax revenue
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capital
one of the four factors of production ; goods which can be used in the production process e.g. machinery
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capital goods
goods produced in order to aid the production of consumer goods in the future
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economic assumptions
ceteris paribus-all other factors remaining constant except 1. average consumer- average income. rational behaviour- consumers making the most efficient decisions not including emotions or personal feelings
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command economy
all factors of production are allocated by the state, who decide what, how, how much and for whom to produce goods
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normative statements
opinionated, can't be proven e.g. England is the best country in the world
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consumer goods
goods bought and demanded by households and individuals
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adam smith
1700s. argued that division of labour/specialisation increases productivity. eg pin factory. 'wealth of nations'.
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positive statements
factual. can be proven with data. don't have to be correct. e.g. the UK has the highest GDP per capita in the world
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demand
the quantity of a good/service that consumers are able and willing to buy at a given price at a given moment in time
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diminishing marginal utility
the benefit gained from consumption of a good generally declines as extra units are consumed ; explains why the demand curve slopes downwards
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division of labour
the specialisation of workers on a specific task in the production process
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the economic problem
the problem of scarcity ; wants are unlimited but resources are finite so choices have to be made
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enterprise
one of the four FOPs ; the willingness and ability to take risks and combine the three other factors of production
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specialisation
the production of a limited range of goods by a firm/individual/region/country
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production possibility frontier (PPF)
a concave curve showing the maximum combination of two goods with given resources, time and tech. shape is due to law of diminishing marginal utility.
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economic efficiency
any point on the PPF, when allocative and productive efficiency is reached
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allocative efficiency
where consumer satisfaction is maximised. can't say where on the PPF
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productive efficiency
when production takes place using the least amount of scarce resources. point on the PPF
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changes in productive capacity
rightward shift in the PPF. can increase output of one good without decreasing the output of the other good. caused by an increase in any factor of production/qty or qlty of goods
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positives of division of labour
less time wasted on training and moving between production stages, lower unit costs, increased output, less mistakes-less wastage of material
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negatives of division of labour
easier to replace workers w machines-technological unemployment/automation, interdependence in production- strikes etc, boredom-high turnover of staff,
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positives of specialisation
lower unit costs-competition and lower prices, bigger market, increased variety, higher output-higher trade in exports
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negatives of specialisation
structural employment vulnerability, over reliance, vulnerable to changing tastes/fashion, finite resources in some sectors e.g coal mining communities
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functions of money
medium of exchange (buying/selling). store of value (stores wealth so it can be spent at a later date). measure of value (unit of measure that enables comparisons). method of deferred payment (borrowing/lending)
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free market economies
all resources are privately owned and allocated via the price mechanism. no government intervention. no pure free market economies exist but closest is Japan
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positives of free market economies
choice, competition-efficiency, market equilibrium means that CS and PS are maximised and there is no excess supply or demand
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negatives of free market economies
monopolies exploit it, lack of welfare support increases poverty and inequality, external costs/benefits ignores, information gaps, lack of public/merit goods, business cycle causes high inflation in boom and high unemployment in recession
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command economies
government has control of resources and economic decision making is centralised. no price mechanism. example is North Korea
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positives of command economies
less inequality-social welfare is prioritised over profit incentive, provision of public goods, government control-smaller swings in the business cycle-less extreme effect, prevention of monopolies and exploitative prices
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negatives of command economies
shortages from excess supply/demand-market failure, lack of competition-inefficiency- low productivity- poor quality of goods, less choice of goods, lack of incentive-no profit incentives for firms to take risks developing new goods-investment↓
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mixed economies
decisions made partly by private sector and partly by government. advantages of market economy while avoiding the disadvantages through intervention. often the government only intervenes to correct market failure. examples UK,France,Germany,Australia
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Other cards in this set

Card 2

Front

opportunity costs

Back

the cost of the next best forgone alternative. cost over gain. consumers try to maximise utility through choices w limited income. producers maximise profit w limited resources. government maximise social welfare w limited tax revenue

Card 3

Front

capital

Back

Preview of the front of card 3

Card 4

Front

capital goods

Back

Preview of the front of card 4

Card 5

Front

economic assumptions

Back

Preview of the front of card 5
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