Economics Section B Part 1

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What is production?
Converting resources into goods/services.
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What are the four factors of production?
Land, labour, capital, enterprise.
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What is land?
A plot of land where premises can be located; natural resources e.g. oil, coal, diamonds.
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What is labour?
The workforce in an economy. The value of an individual worker to a business is their human capital. This can be increased through training and education.
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What is capital?
Used in production to make goods and services. Working- stocks of raw materials and finished goods. Fixed- factories, machinery, shops, tools. Social- things that help humans work; schools, hospitals, houses.
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What is enterprise?
The entrepreneur sets up and runs the business. They own the business, come up with the idea, organise everything, and take the risk of not making money back. Make decisions, keep profit, organise other FoPs.
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What is labour-intensive production?
Production that uses relatively more labour than capital. Usually services are labour intensive.
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What is capital-intensive production?
Production that uses relatively more capital than labour. In some places, manufacturing relies on machinery.
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How can production be increased?
More factors of production will be needed, e.g. buy more land, employ more staff. Also productivity could increase.
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What is productivity?
Using FoP more efficiently. Productivity= output per unit of input. Firms try to increase productivity to lower costs and increase profit- introduce new working practices, invest in new machinery.
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What is the primary sector?
Extracting raw materials from the earth, e.g. fishing, mining, quarrying, forestry, agriculture.
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What is the secondary sector?
Converting raw materials into finished or semi-finished goods, e.g. manufacturing, processing, construction.
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What is the tertiary sector?
Providing services- professional e.g. accountancy; household e.g. gardening; transport,e.g. trains; leisure e.g. tourism; financial e.g. banking; commercial e.g. printing
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What happens to different sectors over time?
They grow and decline. Primary->secondary->teriary.
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What is de-industrialisation?
The growth in the tertiary sector at the expense of manufacturing.
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What are the reasons for de-industrialisation?
Changes in consumer demand, growth in public sector employment, advances in technology, overseas competition.
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What is the difference in sector size between developed and developing countries?
Developed- sharply decreasing primary, decreasing secondary, rapidly growing tertiary. Developing- declining primary, increasing secondary, small growth in tertairy.
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What are fixed and variable costs?
Fixed- remain unchanged at all levels of output (short term), e.g. rent, interest rates. Variable- changes in relation to output, e.g. materials, fuel, packaging.
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What is total and average cost?
Total- all of the costs of production over a period of time, TC=VC+FC. Average- cost of producing a single unit, AC=TC/Q
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What shape is the average cost curve? Why?
U-shaped: as output increases average costs fall, reach a minimum and then start to rise. Due to EoS and DoS.
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What is price and total revenue?
Price- amount of money customers pay for a product. Total revenue- money a firm receives from selling products.
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What is the formula for profit/loss?
Profit/loss= total revenue-total cost.
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What are economies of scale? Why do they exist?
Big firms can produce goods more cheaply than small firms, because as firms expand, average costs fall.
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What are internal economies of scale?
Purchasing- bulk buying discounts. Marketing- fixed costs spread over more output. Technical- large factories, more efficient+more specialisation. Financial- lower IRs+more choice. Managerial- employ specialists. Risk bearing- wider ranges+markets.
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What are external economies of scale?
Industry concentrated in one area. Build up of skilled labour & experience cuts training costs; infrastructure (roads and airports) shaped to industry needs; commercial services (specialist suppliers) in area; can cooperate (share R&D centres)
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What are diseconomies of scale?
Bureaucracy- form filling, report writing, decision making is slower. Labour relations worsen, worker needs neglected, motivation suffers. Control & coordination- many employees and factories may be hard to coordinate.
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How can a community's wealth be increased?
By increasing its productivity. Therefore it can produce more capital AND consumer goods with its limited resources.
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How can land productivity be improved?
Fertilisers and pesticides can raise crop yields; irrigation can divert water to unproductive land; flooded land can be drained then farmed; GM and higher-yielding crops can be grown.
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What is labour productivity?
Output per worker; total output/number of workers.
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How can labour productivity be improved?
Training and education- gov & business investment. Improve worker motivation-financial incentive schemes, job rotation, team working. Improve working practices- changing factory layout to improve production flow, more flexible labour.
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How can capital productivity be improved?
New technology. Primary- irrigation, livestock tracking, fertilisers, pesticides. Secondary- robots, computer controlled machines. Tertiary- online shopping, advances in medicine.
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What is social cost/benefit?
The cost/benefit to society as a whole of producing/consuming a good. =private cost/benefit + negative/positive externalities.
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Give examples of externalities.
Positive- job creation, site development, training & education, R&D, new technology. Negative- congestion, noise, air & water pollution, overcrowding, resource depletion.
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Why do governments introduce policies to deal with externalities?
To try and reduce them, as they often result in high costs e.g. global warming.
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Give examples of government policies to deal with externalities.
Taxation (cuts demand), subsidies (for those who generate positive externalities), regulation (e.g. EU Emissions Trading Directive), congestion charges, international agreements.
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Other cards in this set

Card 2


What are the four factors of production?


Land, labour, capital, enterprise.

Card 3


What is land?


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Card 4


What is labour?


Preview of the front of card 4

Card 5


What is capital?


Preview of the front of card 5
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