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Description
Flashcards by Tara Pugal, updated more than 1 year ago
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Created by Tara Pugal
almost 9 years ago
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| Question | Answer |
| What is the ceteris paribus assumption? | all other factors remaining constant |
| Define scarcity | a lack of supply of factors of prodction |
| What are trade-offs and choices? | a trade off means that choosing more of one thing can only be achieved by giving up something else in exchange |
| Explain the cost benefit principle | where people consider costs and benefits of their actions |
| Explain the 'marginal' idea | the costs and benefits of consuming a little extra of a product |
| What do rational decision-makers do? | attempt to weigh the marginal benefit received from an option with it's marginal cost (including the opportunity cost) |
| What do people usually aim to do with their welfare? | maximise it |
| How do people maximise their welfare? | by allocating their limited income in a way that gives them maximum total satisfaction |
| What are the effects of incomplete information on welfare? | causes a loss of welfare |
| Define Opportunity Cost | the cost of any choice in terms of the next best alternative forgone |
| How does a free market economy work? | markets allocate resources through the price mechanism there is limited role for the government (protecting property rights and the value of money) |
| Define Rationing | a way of allocating scarce goods and services when market demand exceed the available supply |
| How does market price link with rationing? | in a market system, the price mechanism plays a key role in rationing demand the market price determines which consumers have the effective demand to purchase and who doesn't |
| What are problems with rationing? (2) | discrimination issues of equity and fairness |
| What are options for rationing resources? (8) | by market price consumer income assessment of need household postcode education level age gender nationality |
| What are the four main factors of production? | land labour capital enterprise |
| What is land? | all natural physical resources e.g. fertile farmland renewable energy |
| What is labour? | human input into production e.g. supply of works available and their productivity is key if growth is to be achieved |
| What is K? | capital goods are used to produce other consumer goods and services in the future |
| What is fixed K? (5) | includes machinery equipment new tech factories other buildings |
| What is working K? | stocks of finished and semi-finished goods that will be consumed in the near future or made into consumer goods |
| What is enterprise? | regarded as a specialised form of labour |
| What is an entrepreneur? | someone who supplies products to a market to make profit usually invests their own financial capital in a business and takes on the risks their main reward is the profit |
| What are non-renewable resources? | in finite supply e.g. coal, gas, oil have no mechanism to replenish them the rate of extraction depends on the market price |
| What are renewable resources? | replaceable over time (providing the rate of extraction is less than the natural rate as which is renews itself) e.g. solar energy, oxygen, biomass |
| What are free goods? | do not use up any factor inputs have a 0 opportunity cost (marginal cost of supplying an extra unit is 0) |
| What does a PPF show? | the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed |
| What does a PPF look like and how do the points work? | |
| The points on a PPF inside the curve are? | unemployed or inefficiently used |
| The points beyond the PPF are? | unattainable |
| How would a country attain those points? (3) | an increase in factor resources increase in productivity improvement in technology |
| What is the effect of producing more of both goods? | an improvement in allocative efficiency |
| What does reallocating scarce resources from one product to another involve? | an opportunity cost |
| When will a PPF be a straight line? | |
| When will the PPF shift outwards? | improvements in productivity and efficiency from new tech or advances in the techniques of production more factors of production being available and used discovery of new natural resources better management of factor outputs |
| When will a PPF shift inwards? (4) | rarely: damaging effects of natural disasters economic damage of war and conflict large scale net migration of people out of a country long term fall in productivity of labour |
| What is resource depreciation? | when factor inputs are used in supplying goods and services and, over time, they deteriorate and become harder and more costly to maintain can result in a fall in productivity |
| What is resource depletion? | when the stock of available resources actually declines e.g. amount of forestry can be permanently damaged by excessive tree logging/deforestation |
| What are positive statements? | objective statements can be tested, amended or rejected by referring to available evidence |
| What is an example of positive statement? | a fall in incomes will lead to a rise in demand for own-label supermarket foods |
| What are normative statements? | subjective statements carry value judgements |
| What is an example of a normative statement? | pollution is the most serious economic problem |
| What is specialisation? | when you concentrate on a product or task |
| What are some possible gains of specialisation? (3) | higher output variety a bigger market |
| What is the division of labour? | where production is broken down into separate tasks it raises the output per person bc people become better through constant repetition |
| What are some limitations of division of labour? (4) | unrewarding repetitive work that require little skill lowers motivation and productivity creates the problem of high worker turnover workers can suffer from structural employment mass-produced standardised goods lack variety for sonsumers |
| What does factor immobility cause? | market failure |
| What are the two types of factor immobility? | occupational geographical |
| When does occupational immobility occur? | when there are barriers to the mobility of factors of production between different sectors of the economy |
| When and why do people experience occupational immobility? | in the form of structural unemployment as they may have specific skills that are not needed in growing industries and this causes a mismatch between skills required and skills possessed |
| When does geographical immobility occur? | when there are barriers that stop people moving from one area to another to find work |
| What are some causes of geographical unemployment? (5) | family and social ties financial costs of moving regional variations in prices (e.g. London) migration controls cultural and language barriers |
| What does factor immobility cause? | inefficient allocation of resources |
| What are policies to improve occupational immobility? (2) | investment in training schemes to book human K subsidisation of the provision of vocational training by private sector firms |
| What are policies to improve geographical immobility? (3) | reforms to the housing market to improve S and reduce P specific subsidies of moving to areas where there are shortages of labour relaxation of migration caps |
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