Nature Of Economics Flashcards

0
Q

List and describe the four basic factors of production.

A

Land (free gifts of nature)
Labour (physical and mental effort to produce goods)
Capital (human made aids to production)
Enterprise (combines other factors into output).

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1
Q

The economic problem (problem of scarcity) begets three choices, describe them.

A

What to produce and how much, how to produce them, and how should they be allocated?

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2
Q

What is the difference between a capital good and a consumer good?

A

Consumer goods give satisfaction or utility to consumers, whereas capital goods are goods that are required to produce other goods.

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3
Q

List the three types of economy.

A

Free Market, Command and Mixed.

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4
Q

Describe division of labour.

A

Division of labour occurs when workers specialise in very specific smaller tasks.

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5
Q

Why is division of labour widely adopted?

A
  • Each worker only has to be trained in one task (reduced costs)
  • Less time is wasted as a workers don’t need to move around as much (from job to job or station to station).
  • This approach enables the use of production lines and more machinery, which increases productivity and reduces average costs of production.
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6
Q

Describe the problems associated with division of labour.

A
  • Monotony and boredom are more prevalent which could cause a decrease in productivity.
  • Workers have less all round skills so occupational mobility of labour is poorer.
  • A strike by a single group of workers could bring all production to a halt.
  • There is a lack of variety as all products produced on the production line are identical.
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7
Q

Which factors limit the extent to which the division of labour can be applied?

A
  • The size of the market (bigger markets means more specialisation).
  • The type of product.
  • Transport costs (if these are high then large scale production and division of labour may not be possible).
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8
Q

Define opportunity cost.

A

Opportunity cost is the next best alternative forgone when a choice is made.

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9
Q

Define an economic good.

A

Economic goods are created from resources which are limited in supply and so are scarce. Consequently, they command a price.

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10
Q

Define a free good.

A

Free goods are unlimited in supply, such as sunlight. Consumption by one person does not limit consumption by others. The opportunity cost of consuming a free good is zero.

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11
Q

Define positive economic statements.

A

Positive economic statements are objective statements based on evidence or facts which can, therefore, be proved or disproved.

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12
Q

Define normative economic statements.

A

Normative economic statements are subjective statements based on value judgements and cannot be proved or disproved.

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13
Q

What is a PPF?

A

A production possibility frontier illustrates the maximum potential output of an economy when all resources are fully employed.

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14
Q

What does it mean if a point is within the PPF?

A

There is underemployment of resources or not all resources are being utilised efficiently.

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15
Q

What does an outward shift of the PPF curve represent?

A

Economic growth.

16
Q

What factors may cause an outwards shift in the PPF?

A
  • Discovering new resources.
  • New more effective methods of production.
  • Advances in technology.
  • Improvements in training and education of workers which may increase productivity.
  • Increases in the size of the workforce e.g. immigration, increase in retirement age, better childcare so women can get back to work more easily after pregnancy.
17
Q

What factors may cause an inwards shift of the PPF?

A
  • Natural disasters.
  • Depletion of natural resources.
  • Factors causing a reduction in the size of the workforce.
  • A deep recession which results in a loss of productive capacity.