1.1.2 positive and normative and 1.1.3 Economic problem

What is the economic problem

Human wants are unlimited, resources are scarce so choices must be made about the allocation of resources

What are the four types of factors of production

Capital, Enterprise, Land, Labour (CELL)

What is Capitol

Man made aids to production for example machinery, factories

What is Enterprise

Entrepreneurs, people/risk-takers who innovate and produce goods and services. They do it to make profit in the end

What is land

Natural land like farmland where goods can be produced or goods can be taken.

What is labour

Human resources, workers that can produce goods or services

What are resources?

Scarce

What choices need to be made on how to allocate scarce resources?

What to produce, how to produce and for whom to produce for.

What is a free good

Goods that are limitless in supply and therefore have no opportunity cost. Uses no scarce resources

What is opportunity cost?

The benefits of the next best alternative foregone when a choice is made

Importance of opportunity costs to consumers

Consumers will make choices on how to use their limited income based on what gives them the greatest level of satisfaction

Importance of opportunity costs to producers

Producers must choose what to do with their limited resources and their decisions will be based on profit

Importance of opportunity costs to governments

The government must make decisions on where they should spend their limited tax revenues based on what will maximise social welfare. There is no opportunity cost for free resources

What happens if governments spend high levels of funding on particular areas

As a result of high levels of funding on particular areas, other areas of government spending need to be reduced due to scarcity.

Explain Rational behaviour

Economic theory assumes that economic agents are able to rank the order of different outcomes from a decision in terms of their net benefits to them

What does economics assume economic actors rationally maximise

Welfare of consumers, Profits of firms, working conditions and income of workers and the government cares for everyones welfare.

How to measure choice? (in economics if its good or bad)

If the value of the next best alternative is greater than the value of our current choice we made a bad decision etc. Therefore allocate resources towards opportunity cost

What is a positive statement

Scientific/ objective statement which is provably correct/incorrect - can be tested

What is a normative statement

Subjective and based on value judgement

Two advantages of the division of labour

Higher labour productivity lowers cost for firms, creates many low skilled jobs

Two disadvantages of the division of labour 1.1.5

Task repetition often leads to boredom and a decrease in worker motivation, If workers lose their jobs it may be hard for them to find work as they are trained in one skill.

What are the different types of economy 1.1.5

free market, mixed, command

The role of value judgements

Value judgements can influence economic decision making and policy. Different

economists may make different judgements from the same statistic, for example

rising inflation could mean different things.