booklet 2 - nature of economics, scarcity specialisation - types of economy

ppf definition

The Production Possibility Frontier (PPF) is a graphical representation that shows the maximum possible output combinations of two goods that an economy can produce, given available resources and technology.

WHAT 3 questions need to be asked to investigate consumtion and production

what

how

whom

describe the points on the ppf

x = attaible, productively inefficient

b = attainable, producitvely effecitnet

y = unattianalble given the existing recourses iwithin the economy

types of economy

free market

command

mixed

free market economy and economist

ADAM SMITH - specialisation + division of labour - invisible hand = price mechanism

will lead to market equilibrium

Laissez - faire - only intervene when market failure

command economy - and economist

KARL MARX - capitalist + proletariat

capitalist own capital

proletariat down own capital

capitalist take advantage of prolateriat to maximise profit

without government intervention = free market - capitalism - command economy

Mixed economy - economist

Hayek - supports free and dont support commnad - advocates a blend of free market and government intervention to ensure efficiency and social welfare.

ads and dis - free market

ADV

• price mechanism efficient with allocating recourses

• lower prices - lots of producers - high comp - cut cost - lower price

• Choice - price mechanism seen as a communication network

DIS

• inequality - consumers may not benefit

• monopolies

  • market failure - negative externalities positve externalities information gap

adv and dis - command

ADV

• correct market failure

• less inequalities

• stop monopolies

DIS

• government failure

• destroys insntves

• less choice

functions of money (DUMS)

medium of exchange

differed payment

unit of account

store of value

DUMS

specialisation

the concentration of a workers firms region or whole economy on a narrow range of goods and services

adv and dis specialisation in trade

ADV

• variety

• output

• increase trade

DIS

• over specialisation

• recourse depletion

  • vulnerable