Micro Economics Edexcel 1.1

What is scarcity

A limited amount

What is economics

The study of how people use limited resources to deal with unlimited wants

What does scarcity lead to

Choice

What is opportunity cost

A fundamental concept that refers to the value of the next best alternative forgone (given up) when a choice is made

What is the only type of good that isn’t scarce

A free good

What is a microeconomic example

A MacBook

If I can either invest £10k in stocks or put it into an interest rate savings and I choose to save the money what is my opportunity cost?

The money that could’ve been made by investing in the stock market

What is the factor of production Land?

All natural resources

What is the factor of production Labour?

Workers/ People creating it

What is the factor of production Capital?

Machinery, factories ;man made production equipment

What is the factor of production Enterprise

Managing all the other 3 Factors

What is a PPF

A production possibility frontier illustrates the maximum output of two goods or services that an economy can produce

What is a capital good

Goods used to produce other goods and services

What is a consumer good

Items purchased for personal use and consumption

What is a trade off

A situation where you give up one benefit for another

What is the law of diminishing returns

The theory that in the short run adding more of a variable factor of production to fixed factors will eventually cause the marginal product of the variable input to decline

What does it mean if a point does not meet the ppf curve at all

Production is inefficient because not all resources are being used efficiently

What does it mean if the PPF curve shifts right

Factors of production or efficiency is increased

What does it mean if the PPF curve moves left?

Factors of production or efficiency is decreased

What does is mean if the curve has an outward shift

It is showing economic growth

What does it mean if the curves shifts inwards

Economic decline

What are 4 reasons there may be economic growth?

Increase in natural resources

Technological advancements

Human capital development

Investment in capital

If there is higher productivity on one side of the graph than the other what will it do

Change the shape of the curve and make it steeper

True of false the law of diminishing returns says

“The change in total output will at first rise and then fall”

True

What can cause an outward shift in the PPF

(4 different ones)

Higher productivity

Better management of factor inputs

Increases in the stock of capital and labour supply

Innovation and invention

What are the 3 basic questions all economies ask?

What to produce

How to produce it

Whom to produce it for

What is free market economy

Is a profit driven and demand driven

The people with the money are the ones who get the produced products

The consumer is __________

Sovereign

What is a command (planned) economy?

The economy where the government decides what is made, how it’s made and who gets it

What type of economy is the uk

A mixed economy

What is the invisible hand theory and who made it

An economic metaphor describing how people who make economic decisions based on their own wants in free markets unintentionally benefit society through the forces of supply and demand -Adam Smith

What is a social science

The academic study of human society, relationships, behaviour and how people interact with the world

Is economics a social science

Yes

What is cetris paribus

The assumption means holding other things are constant or ALL OTHER THINGS ARE EQUAL

What is a positive statement

An objective statement that can be tested and evaluated based on emperial (data) evidence it described the world without expressing value judgement

What is a normative statement

A subjective statement that carries one or more value judgement ls about what ought to be (opinion)

Who created the division of labour

Adam smith

What are positive statements used for

Economic analysis

predictions

data research

They cause and effect theories

What do normative statements involve

Personal beliefs

Moral consideration

Policy preferences

They are not testable through emperial analysis alone

What is the division of labour

Where the production process is broken down into many separate tasks

What can the division of labour raise

Output per person as people become pro efficient through constant repetition of tasks

Advantages of the division of labour

Provides specialisation in a part of production process

Higher output per person (productivity)

Economies of scale (as production quantities increase average costs decrease)

Disadvantages of the division of labour

Potential reduced job satisfaction

Worker is less trained, harder to employee in future

Demotivating as repetitive

What’s a real world example of division of labour

Vehicle manufacturing

Adam smith introduced the idea saying 1 worker alone can make 20 pins in a day but 10 workers working together would make _____ pins in one day

48,000

What is specialisation

The process by which individuals firms or regions concentrate their efforts on producing a narrow specific range of goods and services in which they have a competitive advantage

What are potential gains from specialisation

Higher labour productivity

Specialisation creates surplus output that can be traded for mutual benefit

True or false specialisation cannot be automated easily

FALSE

What are the 4 functions of money

Unit of account/measure of value

Money is a median of exchange

Store of value

Standard of deferred payment

What does it mean when it says money is a median of exchange

It is what allows you to purchase goods and services

What does it mean when it says Unit of account

Using money to measure how much something is worth (Nominal measure)

What does it mean when it says Store of value

An asset that holds value overtime

What does it mean when it says Standard of deferred payment

The accepted way in each market to settle a debt

True or false

Specialisation and division of labour requires a mean of exchanging goods and services

True

What are the key characteristics of money

Hard to counterfeit

Durable and portable

Acceptable when making transactions

Holds value over time

In order for money to work there must be __________

Sufficient trust

What is the CBDC

The central bank digital currencies

What is an example of a CBDC

Bank of England

What does a steeper slope in PPF mean

Higher opportunity cost

Why is beyond the PPF curve impossible

As there is limited recourses