Theme 1.1

What is a positive statement

A statement which is objective and made without any obvious value judgements or emotions. They can be tested to be proven or disproven and they are often expressed in the form of a hypothesis that can be analysed and evaluated. Statements about the future can be positive if they can be proven or disproven in the future.

What is a normative statement

A statement that is subjective and based on opinion, so cannot be proven or disproven. It often includes words such as ought, maybe, unwise, should etc. or says that one action is better than another.

What is a value judgement

They 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.

What is the PPF

he PFF shows the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology.

What are consumer goods?

Consumer goods are goods that are demanded and bought by households and individuals

What are capital goods

goods that are produced in order to aid the production of consumer goods in the future.

What is specialisation

the production of a limited range of goods by a company/individual/country

What is the division of labour

when labour becomes specialised in a particular part of the production process.

if a country wants to maximise the amount of goods and services it can produce, what should it do?

ensure that all factors of production, including workers, undertake the tasks that they are best at.

What did Adam Smith state?

The concept of specialisation and the division of labour and showed how it can increase labour productivity (output per worker), allowing firms to increase efficiency and lower their costs of production

Tell me about Adam Smith’s pins

He visited a factory and observed that the pin making process had been split into 18 different operations. As a result, the company were able to produce 5,000 pins per person employed. If the work had been carried out by workers making the whole pin from start to finish, it would have been less a few dozen.

What are some limitations of specialisation

• If for some reason production in one process is delayed, every other task has to stop until that problem is solved.

• The workforce do not have wide industrial training and could therefore suffer from structural unemployment.

What are the 4 functions of money?

• A medium of exchange. A measure of value. A store of value. A method of deferred payment

What does a method for deferred payment mean in terms of money

Money can allow for debts to be created. People can therefore pay for things without having money in the present, and can pay for it later. This relies on money storing its value.

Disadvantages of the free market

There tends to be high levels of inequality, since the rich own more factors of production and so can grow richer.

If competition disappears then there may be monopolies, who charge high prices and offer low quality of service.

Advantages of free market

There is high motivation as people know working hard could lead to high potential rewards, creating conditions where initiative and enterprise flourish.

Because firms are in competition, they will produce goods at the lowest cost they can, ensuring productive efficiency

Command economy advantages

The state provides a minimum standard of living , ensuring no one is extremely poor as there is less inequality.

• As the government, who are generally motivated by the wellbeing of the country, rather than the companies, who are motivated by profit, decide resource allocation, objectives other than profit can be followed: merit goods are encouraged and increased whilst demerit goods aren’t produced.

• State provides a minimum standard of living , ensuring no one is extremely poor as there is less inequality.

Command economy disadvantages

As everyone receives the same wage, there is less motivation and efficiency because people know that working harder will not increase their standard of living.