Economics Micro - The Nature of Economics

Ceteris Parabis

All other things being equal

Alteristic

Giving and charitable

Opportunity cost

The value of the next best alternative foregone

Positive Statement

Involves facts and can be tested

Normative Statement

Cannot be tested and requires judgment

3 marker marks

m1 - Knowledge

m2 - Application

m3 - Analysis

What happens to a ppf graph when you please people?

More of their wants and needs are met so it will be closer to the consumer goods side - it is a short term improvement

What happens to the ppf graph when you try make more machines?

Sacrifices people needs and wants so it will be closer to the capital goods side - it is a long term improvement

What does underproduction look like in a ppf graph?

It’s under the resource line and the area has gone into a recession. Not efficient as all the services are not being used.

How to calculate opportunity cost?

Give up divided by gain

Bartering System

When you trade goods for one another

Scarcity

Resources are limited in supply and so cannot fulfil all the unlimited human wants

Factors of production

C - Capital: is the manufactured stocks of tools, machines etc. used in the production

E - Enterprise: is the skill entrepreneurs have, specifically in organising other factors of production and taking risks by setting up business enterprises

L - Land: not just physical land, includes resources underground and in the sea and air

L - Labour: is an economy’s workforce and the skills and training they have

The allocation of resources

What goods and services should be produced and in what quantity?

How is the privation of these going to be organised?

For whom are the goods and services produced for?

Economic Models

A simplified representation used to provide insight into economic growth and change

PPF (Production Possibility Frontier)

shows the maximum combination of goods and services that can be produced in a given time with available resources being used effectively

Consumer goods

Goods and services that are used to satisfy their needs and wants such as houses and TVs

Capital Goods

Goods and services that are used in the production of other goods such as factories and machinery