Economics - 1.1 - 1.1.5 the economic problem

scarcity

scarcity

a situation that arises when people have unlimited wants in the face of limited resources

renewable resources

natural resources that can be replenished, such as forests, tha can be replanted, or solar energy that does not get used up

non-renewable resources

natural resources that once used cannot be replenished, such as coal or oil

sustainable development

meets the needs of the present without compromising the ability of future generations to meet their own needs

model

a theoretical concept that looks at how different variables interact

free goods

goods which would not normally be regarded as scarce

ceteris paribus

‘other things being equal’ - when we focus on changes in one variable we hold all other influences constant

opportunity cost

the value of the next-best alternative foregone

economics goods

goods that are scarce - most goods fall into this category

positive statements

economic statements that can be proven to be true or false

positive economics

scientific/objective study of economics

normative economics

concerned with value judgements, study of policy prescriptions for economics

Normative statements

economic statements that cannot be ultimately refuted or supported, opinions about how the economy should work

Factors of production

capital, enterprise, land and labour

Capital

goods and services used to produce other goods and services e.g. physical, human and financial

Enterprise

the mangerial abilityto bring together the other 3 factor inputs into the productive process

land

includes the natural resources available for production

labour

our human input into the production process

PPF definition

shows all the maximum combinations of the output of two goods an economy can produce when all factor inputs are fully and efficiently employed

an outward sshift of the PPF

represents an expansion of a firm’s productive capacity

How does division of labour occur

when production is broken down into many separate tasks

3 Key advantages of specialisation

Higher labour productivity, surplus output that can be traded internationally, lower prices - higher real incomes

3 disadvantages of specialisation

Lower motivation - repetitive work, quality suffers - workers take less pride, rate of absenteeism increases - disatisfied workers