Economics - 1.1 - 1.1.5 the economic problem

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30 Terms

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scarcity

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

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renewable resources

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

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non-renewable resources

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

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sustainable development

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

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model

a theoretical concept that looks at how different variables interact

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free goods

goods which would not normally be regarded as scarce

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ceteris paribus

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

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opportunity cost

the value of the next-best alternative foregone

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economics goods

goods that are scarce - most goods fall into this category

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positive statements

economic statements that can be proven to be true or false

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positive economics

scientific/objective study of economics

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normative economics

concerned with value judgements, study of policy prescriptions for economics

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Normative statements

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

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Factors of production

capital, enterprise, land and labour

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Capital

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

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Enterprise

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

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land

includes the natural resources available for production

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labour

our human input into the production process

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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

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an outward shift of the PPF

represents an expansion of a firm’s productive capacity

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reallocating ____ ________ creates an opportunity cost

scarce resources

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What on the PPF represents the rising opportunity cost

the concave shape

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economic growth reprsents an ____ in the _____ capacity

increase, productive

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economic growth will be higher if you start with more _____ goods as they are used to produce both _____ and ____ goods and services

capital, capital, consumer

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capital goods are…

used to produce other goods and services

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consumer goods are…

purchased and used directly by individuals for personal consumption

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3 causes of a shift out of the PPF

  • Increase in quantity of factor inputs

  • Advances in technology = improvements in production processes

  • Improvement in quality of factor inputs

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3 Key advantages of specialisation

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

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How does division of labour occur

when production is broken down into many separate tasks

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3 disadvantages of specialisation

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