Economics Flashcards

The Role of Markets

• Definition: A market is where buyers and sellers interact to exchange goods and services.

• Types:

  • Physical: Markets with stalls, auction houses, shops.

  • Intangible: Internet and catalogue sales.

Goods and Services

• Goods: Tangible products (e.g., cars, computers, furniture).

• Services: Intangible (e.g., haircuts, dog grooming).

Sectors of the Economy

• Primary Sector:

  • Description: Businesses extracting resources.

  • Examples: Logging, mining, fishing, farming.

• Secondary Sector:

  • Description: Businesses involved in manufacturing and construction; they use goods from primary sector to produce products.

  • Examples: Builders, car manufacturers, crisp makers, commercial bakeries.

• Tertiary Sector:

  • Description: Firms providing services, including retail.

  • Examples: Supermarkets, hairdressers, cinemas, restaurants.

Product and Factor Markets

• Product Market:

  • Where final goods and services are sold to individuals, firms, or the government.

  • A final product for one firm may be a component for another.

• Factor Market:

  • Firms compete to acquire factors of production (raw materials, machinery, labor, entrepreneurial skills).

• Derived Demand:

  • Demand for a factor of production is derived from the demand for the final product it produces.

  • Example: Increased demand for e-commerce programmers due to the rise of online stores.

Specialisation and Workers

• Advantages:

  • Increased skill due to repetitive tasks, potentially leading to higher earnings.

  • Job satisfaction and improved quality of life by doing what they love.

  • Increased productivity and earning potential.

• Disadvantages:

  • Loss of skills in other areas, making it harder to find new employment if their specialized job is lost.

  • Boredom due to repetitive tasks, decreasing job satisfaction and quality of life.

  • Risk of unemployment if demand falls or they are replaced by machinery.

  • Note: Specialization does not automatically guarantee higher pay; it often depends on piece rates, qualifications, or opportunities for promotion.

Specialisation and Producers

• Advantages:

  • Increased output through specialist machinery and equipment.

  • Improved worker productivity, reducing average costs.

  • Access to better components from specialist suppliers, improving product quality and reputation.

  • Potential for economies of scale (e.g., bulk buying discounts).

• Disadvantages:

  • Machine faults can halt the entire production process if it's highly automated.

  • Bored workers may produce poor quality goods or leave, increasing recruitment and training costs.

  • Inability to trade for necessary parts, or high prices for them, can affect production.

  • Diseconomies of scale (e.g., increased supervision costs, resource scarcity).

  • Time lost switching between different product setups on the same equipment.

Specialisation and Regions

• Advantages:

  • Efficient use of natural resources.

  • Job creation for local people improving quality of life.

  • Infrastructure development and growth for supporting industries.

• Disadvantages:

  • Industry decline if demand falls, leading to wastage of invested resources.

  • Resource exhaustion due to overexploitation.

  • Loss of trade if another region or country gains a competitive advantage.

Specialisation and Countries

• Advantages:

  • Efficient production and higher output due to specialization in what they do best.

  • Potential for economies of scale.

  • Increased investment and job creation, leading to higher average incomes and quality of life.

  • Increased trade leading to more choice for the public improving the quality of life.

  • Increased government revenue from taxes, which can be spent on improving quality of life.

• Disadvantages:

  • Lack of transferable skills in a fading specialist area.

  • Economic vulnerability if over-dependent on a small number of declining industries.

  • Resource depletion due to overexploitation.

  • Negative externalities like environmental damage.