nature of economics

• free goods are goods that are unlimited in supply and which therefore have no opportunity cost
• economic goods are goods that are scarce because their use has an opportunity cost
• consumer goods are goods we consume e.g mango, fish ,diamonds
• capital goods are goods we use to produce consumer goods e.g machinery in a factory
• an opportunity cost is the benefit given up of the next best alternative
• economy is any system that tries to solve the economic problem of scarcity
• production possibility frontier ,ppf, - it shows all possible combinations of two goods that we can produce our resources efficiently
• economic problem = problem of scarcity - citizens wants and wishes are infinite yet the resources are finite or limited
• ceteris paribus - means all other things are held constant therefore only one variable changes
• a positive statement is tested using evidence . It is objective and fact-based
• a normative statement is a statement that cannot be tested as it is a value judgement which is based on opinion not fact
• division of labour- when a firm splits up its production process into smaller seprate tasks , and assign different workers to each of these tasks
• barter- when one good is swapped with another
• social science- the study of societies and social interaction
• natural science - can conduct experiments and control variables to test theories and models
• money cant be used to produce anything, it can be used to buy factors of production and those factors can be used to make things
• why isint money included as one of the factors of production


  money can be used to buy factors of production but not to produce anything
• non-renewable - will not replenish

  renewable - can replenish
• constant opportunity cost - a situation where the opportunity cost remains unchanged as more units of a particular good are produced - straight line PPF
• why do opportunity cost increase?


  when one component decreases the other component increases which means the opportunity cost increases . As more labour is going into one component than the other
• constant opportunity cost


  the opportunity cost remains the same

  
• increasing opportunity cost

  as you continue to increase production of one good, the opportunity cost of producing that next unit increases

  
• consumer goods- are goods we consume
• pros of specialisation and division of labour


  • labour productivity will increase
  • can lead to a higher quality of goods and services
  • decreases unit cost
  • time is not wasted
  • workers only need to be trained to perform one specific task
  • save on training cost
• cons of division of labour 


  • repeatedly doing the same task can make you demotivated
  • if one task is delayed every other task has to stop until the problem is solved
  • unemployment
  • absenteesim
• what are the functions of money ?

  • medium of exchange
  • unit of account
  • store of value
  • deferred payment
• pros of specialisation and trade


  • variety
  • more output
  • increases trade
• cons of specialisation and trade 


  • over-specialisation
  • natural resource
  • vulnerable
• specialisation - when a worker firm or economy concentrates on producing a limited range of goods and services
• herd behaviour

  consumers are influenced by the behaviour of others
• behavioural economics

  a method of economic analysis that applies psychological insight into human behaviour to explain economic decision making
• habitual behaviour

  when consumers are in a habit of making certain decisions