Theme 1 Economics

• PPF


  Max potential output combinations of two goods an economy can achieve fully employing its resources
• Free Market economy


  resources allocated privately via price mech
• Advantages of Free Market


  • Better quality and quantity of labour
  • Higher competition of firms, making them more efficient so can meet consumer demand
• Disadvantages of Free Market


  • Monopolies
  • Unequal distribution of income
  • Underprovision of public goods and services ( market failure )
• Command Market Economy


  resources owned by the state
• Advantages of Command Market


  • Equal distribution of income
  • Efficient provision of public goods
  • Gov have most control so less swings in business cycle e.g. avoid a recession
• Disadvantages of Command Economy


  • Lack of efficiency from firms since low competition
  • Low quality and quantity of goods and services
• Mixed Economy


  resources owned by both the state and privately
• Specialisation


  concentration of production on narrow range of goods and services.
• Advantages of Specialisation


  • Higher output - therefore higher trade since each country specialises in different goods. Higher growth of individual country
  • Higher productivity, workers can easily create output, lower p.c. and possibly low prices for consumers
• Disadvantages Of Specialisation


  • Changes in trends, so low demand of the good
  • Finite resources
  • Structural unemployement
• Division of labour


  Workers concentrate on specific tasks of the production process of goods and services
• Advantages of Division of Labour


  • Worker becomes highly skilled in that tasks so high productivity
  • Capital equipment is used constantly in production
• Disadvantages of Division of Labour


  • Repetition can cause demotivation
  • Breaking down production process makes easier to replace workers with capital, higher structural unemployment
  • Specialisation causes interdependence in production
• Diminishing marginal utility 


  As one consumes more of a good the utility or satisfaction gained from each extra unit will fall