PPFs, Specialisation, Functions of money (Pack 2)

• What is the definition of 'production possibility frontier’?

  The maximum potential amount that 2 products can make assuming that all available resources are fully used
• How can a PPF represent inefficient use of resources?

  • Point inside the PPF curve
  • Indicates resources aren’t fully used e.g. A worker slacking off
• How can a PPF represent efficient use of resources?

  • Point on the PPF curve
  • Indicates full utilisation of resources
• How can a PPF represent opportunity cost?

  • Movement along the PPF curve
  • Sacrifice between two products
• How can a PPF represent more resources available for both products?

  • Shift of the PPF curve outward
  • Indicates increased production capacity and more resources are available
• How can a PPF represent less resources available for both products?

  • Shift of the PPF curve inward
  • Indicates decreased production capacity and less resources are available
• How can a PPF represent more resources available for one product only?

  • Shift of the PPF curve outward on only one axis
  • Indicates increased production of one product
• What is the difference between a capital good and a consumer good?

  Capital goods are used for production; consumer goods are for consumption
• Why are PPFs normally drawn as a curved shape?

  To reflect increasing opportunity costs
• What is the use of models to economists?

  To simplify complex economic processes
• What is ceteris paribus and why is it useful?

  It means 'all other things being equal'
• How is labour productivity calculated?

  Labour productivity = output / number of workers ; e.g. 100 units/5 hours = 20 units/hour
• What happens to average costs as productivity changes?

  Average costs decrease as productivity increases
• What are ways to increase labour productivity?

  • Implementing new technology and capital goods e.g. machinery
  • Training/ Motivating employees for efficiency
  • Specialisation/ Division of labour
• What is specialisation in economics?

  When an individual , firm or country focuses there limited resources on a specific task or product
• What are the pros and cons of an economy specialising?

  
  

  Pros:

  • Surplus can be sold and traded
  • Nations can choose what they produce (Increased productivity)
  • Reduced international conflict

  Cons:

  • Short term unemployment from the industries closed down
  • Risk of becoming self-sufficient and reliant
  • May specialise in non renewable energy (finite in the long term)
• What is division of labor?

  Breaking down work into simple repetitive tasks among workers for efficiency
• What are pros and cons of a firm using division of labour?


  Pros:

  • Increased efficiency and production times
  • Lower training costs
  • Higher skill development

  
  

  Cons:

  • Worker monotomy causing less transferable skills
  • Reduced job satisfaction (Repetitive)
  • Dependency on specific workers and can get replaced by machines
• Who proposed the idea of division of labour?

  Adam Smith
• In which setting did Adam Smith conduct his experiment on division of labor?

  In a pin factory
• What are the four functions of money?

  • Medium of exchange (Eliminates need to swap products)
  • Unit of account/Measure of value (Allows for a value to be put on products)
  • Store of value (Allows for storing wealth e.g. savings)
  • Method of deferred payment (Allows borrowing of money)