Scarcity and choice

• Define positive economics


  dealing with objective or scientific explanations of the working of the economy
• Define normative economics

  dealing with perscriptions or recommendations based on personal value judgements
• What are factors of production?

  The resources used by firms in the production process
• What is the factor reward for land?

  Rent
• What is the factor reward/income for labour?

  Wage or salary
• What is the factor reward/income for enterprise?

  Profit
• What is the factor reward for capital?

  interest
• What are durable goods?

  goods that can be used repeatedly and for a long time
• What are non-durable goods?

  single-use goods that are used very soon after they are purchased
• What are capital goods?

  Goods that are used to produce other goods and services.
• What are direct services ?

  services to the public such as hairdressing, valeting, retail
• Define scarcity

  Wants are infinite but resources are finite
• What is the basic economic problem?

  Scarcity
• What are the three basic resource allocation questions?

  What to produce?

  How to produce?

  For whom to produce for?
• What are the three main types of economic systems?

  The market economy

  The centrally-planned economy

  The mixed economy
• How are resources allocated in the free market?

  Price mechanism or the invisible hand.
• In the centrally planned economy, who owns the FoP?

  The state
• What is opportunity cost?


  The satisfaction lost from the next best alternative forgone
• What are merit goods?

  Goods that are considered to beneficial to individuals and society as a whole and are under-consumed in a free market.
• What is a free good?

  A good that has no opportunity cost
• What are economic goods?

  Goods that have an opportunity cost
• Define production possibility frontiers

  a diagram that illustrates the maximum amount of one good that can be produced given a certain amount of another good, when all resources are being fully and efficiently utilised.
• What is specialisation?

  A situation where individuals or firms or regions or nations concentrate on producing a small range of goods and services.
• What is the division of labour?

  occurs when the production process of a good or service is divided into a number of individual operations and each operation is the special task of one worker.
• What is the equation for labour productivity?

  Labour productivity = output per time period divided by number of employees per time period
• What are the advantages of the division of labour?

  • A person becomes extremely proficient at that particular operation.
  • no time is wasted moving from one job to another
  • saving of time in training operatives (and cheaper)
  • Greater use of machinery - simpler processes.
• What are the disadvantages of specialisation?

  • Boring and repetitive tasks
  • loss of craftsmanship - no personal skill
  • hard to replace workers if they’re only trained in one place
  • Machinery can replace people leading to unemployment.
  • Heavily interdependent
• What are the functions of money?

  Medium of exchange

  unit of account

  store of value

  standard of deferred payment.
• What does the medium of exchange overcome?

  The double coincidence of wants
• What are the characteristics of money? (PADDLER)

  Portable

  Acceptable

  Durable

  Divisible

  Limited in supply

  Extremely difficult to forge/copy

  Recognisable