Eco test

• School of economic thought

  A group of economic thinkers who share or shared a common perspective on the way economies work
• Schools of thought shape economic theories, guiding policymakers and academics in understanding and addressing economic challenges
• Invisible Hand


  Suggests that individuals, by pursuing their own self-interest, unintentionally contribute to the overall economic wellbeing of society
• Pin Factory

  • Illustrates the importance of division of labour and specialisation
• Utility Maximisation


  The cost of a product that a consumer is willing to pay is approximate to the marginal utility they receive from the purchased good
• Marginalism


  A theory that asserts individuals make decisions on the purchase of an additional unit of a good or service based on the additional or marginal utility they receive from it
• Liquidity preference


  Wealth holders' desire for exchanging ready money for safe, non-liquid assets such as bonds
• Perfect Competition


  Marshall believed that competition was imprecise, with prices being influenced by the rise and fall of demand
• Spending Multipliers


  Increase in spending ultimately leads to a bigger change in GDP than the amount spent
• Classical economics


  Associated with Adam Smith
• Keynesian economics


  An economic theory of total spending in the economy and the effects on output, employment and inflation
• Marginal Productivity Theory


  Theory that explains the relationship between the quantity of a factor of production (FOP) employed and the resulting output
• Assumptions of Marginal Productivity Theory

  • Perfect competition
  • Homogeneity of factors - all units of FOP are homogeneous in nature
  • Full employment - under full employment, the supply of a FoP is fixed in quantity
  • Same state of technology - assumes that the technology used in production is constant
• Marginal Physical Productivity (MPP)


  Increase in output due to increase in FOP
• Marginal Revenue Productivity (MRP)


  Increase in revenue resulting from employment of an additional unit of FOP