1.1 Foundation to economics

• Define the term 'Economics'

  A social science looking at how people make choices about what, how and for whom to produce, with limited resources
• Define the term 'Labour'

  Human physical and mental effort that goes into production
• Define the term 'Capital'

  Manmade physical equipment used to make other goods/services
• Define the term 'Enterprise'

  Individuals who take a risk to start a business
• Define the term 'Land'

  all the natural resources of the Earth
• What's the difference between goods and services?

  Goods are tangible and measurable whereas services are intangible and harder to measure
• What is a monopoly?

  A company that has 25% or more control over a market
• What is 'positive economics'

  Use OBJECTIVE statements which come from facts and have to be able to be tested and verified
• What is 'normative economics'

  Use SUBJECTIVE statements which are opinions and use value judgements
• What's the difference between a need and a want?

  Needs are something we MUST HAVE to survive (food, water, shelter) whereas wants are things we WOULD LIKE but aren't necessary for survival (TV, phones)
• What does scarcity mean?

  Goods and services that can't be purchased by all consumers due to their prices
• What are economic agents?

  The people, firms or government that have an influence on the economy by producing buying or selling
• Define the term 'Opportunity cost'

  The next best alternative forgone when making a decision
• What are the key factors that determine the opportunity cost

  1. Time

  2. Money

  3. Effort
• What does the PPF do?

  Shows the maximum potential level of goods/services that can be produced by an economy
• Define the term 'Productivity efficiency'

  Maximum outputs from available factors of production
• What are some reasons for an inward shift of the PPF?

  1. Natural disaster

  2. War

  3. Health crisis

  4. Prolonged recession
• What is the equation for opportunity cost?

  Opportunity cost = What is lost/ What is gained
• What does (K), (An), (Ap), (E) stand for?

  Knowledge, analysis, application, evaluation
• Define the term 'Ceteris paribus'

  All things equal
• Define the term 'Command economy'

  An economy which resources are allocated by the state
• What are the main characteristics of a command economy?

  1. There is public state ownership of resources

  2. The state determines price

  3. Producers aim to meet production targets set by the state

  4. The state allocated resources

  5. There is greater equality of income and wealth than in a free market economy
• What are the advantages of a command economy?

  1. Greater equality

  2. Macroeconomic stability

  3. External benefits and costs

  4. No exploitation

  5. Full employment

  6. Recourses may be allocated by the state to maximise welfare
• What are the disadvantages of a command economy?

  1. Inefficiency

  2. Lack of innovation

  3. Restrictions on freedom of choice

  4. Shortages and surpluses

  5. Bureaucracy

  6. No consumer sovereignty

  7. Inflexibility
• Define the term 'Free market economy'

  An economic system in which prices are determined by supply and demand with no government intervention
• When does division of labour occur?

  When the work is split up into, small specialised tasks