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Edexcel Economics 1.1 Knowledge
Terms in this set (42)
What is an Economic Model
An economic theory based on assumptions
Why do Economists use models?
Models allow us to study a simplified version of a complex world.
What does ceteris paribus mean?
All else equal
Why is it difficult for Economists to Economists to conduct scientific experiments?
Humans are unpredictable
What is a positive statement?
An objective claim which is testable
What is a normative statement?
A subjective claim based on value judgements
Words which suggest positive
Bigger, smaller, if...when
Words which suggest normative
Should, ought, best, worsts
When might value judgements be used in Economics?
In policy recommendations
Which 3 questions does the study of Economics aim to answer?
What to produce? How to produce it?
For whom to produce it?
What does scarcity mean?
Infinite wants and limited resources
What is the Economic problem?
Scarcity: infinity wants and limited resources
What is a 'renewable resource'?
One that can be replenished at a quicker rate that it is used
What is a 'non-renewable resource'?
A resource that cannot replenish in the time needed.
Give an example of a non-renewable resource?
oil, coal, minerals, natural gas
Give an example of a renewable resource?
water, wind, sunlight
What are the 4 factors of production?
land, labor, capital, entrepreneurship
What is the factor reward for land?
What is the factor reward for labour?
What is the factor reward for capital?
What is the factor reward for enterprise?
What is opportunity cost?
The value of the next best alternative foregone
Why do opportunity costs exist?
Scarcity means we have to make choices
What is a PPF?
The maximum combination of two goods which can be produced with a given level of resources and technology
Draw a PPF that demonstrates an efficient level of production
Point on curve
Draw a PPF with an inefficient level of production
Point inside curve
Draw a ppf with an impossible level of production
Point outside curve
Illustrate actual growth on a PPF
Point moves closer to curve
Illustrate potential growth on a PPF
Curve shifts out
What could cause an inward shift of the PPF?
Resources depletion or depreciation
What could cause an outward shift of the PPF?
Increase or improvement in resources or technology
How do we show opportunity cost on a PPF?
When moving from one point to another, one arrow will be pointing towards 0
What is the difference between capital and consumer goods?
Consumer goods provide utility directly, capital goods do not
What is the difference between actual and potential growth?
Actual growth is an increase in output, potential growth is an increase in productive capacity
Why would 100% consumer goods be undesirable?
It limits future utility
Why would 100% capital goods be undesirable?
It limits current utility
Who observed the division of labour in a pin factory?
What is specialisation?
When an individual, firm, region or country concentrates on the production of a limited range of goods and services
How does the division of labour result in higher output?
Workers do what they are most suited to + Learning by doing -> workers are more productive -> more output in same time
How does the division of labour result in higher quality?
Workers do what they are most suited to + Learning by doing -> workers get better at their job -> higher quality
How might specialisation result in lower costs?
Higher productivity -> same amount produced in less time -> lower wage costs
Give 4 disadvantages of specialisation in a firm
1) Workers become bored
2) Absenteeism increases
3) Staff turnover is high
4) Absences are hard to cover
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