Flashcards · H060 · Topic 1

Scarcity and choice flashcards

18 cards on Topic 1, subtopics 1.1 to 1.4. Pick a subtopic or study them all.

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Scarcity and the basic economic problem: Scarcity: unlimited wants set against limited resources. The basic economic problem: scarcity forces choices over what to make, how to make it and who gets it.
Economic good vs free good: Economic good: uses scarce resources to supply, so it has a cost of provision. Free good: needs no resources to supply, so it has no price. A good free at the point of use is still an economic good.
Needs vs wants: Need: something required to survive or avoid serious harm. Want: something desired beyond a need; wants are unlimited. The line depends on time and place.
Positive vs normative statement: Positive: describes or predicts; evidence can check it. Normative: expresses an opinion on what ought to happen (a value judgement).
Sustainability: Using resources to satisfy today's needs in a way that leaves future generations able to satisfy their own.

Market, planned and mixed economies: Market: private decisions coordinated by prices; private ownership. Planned: a central authority decides allocation; mostly state ownership. Mixed: market and government both allocate, in varying proportions.
The margin and rationality: The margin: the point of deciding on one more or one less unit. Rationality: acting consistently to maximise a goal using the information available.
Economic agents: Consumers, workers, firms and the government: the decision makers whose choices allocate resources.
Strengths and weaknesses of a free market economy: Strengths: incentives to innovate and cut costs, wide choice, prices respond to wants. Weaknesses: public goods missing, externalities ignored, merit goods under-consumed, unequal income and wealth.

Opportunity cost: The value of the best option passed over when choosing. It is a single next best alternative, not every option rejected.
Opportunity cost vs trade-off: Trade-off: the relationship of accepting less of one thing to get more of another. Opportunity cost: the value of the specific next best option lost.
PPF (PPC): definition and productive efficiency: The boundary of the largest output pairings of two goods with every resource fully and efficiently employed and technology fixed. Any point on it is productively efficient.
PPF: movement along vs shift: Movement along: a choice between the two goods (opportunity cost shown by the slope). Shift: a change in capacity, outward from more or better resources or technology, inward from loss of resources.
Accounting cost vs opportunity cost: Accounting cost records money paid out. Opportunity cost adds the value of the best alternative use of owned resources and time.

Specialisation vs division of labour: Specialisation: concentrating on a narrow range of goods or services; can apply to a person, firm, region or country. Division of labour: splitting a production process into tasks, a separate worker on each.
Advantages and disadvantages of the division of labour: Advantages: workers become skilled and quick, less time switching tasks, use of specialist machinery, higher output per worker. Disadvantages: boredom, lower motivation, and dependence on every stage working.
Barter vs money: Barter: direct exchange of goods for goods; it needs a double coincidence of wants. Money: anything generally accepted as payment (a medium of exchange), which makes specialisation and trade easier.
Functions of money: Medium of exchange, measure of value (unit of account), store of value, and method of deferred payment.