Knowledge Organiser

The basic economic problem states that resources have to be allocated between competing uses because wants are infinite while resources are scarce.

Businesses and consumers follow price signals. If prices go up, more businesses will supply the product. Consumers buy from those with the lowest price and best quality.

Utility describes the usefulness of a product.

The benefits foregone of the next best alternative.

Scarcity means that there is a limited amount of a good or resource available to us.

Land refers to the space that is used for buildings, as well as any primary materials that may be extracted from nature

Labour refers to the work done by human beings as part of the production process

Capital refers to the machines and equipment that businesses use as part of their production process

Enterprise means people are seeking out profitable opportunities for production and taking risks in attempting to exploit these. They are matching resources to each other in a profitable way.

Free goods are goods that are unlimited in supply and which therefore have no opportunity cost.

Economic goods are goods which are scarce because their use has an opportunity cost.

Let the people get on with it. By trading, they will sort it out.

Take two different goods. Each axis shows the production level of each good. A curve or line demonstrates the maximum possible output of the economy as a combination of these two goods.

Scarcity is shown because it is not possible to produce outside of the PPF.

Opportunity cost is shown by moving along the curve of the PPF. Gaining more of one good means you give up some of another.

Any event which increases the factors of production or increases the efficiency of the factors of production. e.g. more immigration, new technology that affects both industries

Any event which decreases the factors of production or their efficiency. e.g. hurricane, war, restrictive immigration policy

Any event which changes the factors of production for one good, and not the other. e.g. an invention for one industry

Moving from a point within the PPF to a point on the PPF.

The PPF shifts outwards (both axes).

Any point on the boundary of the PPF is Productively Efficient.

Factors of produciton can make either type of good, but they are better at making one type compared to another.

Factors of production can make either type of good, and they are equally good at producing either good.

Factors of production can only make one type of good or the other.

A curve, concave to the origin

A straight line with constant gradient

A box

Increasing toward the margin

Constant

0

Because factors of production are better at making one type of good compared to the other, as you increase production you use the factors that are less well suited toward producing that good. Opportunity cost therefore increases, making the PPF gradient steeper and therefore concave.

Productivity = Output per Input

Any of these: Either improve output: -Invest in better machines and latest technology (capital). -Improve worker training -Allow workers to specialise -Improve transport infrastructure -Improve management practices or reduce input: -Remove under-used resources from production

No. But higher productivity will improve worker pay because the worker is producing more for a given wage rate.

Individuals have more specific skill sets that are used to carry out narrower jobs with specific output.

Breaking up large jobs into smaller tasks.

In a barter trade: where the buyer and seller happen to want exactly what the other is offering for the trade.

Because workers produce a narrower range of output and they would not be able to barter. Money is required to avoid the double coincidence of wants.

-Increased skill per worker (workers get good at one thing) -No time wasted moving between jobs -Workers think of ways to make their jobs more efficient (and produce new machines)

Any of these: -Poor investment in Research and Development (Innovation) -Poor transport infrastructure -Outdated management practices -Education system that is not preparing people to be effective workers. -Financial system that does not give money to new firms. -Markets that are dominated by large firms that don’t let in new firms.

£5,000 per year

-Living Standards are lower: Workers don’t make more, so they aren’t paid more. The only thing that makes society better off in the long-term is productivity growth. -International Competitiveness: UK unit costs will be higher, so we will export less to rest of the world. -Less Tax Revenue: Less is made per worker, so there is less tax (income tax) paid per worker