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Economics 1.1.4
Economics- Edexcel 1.1.4
| Term | Definition |
|---|---|
| production possibility frontiers (PPFs) | graph that shows the maximum different combinations of output of two goods that can be produced when all it’s resources are fully and efficiently employed |
| law of diminishing marginal returns | a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output |
| micro production possibility frontiers | looks at two specific products |
| macro production possibility frontier | looks at the choices an economy might have between producing capital goods versus supplying consumer goods and services |
| economic efficiency | making the best or optimum use of our scarce resources, so economic and social welfare is maximised over time |
| points on the PPF | an efficient allocation of scarce resources |
| points inside the PPF | unemployed or an inefficient allocation of resources |
| points outside the PPF | currently unattainable unless the country increases it’s factor resources, productivity or improves it’s technology |
| 3 things that allows nations to consume beyond their own PPF | specialisation, trade and exchange between countries |
| a Pareto efficient outcome | an action that harms no one and helps atleast one person |
| a Pareto efficient situation | the only way to make one person better off is to make another person worse off |
| Pareto efficiency and the PPF | Pareto efficiency occurs on points that lie on the PPF- it is not possible to increase output of goods without reducing output of services |
| Pareto improvement | output of both products can increase as we move from within the PPF to points on the PPF boundary |
| Pareto efficiency and equity | an outcome may be a Pareto improvement but isn’t always satisfactory or fair and there can still be inequality, on a diagram the Pareto improvement involves no judgement about the equality of final distribution or overall social welfare |
| straight line PPF | an indication of perfect substitutability of labour or capital inputs |
| increasing capital goods means | an initial decrease in consumer goods then an increase in consumer goods(more capital goods means you can make more consumer goods) |
| causes of outward shifts in the PPF | higher productivity/efficiency of factor inputs, better management of factor inputs, in crease in the stock of capital and labour supply, innovation and invention of new products and resources, discovery of new natural resources |
| causes of inward shifts of PPF | damaging effects of severe natural disasters, destruction caused by war and other types of conflict, large scale migration of people out of a country, a long-term fall in productivity of labour |
| stock of capital | the amount of common and preferred shares that a company is authorized to issue |
| resource depletion | a decline in the total stock of resources available |
| resource depreciation | the efficiency of resources diminishes with age and with repeated use during production |
| causes of deforestation | expansion of large-scale industrial cattle / soy / palm oil farming, expansion of gold mining and hydro-electric dams, urban development, illegal logging, land grabbing with weak legal institutional protections |
| economic and social costs of deforestation | threat to livelihoods of millions in indigenous populations, environmental impact, threat to eco-systems, consequences for water supplies, huge threat to potential to achieving sustainable development and reducing extreme poverty |
| interventions that may reduce rates of deforestation | increase in overseas aid programmes,investment to make farming sustainable,linking trade agreements to better environmental and farming policies,using satellite technology to track rates of deforestation,investment in reforestation via government spending |
| reforestation | the process of replanting an area with trees |
| allocative efficiency | occurs when the value that consumers place on a good or service(reflected in the price they are willing and able to pay) equals the cost of the resources used up in production |
| capital goods | producer or capital goods such as plant, machinery and equipment are useful not in themselves but for the goods and services they can help produce in the future |
| concave production possibility frontier | ‘bowed outwards’- there is a rising marginal opportunity cost as you produce more of one goods, due to imperfect factor mobility |
| imperfect factory mobility | labour/land/capital is more suited to the production of one good than another |
| consumer goods | goods bought and sued by consumers and households |
| productive potential | the amount of output an economy could produce if all it’s resources were fully and efficiently employed |
| trade-off | implies that choices must be made between different objectives of policy, e.g. a trade-off between economic growth and inflation |
| recession | a significant, widespread, and prolonged downturn in economic activity |
| examples of resource depreciation | machinery and buildings breaking down over time, skills atrophying, basic infrastructure not keeping up with advancements |
| examples of resources depletion | human capital flight, capital scrapping, natural disasters, deforestation |
| human capital flight | the emigration or immigration of individuals who have received advanced training at home |
| capital scrapping | when capital assets are withdrawn from the capital stock at the end of their service lives |
| inflation | the rate of increase in prices over a given period of time |
| supply side policies | government attempts to increase productivity and increase efficiency in the economy |
| productive efficiency | producing anywhere on the boundary of the PPF |
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jessharris
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