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Economics 1.1.5
Economics- Edexcel 1.1.5
| Term | Definition |
|---|---|
| specialisation | when we concentrate our scarce resources on a specific product or task, need money as a medium of exchange so trade can be successful(people only produce part of a product) |
| where can people specialise | in extended families, within businesses and organisations, countries, region of countries |
| advantage 1 of specialisation | higher output (total production is raised and quality is improved): division of labour means workers complete tasks accurately in less time, leaded increased productivity |
| advantage 2 of specialisation | variety: consumers have access to a greater variety of higher-quality products across different markets |
| advantage 3 of specialisation | a bigger market and economics of scale: an expansion of global trade + specialisation = increased size of the market offering opportunities for economies of scale to be exploited, leading to lower unit costs and prices for consumers |
| economies of scale | cost advantages reaped by companies when production becomes efficient |
| disadvantage 1 of specialisation | lack of education: workers receive little training and can’t find alternative jobs when out of work, leading to structural unemployment because of occupational immobility |
| disadvantage 2 of specialisation | mass-produced standardised goods lack variety, which may damage consumer welfare |
| disadvantage 3 of specialisation | people can over specialise, e.g. country over-specialises in the supply of a few products making them vulnerable to shocks in global demand |
| division of labour | the production process is broken down into many separate tasks |
| consumer welfare | the individual benefits derived from the consumption of goods and services |
| structural unemployment | structural unemployment is caused by a mismatch of skills between the unemployed and available jobs |
| occupational immobility | the inability of labour to switch between different occupations |
| regional deprivation | a condition in which individuals or households in a certain region struggle to meet their basic needs |
| consumer surplus | a measure of consumer welfare and is defined as the ‘excess of social valuation of product over the price actually paid’ |
| advantage 1 of division of labour | raises output per person: people become proficient through repetition of a task(learning by doing) |
| advantage 2 of division of labour | a gain in labour productivity helps lower the supply cost per unit for a business |
| advantage 3 of division of labour | reduced supply costs mean lower market prices for consumers causing gains in economic welfare through an increase in consumer surplus |
| labour productivity | output per worker or per hour worked |
| disadvantage 1 of division of labour | unrewarding, repetitive work lowers people’s motivation, causing lower labour productivity |
| disadvantage 2 of division of labour | workers take less pride in their work so the quality of a good or service suffers |
| disadvantage 3 of division of labour | dissatisfied workers cause absenteeism rates to rise, increasing costs for businesses |
| disadvantage 4 of division of labour | people switch to more attractive jobs creating high worker turnover and increasing hiring/training costs |
| disadvantage 5 of division of labour | increased risk of repetitive strain injuries at work, increasing pressure on health services |
| the main 4 functions of money | a medium of exchange, a store of value, a unit of account, a standard of deferred payment |
| medium of exchange | an intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties |
| store of value | an asset that holds it’s value over time |
| unit of account | a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions |
| standard of deferred payment | the accepted way, in each market, to settle a debt |
| external economic shock | an unexpected event that dramatically changes an entire economy's direction, either upward (value gains and job creation) or downward (value lost and job destruction) |
| supply cost | the manufacturer’s average direct per unit cost of manufacturing the product + other costs of making the product |
| key characteristics of money | durable, portable, divisible, hard to counterfeit, universally accepted, valuable, non perishable, easy to use, safe, exchangeable between other currencies, limited in quantity, simple, accessible for blind and partially sighted people |
| monetarist economists | believe that inflation is a monetary problem “too much money chasing too few goods” |
| monetary problem | the illusion is that one would be better off if only one had more money. Everybody should have more money. Therefore, make more money. This creates the system of inflation |
| narrow money(M0) | a measure of value coins and notes in circulation and other money equivalents that are easily convertible into cash such as short term deposits in the banking system |
| broad money(M4) | a measure of the total amount of money held by households and companies in the economy, and is made up of commercial bank deposits and currency |
| currency | anything that is generally accepted to have value as a medium of exchange so that it can be traded for goods and services |
| commercial bank deposits | IOUs from commercial banks to households and companies |
| benefits of agglomeration | agglomeration produces benefits for firms via positive external scale economies, mainly in the form of improved opportunities for sharing, matching and learning |
| short run | at least one factor input is fixed |
| long run | all factors of production are variable |
| production | a measure of the value of the output of goods and services |
| productivity definition | a measure of the efficiency of factors of production, in output per person employed/output per person hour |
| output of goods and services | factor inputs + factor productivity =output of goods and services |
| productivity in real life | productivity helps determine economic growth and inflation; a fall in labour productivity leads to a rise in firms’ unit costs of production; higher productivity allows businesses to pay higher wages and achieve increased profits at the same time |
| factors affecting labour productivity | degree of a competition, advances in production technology, specialisation, higher business investment in new capital inputs, investment in apprenticeships, quality of management,quality of national infrastructure,level of demand for a product in a market |
| zombie company | companies that earn just enough money to continue operating and service debt but are unable to pay off their debt |
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jessharris
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