1.1.4 PPF
Representation of all possible combinations output using all available resources at full
employment
If gradient of curve constant- opportunity cost is constant
So gradient = OC
If we want more pf something have to have less of something else- basic economic problem
BEP- unlimited needs but limited resources
Capital and consumer goods on axes
Capital goods= goods already produced that are used to produce something else (computer
Consumer goods= goods consumed by HH (Computer for netflix)
Diminishing marginal returns= decreasing benefits from switching over resources of a g/s
Inside PPF= not all resources used
On PPF= using everything as normal
Outside PPF= over using
If using all FOP at full employment , way to shift curve outwards is to increase quality and quantity of
capital
Easier to get better at using FOP than expanding our potential- easier to shift towards PPF then shift
curve
These short when quality for one of two g/s increase in Q/Q
1.1.5 specialisation of labour
Specialisation = when workers focus on one step of production process
Division of labour= splitting up production of g/s into many dif tasks
Increase output b/c division of labour, learning by doing and less transition time b/c not switching
b/w tasks (assembly line)
Advantages of DOL
More efficient , workers paid more
More available to buy
Firms get more revenue
More output
More employment (don’t have to skilled in every step)
Cheaper goods, more being produced so less expensive
Workers have more leverage, don’t do their job=disrupts assembly pin
Better quality, all very skilled in their own steps
Higher SOL
Disadvantages
Lower job satisfaction, repetitive
Bad for environment, over-consumption ‘fast fashion’
Workers more replaceable , jobs simple , less negotiation power
Workers don’t have transferable skills, only know specific step
Some ppl like variation of
Adam smith
,1.1..6 Free Market Economies, Mixed Economy and Command Economy
Basic economic problem=unlimited needs and wants but limited resources with which to meet those
Transition economy= when economy moves from command -> mixed
Challenges of TE= burdened by uncompetitive manufacturing sectors, not a lot of functioning capital
and labour markets, Successes of TE= economy improved when opens up to trade and market
forces
To solve the basic economic problem of scarcity, economic systems emerge or are created by
different economic agents within the economy
Agents= consumers, producers, the government and special interest groups
Economic system aims to allocate the scarce factories of production
Economic systems need to decide how to answer three fundamental economic questions
What to produce? ( weapons for military or schools for children)
Who to produce for? (Those who can afford to pay or for everyone)
How to produce it? ( more labour or technology)
Adam Smith, Karl Marx and Friedrich Hayek Gad very different ideas about how to answer them
Free market = Friedrich Mixed economies= Adam Command economies= Karl
Believed free markets Advocated for free markets Believed free markets
with no government w/some gov intervention lead to capitalism in
intervention provided the which owners of the FOP
most efficient allocation exploited the workers
of resources
Inventoried information Likes competition and Creates inequality – lead
gaps between what wanted the individuals to to a breakdown between
economies required and own capital. classes
what the central planners
in command economies
were saying it required
Gaps lead to shortages or Thought everyone should Share means of
surpluses of g/s in do what they like and what production and
command economies they are better at and that ownership with all
the free market economy workers in society’s,
should be owned by the abolition of private
ppl property
Liked how markets Recognised that State would become
allowed creativity, governments ensure central planner and
innovation, efficiency in the allocation decide how 3 economic
entrepreneurship which of resources and provide questions be answered
was necessary for society goods
Against command Believed economies Same amount for
economies, thought if function best when private echoing, only produce
small amount of people individuals work in their what think they need
nresponsible for own self interest,
allocation and motivated them to be
distribution of resources, labour productive
would be impossible to
meet everyone’s needs
, Free Market Mixed economy Command economy
Economy that has no A blend of the free All of the resources are
government market and command owned by the state
intervention in the economy as and the government
allocation of resources individuals, firms and controls the
and distribution of g/s the government own distribution of g/s
FOP and distribute g/s
All resources privately Eg. UK Eg. North Korea
owned, government
protect property rights
Free Market
Pros Cons
Profit incentive motivates people to Wealth gets concentrated in hands of
work and develop ideas few, buying up scares FOP
Greater variety of g/s Increases inequality, gap between
Competition leads to better quality of rich and poor increase, self interest
g/s Product quality may fail, firms Lowe
Competition leads to lower prices quality standard ti increase profits
Competition encourages innovation Workers exploited
and product development , higher Resource depletion and
output environmental degradation often
Profits, income and wealth -better SOL ignored
More efficient use of scarce resources Higher prices- firms increase prices to
High economic growth- higher maximise profits
productivity, consumption and output
Command economy
Pros Cons
Social equality is the goal of the Receiving same wage disincentives
system, not maximising profits, less people from gaining skills or working
inequality harder
All workers receive same wage , Lack of competition means that there
creates social equality is less innovation and product
Less unemployment development, lower output, low
Resources of Marion directed towards economic growth, low consumption,
urgent priorities no profit motivation
Lower prices, government set prices Continual lack of efficiency
Access to higher SOL limited for most
of population
Personal freedoms restricted
Role of state in a mixed economy
Representation of all possible combinations output using all available resources at full
employment
If gradient of curve constant- opportunity cost is constant
So gradient = OC
If we want more pf something have to have less of something else- basic economic problem
BEP- unlimited needs but limited resources
Capital and consumer goods on axes
Capital goods= goods already produced that are used to produce something else (computer
Consumer goods= goods consumed by HH (Computer for netflix)
Diminishing marginal returns= decreasing benefits from switching over resources of a g/s
Inside PPF= not all resources used
On PPF= using everything as normal
Outside PPF= over using
If using all FOP at full employment , way to shift curve outwards is to increase quality and quantity of
capital
Easier to get better at using FOP than expanding our potential- easier to shift towards PPF then shift
curve
These short when quality for one of two g/s increase in Q/Q
1.1.5 specialisation of labour
Specialisation = when workers focus on one step of production process
Division of labour= splitting up production of g/s into many dif tasks
Increase output b/c division of labour, learning by doing and less transition time b/c not switching
b/w tasks (assembly line)
Advantages of DOL
More efficient , workers paid more
More available to buy
Firms get more revenue
More output
More employment (don’t have to skilled in every step)
Cheaper goods, more being produced so less expensive
Workers have more leverage, don’t do their job=disrupts assembly pin
Better quality, all very skilled in their own steps
Higher SOL
Disadvantages
Lower job satisfaction, repetitive
Bad for environment, over-consumption ‘fast fashion’
Workers more replaceable , jobs simple , less negotiation power
Workers don’t have transferable skills, only know specific step
Some ppl like variation of
Adam smith
,1.1..6 Free Market Economies, Mixed Economy and Command Economy
Basic economic problem=unlimited needs and wants but limited resources with which to meet those
Transition economy= when economy moves from command -> mixed
Challenges of TE= burdened by uncompetitive manufacturing sectors, not a lot of functioning capital
and labour markets, Successes of TE= economy improved when opens up to trade and market
forces
To solve the basic economic problem of scarcity, economic systems emerge or are created by
different economic agents within the economy
Agents= consumers, producers, the government and special interest groups
Economic system aims to allocate the scarce factories of production
Economic systems need to decide how to answer three fundamental economic questions
What to produce? ( weapons for military or schools for children)
Who to produce for? (Those who can afford to pay or for everyone)
How to produce it? ( more labour or technology)
Adam Smith, Karl Marx and Friedrich Hayek Gad very different ideas about how to answer them
Free market = Friedrich Mixed economies= Adam Command economies= Karl
Believed free markets Advocated for free markets Believed free markets
with no government w/some gov intervention lead to capitalism in
intervention provided the which owners of the FOP
most efficient allocation exploited the workers
of resources
Inventoried information Likes competition and Creates inequality – lead
gaps between what wanted the individuals to to a breakdown between
economies required and own capital. classes
what the central planners
in command economies
were saying it required
Gaps lead to shortages or Thought everyone should Share means of
surpluses of g/s in do what they like and what production and
command economies they are better at and that ownership with all
the free market economy workers in society’s,
should be owned by the abolition of private
ppl property
Liked how markets Recognised that State would become
allowed creativity, governments ensure central planner and
innovation, efficiency in the allocation decide how 3 economic
entrepreneurship which of resources and provide questions be answered
was necessary for society goods
Against command Believed economies Same amount for
economies, thought if function best when private echoing, only produce
small amount of people individuals work in their what think they need
nresponsible for own self interest,
allocation and motivated them to be
distribution of resources, labour productive
would be impossible to
meet everyone’s needs
, Free Market Mixed economy Command economy
Economy that has no A blend of the free All of the resources are
government market and command owned by the state
intervention in the economy as and the government
allocation of resources individuals, firms and controls the
and distribution of g/s the government own distribution of g/s
FOP and distribute g/s
All resources privately Eg. UK Eg. North Korea
owned, government
protect property rights
Free Market
Pros Cons
Profit incentive motivates people to Wealth gets concentrated in hands of
work and develop ideas few, buying up scares FOP
Greater variety of g/s Increases inequality, gap between
Competition leads to better quality of rich and poor increase, self interest
g/s Product quality may fail, firms Lowe
Competition leads to lower prices quality standard ti increase profits
Competition encourages innovation Workers exploited
and product development , higher Resource depletion and
output environmental degradation often
Profits, income and wealth -better SOL ignored
More efficient use of scarce resources Higher prices- firms increase prices to
High economic growth- higher maximise profits
productivity, consumption and output
Command economy
Pros Cons
Social equality is the goal of the Receiving same wage disincentives
system, not maximising profits, less people from gaining skills or working
inequality harder
All workers receive same wage , Lack of competition means that there
creates social equality is less innovation and product
Less unemployment development, lower output, low
Resources of Marion directed towards economic growth, low consumption,
urgent priorities no profit motivation
Lower prices, government set prices Continual lack of efficiency
Access to higher SOL limited for most
of population
Personal freedoms restricted
Role of state in a mixed economy
