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1.1 to 1.5, Scarcity: the situation that arises when there are unlimited…
1.1 to 1.5
MODELS 1.1.1
An economic model is a simplified version of reality, to provide insight into economic decisions or events.
WHY ARE MODELS USED?
1) They can help to make predictions about the future.
2)They can describe what has happened in the past.
3)As models are done with "Ceteris Paribus" they impact of changing a variable can be seen.
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There is an opportunity cost between producing more of one good as the quantity of other good will be lost.
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There can be a shift in the PPF if there is a change to the quantity or quality of factors of production. A skewed shift happens when there only one change is happening
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Medium of exchange
Allows people to specialise in what they are good at then trade the surplus as it is accepted by everyone. People do not need a double coincedence of wants.
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Economic agents are people who make choices in an economy: Households, Firms and Government.
-Consumer goods are goods that are consumed by the end user
-Capital goods are goods that are used to produce other goods.
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Production- Output in a given period of time
Productivity- Output per unit of input in a given time
Labour Productivity- output per unit of labour in a given time period.
Overspecialisation- when it causes people to have a narrow skillset 1,(employment immovability)
Adam Smith in his book wealth of nations mentions that specialisation of labour is a way to increase efficiency and lower production costs.
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