Section 1 - The Economic Problem

Front 1

Normative Statments:

Back 1

Political statement containing a value judgement

Front 2

Positive Statment:

Back 2

Objective statement that can be tested against evidence.

Front 3

Production Possibility Frontier

Back 3

Graph showing the maximum possible output of 2 goods/services.

Front 4

All points on the PPF are:

Back 4

Productively efficient and result in maximum possible output, but aren't necessarily allocatively efficient.

Front 5

Opportunity cost:

Back 5

The cost of the next best alternative given up in making any decision.

Front 6

3 Problems with Opportunity Cost

Back 6

1. Not all alternatives are known.

2. Some FOP don't have alternative uses.

3. Hard to switch FOP to alternative uses.

Front 7

Pros of Free Market

Back 7

Efficiency, Entrepeneurship, Choice

Front 8

Cons of Free Market

Back 8

Inequality, Non-production of the unprofitable, Monopolies

Front 9

Pros of Command Economy

Back 9

Maximise welfare, Low Unemployment, Prevent Monopolies

Front 10

Cons of Command Economy

Back 10

Poor decision making, Restricted Choice, Lack of Efficiency

Front 11

Marginal Utility:

Back 11

Benefit gained from consuming 1 additional unit of a good.

Front 12

Law of Diminishing Utility:

Back 12

For each additional unit consumed, the marginal utility gained decreases.

Front 13

3 Reasons for Bounded Rationality

Back 13

1. Limited time to make decision.

of information.

2. Asymmetry of information.3. Not able to evaluate/calculate alternatives (computational weakness).

3. Not able to evaluate/calculate alternatives (computational weakness).

Front 14

5 Biases Preventing Rational Action

Back 14

1. Rules of Thumb

2. Anchoring

3. Social Norms

4. Habitual Behaviour

5. Availability Heuristic

Front 15

4 Examples of Choice Architecture

Back 15

1. Default Options

2. Framing

3. Nudges

4. Restricted/Mandated Choice