The essentials, the basics of life we cannot live without. (e.g. food, water, shelter)
The items, activities or services that improve quality or standard of living. (e.g. holidays, electronics)
Land, labour, capital, enterprise
Capital goods generate further output (other goods, e.g. book press) whereas consumer goods generate satisfaction (e.g. books)
There are limited resources but people have unlimited wants and needs (scarcity)
What to produce, how to produce, and for whom to produce?
Free market economies allocate resources through the workings of the price mechanism (private sector).
Mixed economics have some resources that are owned by the public sector and some that are private sector.
Command economies have scarce resources that are owned by the state, and supplied solely as by what they think their citizens need.
A measure of the cost of any choice in terms of the next best alternative forgone.
The Production Possibility Frontier shows the different combinations of economic goods which an economy is able to produce if all resources in the economy are fully and efficiently utilised.
You cannot produce one good without less of the other (shown by your typical PPF)
The economy is not using its resources efficiently (there's spare capacity)
It's unattainable (beyond the maximum production level of the economy)
The economy is operating productively (at full capacity)
Not all resources in the economy are as productive in one use as compared to another
When all resources in the economy are as productive in one use as they are in the other (opportunity cost is the same)
1. A fall in the demand for the pound could be due to a fall in FDI in the UK
2. Fewer people from abroad wish to invest in the UK so don't exchange their currency into pounds
3. Shown as an inward shift in demand D1-D2
4. Puts a downwards pressure on Sterling, so its value depreciates P1-P2
5. With a new quantity traded Q1-Q2
1. A fall in the supply for the pound could be due to a fall in the popularity of USA imports
2. Fewer people buy USA imports so don't increase the supply of pounds by exchanging pounds into dollars
3. Shown as an inward shift in supply S1-S2
4. Puts an upwards pressure on Sterling, so its value appreciates P1-P2
5. With a new quantity traded Q1-Q2
1. A rise in the supply of the pound could be due to the uncertainty of speculators
2. Uncertain speculators will want to move their money overseas so exchange their pounds
3. Shown as an outward shift in supply S1-S2
4. Puts a downwards pressure on Sterling, so its value depreciates P1-P2
5. With a new quantity traded Q1-Q2
1. A fall in the demand for the pound could be due to a rise in interest rates in (country), relative to UK banks
2. Hot money flows are diverted from the UK to (country), so foreign currencies aren't exchanged into pounds
3. Shown as an inward shift in demand D1-D2
4. HOWEVER: Money is moved from within the UK itself to (country) too, so more pounds are exchanged into (currency)
5. There is an increase in supply of the pound S1-S2
6. Puts a downwards pressure on Sterling, so its value depreciates P1-P2