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Economics - Micro > 1:1:1 (Green & White Book) - Nature of Economics > Flashcards

1:1:1 (Green & White Book) - Nature of Economics Flashcards

1
Q

What is meant by the term Ceteris Paribus?

A

All other things remaining the same.

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2
Q

What is meant by Positive Statements?

A

Are statements which can be proven to be true or false, they are supported by statements

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3
Q

Even if a statements cannot be proved immediately but can be proven in the future, are these statements positive ones?

A

YES

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4
Q

What is meant by the term Normative Statements?

A

Are opinions which cannot be supported or refuted.

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5
Q

What is the scientific method at its most basic level?

A
  • Scientist puts forward a hypothesis with is capable of being disapproved
  • Gathers evidence to support or refute the theory
  • Accepts, modifies or refutes the theory
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6
Q

What is Economics the study of?

A

Is the scientific study of ownership, use, and exchange of scarce resources

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7
Q

Why is Economics regarded as a Social science?

A

Because it uses scientific methods to build theories that can help explain the behaviour of individuals.

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8
Q

What does Economics attempt to explain?

A

Explain economic behaviour, which arises when scarce resources are used

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9
Q

How do economists gather data to accept or refute a hypothesis?

A

Gather data in the ordinary everyday world where many variables are changing over any given time period.

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10
Q

Why can it be argued that economics is not a science?

A

Because it studies human behaviour and human behaviour cannot be reduced to scientific laws

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11
Q

Why is the study of groups better than the study of individuals?

A

Because the behaviour of groups is far more predictable than individuals

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12
Q

What is the difference between Economic Theories and Economic Models?

A
  • Theories are expressed in words

- Models are often more precise as they are expressed in mathematical terms

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13
Q

Why are theories and models used in science?

A
  • Because we want to know why something is as it is.
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14
Q

What is one criticism of economics?

A

Economic models and theories are unrealistic

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15
Q

What is meant by Simplification of models?

A

Implies that some factors have been included in the model and some have been omitted.

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16
Q

How does making assumptions help scientists?

A

Allows scientists to simplify a problem to make it manageable to solve

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17
Q

What is the link between Positive and Normative Statements ?

A

Economists usually start off with a Normative statement then use models and theories to build a positive statements from the Normative one.

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18
Q

What are some words which are usually included in Normative Statements?

A
  • Should

- Ought

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19
Q

Is the statement ‘Inflation should be brought down’ a positive or Normative statement?

A

Normative

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20
Q

Is the statement ‘Inflation should reach 5% by the end of the year’ a positive or Normative statement?

A

Positive

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21
Q

What is meant by Normative Economics?

A

Determines what is desired in the economy (‘what ought to be?’)

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22
Q

What is meant by Positive Economics?

A

What is actually happening in the economy (‘what is’)

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23
Q

What does economics investigate?

A

How scarce resources are allocated to provide for unlimited human wants

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24
Q

Why is Ceteris Paribus needed?

A

Because economists cannot test models in scientifically controlled laboratory conditions

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25
Q

What word should you use instead of an opinion, in a Normative statement?

A

Value judgement

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26
Q

Which is a scientific approach, positive or Normative?

A

Positive

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27
Q

Which is Non-Scientific approach, Positive or Normative?

A

Normative

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28
Q

What is the role of Value Judgements in Economic decision making for consumers?

A

Cautious individuals may prefer to save more income in a savings account rather than spending on consumer goods

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29
Q

What is the role of Value Judgements in Economic decision making for producers?

A
  • Producers are prone to taking high risks and may prefer to spend savings on developing new goods rather than having a safety net anticipating future events.
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30
Q

What is the role of Value Judgements in Economic decision making for Governments Policy making?

A

Preference in the free market rather than more government intervention in the economy.

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31
Q

What is the economic problem based on?

A

Scarcity

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32
Q

Why is there scarcity in the economy?

A

Because there are insufficient resources to provide for everyone’s wants

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33
Q

Does scarcity occur in all human economies?

A

Yes

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34
Q

Difference between scarcity in poor countries and wealthy countries.

A
  • Poorer countries (face famine, drought, where there is insufficient food or water)
  • Wealthy Countries (not all human wants can be satisfied)
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35
Q

What is meant by Scarcity?

A

There are finite resources compared to infinite human wants, so choices have to be made about how to use those resources.

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36
Q

What kind of crucial decisions have to be made regarding scarcity?

A

What, how and for whom to produce for

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37
Q

Who faces the decisions around scarcity?

A
  • Consumers
  • Producers
  • Government
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38
Q

When a decisions has been made what to use a resource for what arises?

A

Opportunity Cost

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39
Q

What is meant by the term Opportunity Cost ?

A

The value of the next best alternative forgone (given up)

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40
Q

Who mainly experiences opportunity Cost?

A
  • Consumers
  • Producers
  • Government
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41
Q

What is the opportunity cost when thinking about either buying a meal or a T-Shirt but you buy the meal?

A

The opportunity cost is the t shirt

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42
Q

What is meant by Resources?

A
  • Factors of production

- Are inputs used in production of goods and services

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43
Q

What are the factors of production?

A
  • Capital
  • Enterprise
  • Land
  • Labour

C.E.L.L

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44
Q

What is meant by Renewable Resources?

A

Is whose stock level can be replenished over time.

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45
Q

Is it possible for renewable resources to decline over time? Is so why?

A

Renewable resources can decline over time if they are consumed at a faster rate than the environment can replenish them.

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46
Q

What is meant by Non-Renewable Resources?

A

Is one whose who’s stock level decreases over time as it is consumed.

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47
Q

What are some examples of non-renewable resources?

A
  • Fossil Fuels (Coal, Oil & Gas)
48
Q

How is it possible to reduce the rate of decline of non-renewable resources?

A

Through recycling and development of substitutes

49
Q

How does the price rate reduce the consumption of non-renewable resources?

A

Via higher prices

50
Q

What does PPF stand for?

A

Production Possibility Frontier

51
Q

What does a Production Possibility Frontier (PPF) Curve show?

A
  • how much an economy can produce given existing resources

- decisions that an economy faces

52
Q

What cause the PPF curve to shift outwards?

A

An increase in:

  • Capital
  • Enterprise
  • Land
  • Labour
53
Q

What is meant by Consumer goods?

A

Goods that directly provide satisfaction or utility to consumers

54
Q

What is meant by Capital Goods?

A

Are used to produce more consumer goods and services.

55
Q

How can Economic Growth be shown on a PPF Curve?

A

By an outward shift of the Production Possibility Frontier Curve

56
Q

What does it mean of an economy is located at any point on its Production Possibility Frontier Curve?

A

There is an efficient allocation of resources, since none are being wasted.

57
Q

What does it mean if the economy is located within its Production Possibility Frontier?

A

There is inefficient allocation of resources as not all are being used.

58
Q

When you are inside the PPF Curve, inefficient allocation of resources, how do they increase both consumer and capital goods?

A

By utilising employed resources

59
Q

What does the shape of the PPF Curve show?

A

As more of one good is produced, and increasing amount of the other good is forgone, the opportunity cost rises.

60
Q

The shape of the PPF Curve , shows that the more of one good is produced, an increasing amount of the other is forgone, why is this?

A

Not all resources are efficient as other resources in the production of both goods. This effect is called DIMINISHING RETURNS

61
Q

What does an outward shift of the PPF Curve show?

A

Shows economic growth

62
Q

On a PPF Curve, what are the possible factors that could cause economic growth?

A
  • Increase in the quality or quantity of resources
  • expansion of education and government training schemes
  • Increase In Investment
  • Development of new technology
63
Q

What does an inward shift of the PPF Curve show?

A

Indicates a decrease in the potential output of an economy

64
Q

What are the factors which could cause an inward shift of the PPF Curve?

A
  • War
  • Natural Disaster

• Where many resources are destroyed

65
Q

What is meant by Specialisation?

A

Occurs when an individual, a firm, a country concentrated on the production of a limited range of goods and services

66
Q

What are the advantages of Specialisation?

A
  • Increased productivity
  • Increase living standards

Both on a global scale

67
Q

What are the disadvantages of specialisation?

A
  • If Demand falls for a good it will cause structural unemployment
  • a country exporting raw materials will experience resource depletion
  • Price at which goods are sold, eg, exchange rates mean that some countries buy raw materials really cheap from countries with a bad exchange rate
68
Q

What is meant by the Division of Labour?

A

The specialisation of Workers on specific tasks in the production processes

69
Q

Who was the first economist to explain the division of labour?

A

Adam Smith

70
Q

Advantages of the Division of Labour?

A 
- Increased Productivity (Higher output per worker per hour) 
•Which leads to....
- Higher living Standards
- Reduce the Cost per unit output
- Improves Efficiency of resources
71
Q

What are the reasons for increased productivity?

A
  • Worker becoming highly skilled in a task due to repetition
  • No time is wasted in moving from one job to another
  • Capital equipment can be used continuously in production
  • Less time is required to train workers for specific task
  • There is more choice for workers so they can specialise in the job they like the most
72
Q

What will Specialisation do to total production costs for a firm?

A

Increase total production costs

73
Q

Why does Specialisation increase total production costs for a firm?

A

It will increase total output, requiring more materials and machinery

74
Q

What will Specialisation do to the cost per unit of output?

A

Reduces the cost per unit output because workers become more productive.

75
Q

What are the Disadvantages of the Division of Labour?

A
  • Repetition creates boredom, high staff turnover, increase in recruitment and selection costs
  • Breaking tasks down into different ask makes it easier to replace workers with machinery leading to, structural unemployment.
  • Specialisation creates interdependence in production (if one group of worker goes on strike it halts production across the whole industry)
76
Q

What is meant by the term money?

A

Is anything that is generally acceptable in the payments of a good/service or debt

77
Q

Why is it crucial that people confidence in the money used?

A

Because if they don’t then money will lose it’s general acceptability for making transactions, once this happens it is no longer money

78
Q

What are the four functions of money?

A
  • Medium of Exchange
  • Measure of value
  • Store of value
  • Method of differed payment
79
Q

What is meant by ‘Medium of Exchange’ being a function of money?

A

Enables the buying and selling of products making exchange easier.

80
Q

What is meant by ‘Measure of Value’ being a function of Money?

A
  • Enables a value to be placed on products, so they can be sold and bought with ease
  • enables comparisons between values of products
81
Q

What is meant by ‘Store of Value’ being a function of Money?

A
  • Convenient way of storing wealth

Money tends to hold its value as long as inflation is low

82
Q

What is meant by ‘Method is Deferred Payment’ being a Function of Money?

A
  • Enables borrowing and lending
83
Q

What are the 3 different types of economy?

A
  • Free-Market Economy
  • Mixed Economy
  • Centrally Planned Economy
84
Q

Is there government intervention in a free market economy?

A

No

85
Q

What percentage of resources are allocated by the price mechanism In a free market economy?

A

100% all resources are allocated by price mechanism

86
Q

What percentage of resources are allocated by the price mechanism in a Mixed Economy?

A

50% - some resources are allocated by the price mechanism and some by the government

87
Q

What percentage of resources are allocated by the price mechanism in a Centrally Planned Economy?

A

0% - All resources are allocated by the government. No price mechanism

88
Q

What does the majority of the economies comprise of?

A 
Private enterprise (Private Sector)
Public Enterprise (Public Sector)
89
Q

What do mixed economies comprise of?

A 
Private Enterprise (Private Sector)
Public Enterprise (Public Sector)
90
Q

What is meant by the term free market?

A

Is where decisions on what, how and for whom produce are left to the operation of the price mechanism

91
Q

How much government intervention is in a free market economy?

A

Minimum government intervention

92
Q

Advantages of a free market economy.

A
  • Economic Efficiency and Lower Prices
  • Quality of Products
  • Greater Choice
  • Financial Incentives
93
Q

What is the process of competition between firms?

A
  • Competition means that Firms try to keep production costs down in order to seek goods and services at competitive prices (Productive Efficiency)
  • Competition also means that Firms try to produce goods and services that consumers demand (allocative efficiency)
  • This means that the price mechanism will equate consumer demand with producer supply
94
Q

Advantages of a Free Market Economy - What is meant by Economic Efficiency and Lower Prices’?

A
  • Competition means that Firms try to keep production costs down in order to seek goods and services at competitive prices (Productive efficiency)
  • Competition also means that Firms try to produce goods and services that consumers demand (allocative efficiency)
  • Price mechanisms will equate consumer demand with producer supply.
95
Q

Advantages of a Free Market Economy - What is meant by ‘Quality of Products’ ?

A
  • Competition means that Firms continuously try to improve the quality of their products to gain an advantage over their rivals
  • Lots of Consumer power in the market
96
Q

Advantages of a Free Market Economy - What is meant by ‘Greater Choice’?

A
  • Consumer can often choose to buy from a wide selection of goods and services.
  • Workers often have a wide choice of employment opportunities
97
Q

Advantages of a Free Market Economy - What is meant by ‘Financial Incentives’?

A
  • Entrepreneurs have an incentive to invest and take risks in order to earn profit
  • Labour has an incentive to earn more money and work
98
Q

Disadvantages of a Free Market Economy?

A
  • Monopolies May for as a result of competition in some markets (rival firms get taken over or pushed out the market)
  • Distribution of Income is very unequal
  • Lack of Welfare Payments causes absolute poverty
  • External Costs and Benefits on Consumers are often ignored
  • Information gaps (lack of regulations and taxation to protect consumers)
  • Insifficient Supply of public and merit goods
  • Erratic swings in the business cycle
99
Q

What is meant by a Command Economy?

A

Government has control of resources and economic decision making.

100
Q

Is there the role of the price mechanism in a Command Economy?

A

No

101
Q

When does a command economy work well?

A

In a national crisis (used effectively in WW2)

102
Q

What is jeopardised in a Command Economy?

A

Personal Freedom & Living Standards

103
Q

Advantages of a Command Economy?

A
  • Cooperation of firms can lead to high levels of out (leading to high levels of profits)
  • Reduction In Inequality compared to Free Markets, because the government controls workers wages
  • Government can limit the External costs of production and consumption.
  • Government can fund the provision of public goods, also increase the provision of public goods that yield high External benefits to society
  • Government has more control of the economy so there are smaller swings in the business cycle
104
Q

Disadvantages of Command Economy?

A
  • Price mechanism is unable to operate so Market May suffer from excess demand and excess supply, leading to an inefficient allocation of resources
  • Lack of Competition between firms means that productivity is low
  • Lack of Competition leads to poor quality products, goal for business is output not profits
  • Less choice of goods and services for consumers to choose from
105
Q

What is meant by a ‘Mixed Economy’?

A

On what, how and for whom to produce are made partly by the private sector and partly by the government.

106
Q

What are some examples of a Mixed Economy?

A

UK, France, Germany

107
Q

What is the reason for a Mixed Economy?

A

To gain the advantages of a market economy whilst avoiding its disadvantages through government intervention

108
Q

In a Mixed Economy why is there government intervention?

A

Occurs to correct market failure

109
Q

Examples of market failure?

A
  • Under-provision of merit goods such as education and healthcare
  • Non-provision is public goods such as defence
110
Q

Why is there Government Intervention in Markets?

A

To help Markets work more effectively

111
Q

As resources are 1-[………], there is an 2-[…………..] in producing a good or service, since the resources could have been used to produce alternative goods or services.

A

1-Finite

2-Opportunity Cost

112
Q

[……….] Economic Statements are facts which can be tested as true or false.

A

Positive

113
Q

[………] Economic Statements are valued judgements which cannot be tested as true or false

A

Normative

114
Q

The production possibility frontier illustrates the concepts of 1-[…………] and 2-[………….]. It can also show unemployment and economic growth

A

1-Finite Resources

2-Opportunity Cost

115
Q

1-[…………] and the 2-[…………….] have led to huge increases in productivity

A

1-Specialisation

2-Division of labour

116
Q

A Money has four function what are they?

A
  • A medium of exchange
  • A measure of value
  • A Store of Value
  • Method is deferred payment
117
Q

[…………] is anything that is generally acceptable in the Payment of goods and services, or debts.

A

Money

Economics - Micro (32 decks)

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