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AQA Economics > 1 - Economic Methodology > Flashcards

1 - Economic Methodology Flashcards

1
Q

Economics?

A

A social science due to looking at the behaviour of humans either as individuals / part of organisations and their use of scarce resources

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2
Q

Methodology used by Economists

A
  • develop theories + create economic models to explain phenomena
  • use simplifying assumptions to limit the no. of variables in an investigation
  • test theories + models against relevant known facts
  • use empirical data to improve + revise their models
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3
Q

SIMILARITIES

from natural and other sciences

A
  • observation of human behaviour
  • develop hypothesis from observation
  • predictions deducted from hypothesis
  • prediction tested against evidence
  • hypothesis changed if rejected
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4
Q

DIFFERENCES

from natural and other sciences

A
  • social sciences ‘softer’ than natural
  • economics theories - contain no. Of exceptions to original prediction
  • critics view it as generalisations
  • economists tend to focus on positive economics
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5
Q

Economic statements?

A

POSITIVE

  • objective statements that can be tested by referring to the available evidence with suitable data collected over a period of time
  • you’ll be able to tell if it’s T or F

NORMATIVE

  • subjective statements which contain a value judgement
  • it’s not possible to say whether it’s true or not, you agree/disagree
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6
Q

Needs?

A

Something necessary for human survival

E.g. food

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7
Q

Factors of production?

CELL

A

CAPITAL

  • equipment that help produce goods/services

ENTERPRISE

  • refers to people who take risks and create things from the 3 other factors

LAND

  • non-renewable + renewable

LABOUR

  • work done by people who contribute to production
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8
Q

Economic agents?

A

PRODUCERS

  • firms/people who make goods/services

CONSUMERS

  • firms/people who buy goods/services

GOVERNMENTS

  • sets the rules that other participants in the economy have to follow
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9
Q

What do economic agents think about?

3 questions

A

WHAT TO PRODUCE?

  • goods that are profitable

HOW TO PRODUCE IT?

  • most efficient way to maximise profits

WHO TO PRODUCE IT FOR?

  • willing consumers
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10
Q

Goods and Services?

A

GOODS

  • physical products that are tangible

SERVICES

  • intangible products
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11
Q

Wants?

A

Something desirable but not necessary

E.g. fashionable clothing

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12
Q

Consumption?

A

Form of economic activity when you consume something

  • you’re trying to satisfy a need/want
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13
Q

Trade off?

A

When you have to choose between conflicting objectives as they’re unachievable at the same time

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14
Q

Production possibility curve

PPC

A

A diagram that shows the options available when you consider the production of 2 types of goods/sevices

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15
Q

PPC graphs

A

(Image)

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16
Q

Opportunity cost?

A

The cost of giving up the next best alternative

  • you have to make a choice
17
Q

Problems with Opportunity Cost

A
  • not all alternatives are known
  • some factors don’t have an alternative use
  • lack on info on alternatives and their costs
  • some factors (land) can be hard to switch to an alternative use
18
Q

Productive efficiency?

A

FOR A FIRM

  • occurs when the average cost of production is minimised

FOR ECONOMY AS A WHOLE

  • occurs when it’s impossible to produce more of one good without producing less of another
19
Q

Allocative efficiency?

A

Occurs when the available economic resources are used to produce the combination of goods/services that best matches peoples preferences

20
Q

Markets + Economies?

A

A way of allocating resources

  • doesn’t have to be a place or exchanging physical objects
21
Q

Free market?

A

Allocates resources based on supply and demand and price mechanism

22
Q

PROs of a Free Market Economy

A

EFFICIENCY

  • as any product can be bought/sold, only those of the best value will be in demand
  • so firms have an incentive to try to make goods in the most efficient way

ENTREPRENEURSHIP

  • the rewards for good ideas make them money, which encourages risks + innovation

CHOICE

  • innovation leads to more choice for consumers
  • consumers are not restricted to only buying what the government recommends
23
Q

CONs of a Free Market Economy

A

INEQUALITIES

  • market economies lead to differences in income
  • in a completely free market, those unable to work get no income

MONOPOLIES

  • successful businesses can become the only supplier of a product
  • market dominance is abused

NON-PROFITABLE GOODS MAY NOT BE MADE

  • drugs treating conditions may not sell enough so it won’t be made
24
Q

Planned economy?

A

The government decides how resources should be allocated

25
Q

PROs of a Planned Economy

A

MAXIMISE WELFARE

  • they have more control so they prevent inequality + distribute equally

LOW UNEMPLOYMENT

  • they try providing jobs/salaries

PREVENT MONOPOLIES

  • market dominance prevented
26
Q

CONs of a Planned Economy

A

RESTRICTED CHOICE

  • firms make what they’re told to so consumers have to buy those goods/services

POOR DECISION MAKING

  • lack of info means they make poor decisions about the production of goods

LACK OF RISKS + EFFICIENCY

  • government-owned firms have no incentive to increase efficiency / take risks / innovate as they don’t need to make profit
27
Q

Mixed economy?

A

PUBLIC SECTOR

  • government

PRIVATE SECTOR

  • businesses / individuals
  • usually have to break even or make a profit to survive
28
Q

Behavioural economics?

A

KEY ASSUMPTIONS IN THE TRADITIONAL THEORY

  • economic agents are rational and utility maximisers

BEHAVIOURAL ECONOMISTS challenge it ☝🏽

  • they look at social / psychological / emotional factors on decision making to make more realistic predictions about decisions made by individuals
29
Q

Rationality is used to explain the actions of Economic Agents

A
  • it’s assumed that a rational individual will attempt to maximise their utility, they do this by comparing the costs/benefits of alternatives then choosing the option that maximises their net utility
  • acting rationally requires all info needed to correctly choose between alternatives
  • in real life, eco. agents have imperfect info, therefore leads them to market failure
  • asymmetric info prevents rationality

occurs when 1 party has more info than the other in a transaction

30
Q

Why consumers DONT act rationally

A
  • limited time to make a decision
  • not all info available + the info available may be incorrect
  • people are unable to process/evaluate high amounts of data in making a decision
31
Q

Rational individual?

A

Assumed to have total self-control and will only act to maximise their utility

Behavioural economists argue that individuals have limits on their self-control

they have ‘bound self-control’

32
Q

Behavioural economists believe that individuals are influenced by biases which affect their decision making, for example:

A

RULES OF THUMB

  • simple tools that help an individual make a decision

ANCHORING

  • means placing too much emphasis on one piece of info

AVAILABILITY BIAS

  • judgements made about the probability of events occurring based on how it is easily remembered

SOCIAL NORMS

  • individuals behaviour can be influenced by the behaviour of their social group

HABITUAL BEHAVIOUR

  • doing the same thing over and over again
33
Q

Governments can use the behavioural economic theory to help them create policies

A

Choice architecture

  • when an individuals choice is influenced by adapting the way the choice is presented

Done in a number of ways:

DEFAULT OPTIONS

  • people use this, so this can be used to encourage individuals to act a certain way

FRAMING

  • context in which info is presented can influence a decision

NUDGES

  • some alternatives are made easier to choose than others without removing the freedom of choice

RESTRICTED CHOICE

  • people’s choices are restricted

MANDATED CHOICES

  • people have to make a decision

AQA Economics (5 decks)

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