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Economics AS > 1.1 > Flashcards

1.1 Flashcards

1
Q

What is the Economic Problem ?

A
  • The basic problem of economics is that of scarcity. People have infinite wants but there are finite resources available
  • Scarcity is a relative concept as resources are not necessarily scarce but they are scarce in relation to the demands placed upon them
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2
Q

Who are the economic agents ?

A
  • Economic agents are groups that participate in the economy
  • Producers/firms create goods and services.
  • Consumers buy goods and services made by firms, both individuals and firms can be consumers
  • The government sets the rules that other economic agents must follow
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3
Q

What are the Factors of Production ?

A
  • Capital - refers to all man made resources that are used to produce goods or services in the future
  • Enterprise - Is the willingness and ability to take risks in order to make a product or service
  • Labour - Is all productive human effort
  • Land - Is all the natural resources used in the production
  • CELL
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4
Q

What is Opportunity Cost ?

A
  • Opportunity cost is the cost of giving up one thing for the next best alternative
  • It is the value of the next best alternative forgone
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5
Q

What are renewable resources ?

A

A renewable resource is one that can be replenished, so their stock level can be maintained over a long period of time E.g. Solar Power

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6
Q

What are non renewable resources ?

A

Non renewable resources can not be renewed. The stock level of the resource decreases over time. E.g. Oil and Natural gas

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7
Q

How can non renewable resources be managed ?

A

They can be managed by limiting/preventing deforestation etc

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8
Q

Why do economists use models ?

A
  • Economists use models because they can not conduct scientific experiments
  • Models can be used to predict the impact of economic change
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9
Q

What are the two basic models in economics ?

A
  • Theoretical models which are based on theory and not data

- Empirical models which are based on data and not theory

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10
Q

What is Ceteris Paribus ?

A

Ceteris Paribus is an assumption made by economists, it means ‘assuming other variables remain constant’

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11
Q

Why do economists use Ceteris Paribus when building models ?

A
  • We can not control external variables so we assume ceteris paribus
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12
Q

What is a capital good ?

A

Capital goods are goods that are produced in order to produce other goods

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13
Q

What is a consumer good ?

A

A consumer good is a good that is bought to satisfy wants and needs

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14
Q

What is a PPF ?

A
  • A Production Possibility Frontier shows the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology.
  • Simply, it shows how much of two goods you can make with the given resources and technology
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15
Q

What does a movement along the PPF curve mean ?

A

Indicates a change in the combination of goods produced : e.g. more consumer goods and less capital goods.

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16
Q

What does a shift of the PPF curve mean ?

A

A shift of the curve indicates a change in the productive potential of the economy

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17
Q

How is Economic Growth portrayed on a PPF ?

A

An outward shift on a PPF

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18
Q

How causes an outward shift on a PPF ?

A
  • An increase in the quantity and quality of the factors of production (Q2CELL)
  • Innovation and invention of new products and resources
  • Better management of factor inputs
  • Discovery of new natural resources
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19
Q

How is Negative Economic Growth portrayed on a PPF ?

A

An inward shift on a PPF

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20
Q

What causes an inward shift on a PPF ?

A
  • High unemployment
  • Natural disasters
  • Conflict
  • long term fall in productivity of labour
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21
Q

What are Positive Statements?

A
  • They are objective.
  • They are statements that or based on data which are not influenced by opinion.
  • They can be tested.
22
Q

What are Normative Statements ?

A
  • They are subjective statements that are based on opinion rather than fact.
  • They carry value judgement
23
Q

What is a Value Judgement ?

A
  • A value judgement is an evaluative statement of how good or bad you think an idea or action is.
  • Value judgements can influence economic decision making and policy.
24
Q

What type of statements are value judgements ?

A

Normative statements

25
Q

What is productivity ?

A
  • Productivity is the effectiveness of productive effort

- Output produced / total inputs used

26
Q

What does increased productivity lead to ?

A
  • Higher quality of output

- More efficient use of resources

27
Q

What is Specialisation ?

A

Specialisation is when we concentrate our resources on a specific task or product.

28
Q

What are the benefits of specialisation ?

A
  • Higher Output : Production is raised and quality can be improved.
  • Consumer sovereignty : Larger range of goods and services produced
  • A bigger market : Trade and growth
  • Economies of scale : An increase in the size of the market leads to a lower unit cost
29
Q

What are the disadvantages of specialisation ?

A
  • Makes a firm vulnerable to a change in global demand
    • Resources are finite, what if that resource runs out ?
    • National interdependence, what happens if there is war or turmoil ?
30
Q

What is division of labour ?

A

The division of labour occurs where the production process is broken down into many separate tasks

31
Q

What are the benefits of the division of labour ?

A
  • Can raise productivity as people become more proficient.
  • Workers feel valued
  • This then helps to lower the supply cost per unit, Cost effective
  • Saves time when work is split into production lines
  • Consumers benefit via lower prices
32
Q

What are the disadvantages of division of labour ?

A
  • Repetitive work can lower motivation and in turn lower productivity
  • Workers would take less pride, quality of good will suffer
  • Expensive to train all the workers
33
Q

What is the relationship between division of labour and specialisation ?

A

When division of labour occurs, work has been specialised in that field of production ; and the whole production process happens more efficiently

34
Q

Who came up with these two ideologies ?

A
  • Adam Smith
    • He showed how through the division of labour worker productivity can increase and firms can then take advantage of increased efficiency and decreased costs of production
35
Q

What are the main functions of money ?

A
  • A medium of exchange
  • A store of value, an asset
  • A unit of account, used to value assets
  • A standard of deferred payment
36
Q

What are the main characteristics of money ?

A
  • Durability
  • Portable
  • Divisible
  • Hard to counterfeit
  • Accepted
  • Valuable
37
Q

What is a Free market economy ?

A
  • Resources are allocated solely by the price mechanism, based on supply and demand.
  • There is a limited role for the government
38
Q

What are the advantages of a free market economy ?

A
  • More efficient, due to higher demand from the customers, firms are likely to lower prices and make more efficient use of resources
  • Consumer sovereignty, they have choice
  • Economies of scale arise
  • There is more personal and political freedom
39
Q

What are its disadvantages (Free market) ?

A
  • Can lead to monopolies
  • Can lead to a rise in income and wealth inequality
  • Under provision of merit goods
  • Little control of demerit goods
40
Q

What is the profit motive ?

A

The incentive to make profit, minimising costs and maximising revenue.

41
Q

What is competition ?

A

In a market, firms have to meet consumer wants and needs otherwise the consumers may switch to the competitors

42
Q

What do the profit motive and competition lead to ?

A
  • Cost effective production
  • More choice for consumers
  • Quality and innovation are higher
43
Q

What is a Mixed market economy ?

A

In a mixed market economy , some resources are owned by the public sector and some are owned by the public sector.

44
Q

What is the role of state in a mixed economy ?

A
  • Creating a framework of rules
  • Supplements and modifies the price system
  • Stabilises the economy
  • Redistributes income
45
Q

What is a Command economy ?

A
  • An economy in which the government determines what goods should be produced, how much should be produced and the price at which it will be sold.
  • Everyone receives the same wage regardless of their job
46
Q

What are the advantages of a command economy ?

A
  • Prevents mass unemployment
  • Everyone has basic necessities
  • Less wastage of resources
  • Merit goods are encouraged and demerit goods are rare
47
Q

What are the disadvantages of a command economy ?

A
  • Less motivation and efficiency
  • Consumers lose their freedom
  • Less choice, innovation and lower quality due to the absence of the profit motive and competition
  • State can not make all the right decisions, may lead to a waste of resources
48
Q

What are the objectives of a command economy ?

A

Consumers, workers and the government are all assumed to be working for the common good

49
Q

Who was Adam Smith ?

A

Adam Smith wrote about the invisible hand of resource allocation, and the role of self interest, in an early reference to free-market economies. Smith is regarded as the founder of free market (laissez-faire) economics, despite recognising the need for some government intervention.

50
Q

Who was Friedrich Hayek ?

A
  • Hayek disagreed with Adam Smith, he argued that the intervention in money markets was one of the main causes of economic instability.
  • Hayek argued really strongly against command economies, noting that a small group of individuals would be entirely responsible for determining the allocation and distribution of resources ; in his view, it would be completely impossible for them to ever have enough information to do this properly and meet peoples needs.
51
Q

Who was Karl Marx ?

A
  • Marx developed on Smiths ideas on capitalism, but mostly considered the negative consequences. He thought that the impact on labourers would be massive and detrimental.
  • Marx believed that the drive for profit by business owners would push worker wages to low levels and they would be exploited.
  • Ultimately, he said that exploited workers would work together and overthrow capitalism in a revolution.

Economics AS (11 decks)

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