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Economics Theme 1 > 1.1 > Flashcards

1.1 Flashcards

1
Q

What is thinking like an economist?

A

Process of developing models in econ, inc need to make assumptions, use of ceteris paribus

Thinking like an economist involves the process of developing models in economics, which includes the need to make assumptions and the use of ceteris paribus.

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2
Q

What is ceteris paribus?

A

‘Other things being equal’

Mean that when the effect of a change in one variable is considered, its assumed that all other valuables stay the same.

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3
Q

What assumptions do you have to make with ceteris paribus?

A

Have to make assumptions that outside things don’t work change

Have to make assumptions that outside things don’t work change

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4
Q

What are positive statements?

A

Objective statements that can be tested, amended or rejected by referring to the available evidence.

words included: what was, is, will be.
uses data eg GDP ect

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5
Q

What are normative statements?

A

They are Subjective statements based on value judgements and can’t be proved/disproved

Uses opinion phrases: should, must etc. Relate to what might be good/bad unfair/fair

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6
Q

What are economists interested in when it comes to economic decision making?

A

Economists are interested in both positive and normative statements

Decision makers can make a normative statement which is based on positive statements

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7
Q

Why does scarcity exist

A

because recourses are finite whereas wants are infinite

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8
Q

what is a renewable source

A

Something that replenishes itself

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9
Q

what is a non-renewable source

A

something that can be depleted

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10
Q

what is opportunity cost

A

the next best alternative that is foregone when a choice is made

(not ab money, but perhaps what the could’ve been used for)

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11
Q

what are free goods

A

unlimited in supply e.g sunlight

-opportunity cost of consuming free goods is 0

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12
Q

what are economic goods

A

created from resources limited in supply -so they command a price

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13
Q

What to produce & how much?

A

relates to the different types a goods/services, the economy should produce and how much of each

Example: A country may choose to produce more consumer goods than capital goods.

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14
Q

How should the goods / services be produced ?

A

Production may be labour intensive—> high proportion of labour used relative to capital OR capital intensive —> high proportion of capital relative to labour

Example: Some industries, like agriculture, are more labor-intensive, while others, like technology, are more capital-intensive.

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15
Q

How should the goods be allocated ?

A

concerned with the distribution of goods produced and will affect the degree of equality in society

Example: The way goods are allocated can impact income inequality within a society.

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16
Q

what is the acronym for the factors of production

A

Capital
Enterprise
Labour
Land

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17
Q

what does a PPF show

A

the max potential output of 2 goods when resources are fully and efficiently allocated

18
Q

what can a PFF illustrate

A

opportunity cost
efficiency
economic growth

19
Q

what do the points on a PPF graph mean

A

AB (on the curve)implies all resources are fully and efficiently employed —>all points show the max productive potential of an economy and that resources are used efficiently
A (top of curve) produces max but producing more capital than consumer
B(bottom of curve) producing max but producing more consumer than capital

D(inside the curve) indicates that there’s unemployed resources in the economy and resources aren’t being allocated effortlessly e.g workers unemployed or machinery unused

C (outside curve) unachievable (not enough resources)

20
Q

Which way would the curve move if there was economic growth

A

rightward shift

21
Q

which way would the curve move if there was economic decline

A

leftward shift

22
Q

why would there be a movement along a PPF

A

changes in the combination of the two goods being produced e.g capital goods and consumer goods

—> might occur if economy devoted more resources to production of capital goods and fewer to the production of consumer goods —> involve opportunity cost

23
Q

what is marginal analysis

A

is concerned with the impact of additions or subtractions from the current situation

the rational decision maker will only decide on an option if the marginal benefit exceeds the marginal cost

24
Q

why does PPF concave

A

as one more good is produced, an inc amount of the other is foregone - OC is rising marginal cost

this is bc not all resources are as efficient as others in the production of both goods

25
Q

factors causing outwards shift in PPF

A
  • discovery of new natural resources
  • development of new methods of production which inc productivity
  • advances in tech
    -improvements in education and training—> inc the productivity of workforce
  • factors which inc workforce e.g immigration
26
Q

factors causing inwards shift of PPF

A
  • natural disasters
  • depletion of natural resources
  • factors causing reduction in workforce e.g emigration
  • deep recession that results in loss of productivity capacity with factories closing down
27
Q

points with possible and unattainable production (PPF)

A

any points inside or on the PPF represent combinations of the the two products which are obtainable

however, any points on the right side of PPF would be currently unattainable—> only become obtainable through economic growth

28
Q

what is division of labour

A

when the work is broken down into different tasks and labour is allocated to each task

29
Q

advantages of division of labour

A

efficient production
—> workers don’t have to waste time going to different stations

workers become more skilled
—> production is quicker

cheaper training costs
—>only one area to train

more variety for worker

more specialist machinery

30
Q

disadvantages of division of labour

A

boredom due to repetition
—> dec in productivity

workers missing = production stops

workers could be replaced with machinery

loss of skills
—> workers only trained in one area- have limited skills

31
Q

disadvantages of division of labour

A

• Boredom due to repetition
→ decrease in productivity
• if workers are missing, production stops
• workers could be replaced easily with machinery
• Loss of skills
workers trained in one area and have limited skills

32
Q

what is specialisation and a disadvantage of it

A

when an individial, firm or region specialises in the poduction of a limited range of goods and services
-leads to inc in productivity
- disadvantages:
if demand changes it can lead to unemployment and a fall in living standard

33
Q

What is an advantage of Specialisation of trade (counties wise)

A

Benefit from increased output, greater choice and lower prices if it trades for products it doesn’t produce.

34
Q

What are some disadvantages of specialisation of trade (countries wise)

A

-The country can become overly dependent on imported goods

  • If its goods are uncompetitive = unemployment —> country’s value of imports may exceed value of exports
35
Q

Why do we have money

A
  • Medium of exchange
  • measure of value
    -Store of value (save for big payments)
    -method of deferred payment
36
Q

What is money

A

Anything that is generally acceptable in the payment of a good/service

37
Q

What are the forms of money in the modern economy

A

-Cash - no intrinsic value, government reinforces it as legal tender
-Near monies- assets like ISA’s
-Non money financial assets e.g shares
- Money substitutes- change/ store cards & credit cards instant spending not based on money

38
Q

Who thought of division of labour

A

Adam Smith

39
Q

Limits to division of labour

A

-size of market
—> small market= difficult to specialise

  • Type of product
    —>e.g designer products are unique & not suitable for division of labour
  • Transport costs
    —> of high. then large scale products and the Division of labour maybe not be positive
40
Q

Who thought of the free market

A

Adam Smith

41
Q

Why does Adam Smith think the free market is a good idea

A

When people follow their self interest, they indirectly promote the good of society
—> FM econ would result in an ordered market with products responding to changes in consumer wants with little waste

-believed role of government should be limited to providing goods like defense and justice

42
Q

Characteristics of the Free Market

A

-Private ownership of resources
-Market forces e.g supply and demand determine prices
-Producers aim to maximise profits
-Consumers aim to maximise satisfaction/utility
-Resources are allocated by prices mechanism

Economics Theme 1 (1 decks)

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