1.1 Flashcards
Economics as a social science
Economics is a social science, which means it is concerned with the study of human behaviour. It investigates how scarce resources are allocated to provide for unlimited human wants.
Ceteris paribus
Is an assumption that means all other things equal. Such as control variables.
Positive economics
A positive statement is based off facts that can be tested to be proven true or false.
Normative Economics
A normative statement based on value judgements which cannot be tested as true or false.
Economic problem
Scarcity. There are finite resources and infinite human wants.
Opportunity cost
The value of the next best alternative.
Renewable resource
A resource whose stock level can be replenished naturally over a period of time
Non renewable
A resource whose stock level decreases over time as it is consumed.
Consumer goods
A good such as a chocolate bar that is wanted for the satisfaction it gives.
Capital good
A good used to produce consumer goods or services such as a machine that is wanted for the goods it can produce.
Production possibility frontier
The maximum potential output of a combination of goods
an economy can achieve when all its resources are fully and efficiently employed.
Specialisation
When an individual, firm, region or country concentrates on the production of a limited range of goods and services.
Division of Labour
The specialisation of workers on individual tasks in the production process to increase efficiency
Money
Anything that is generally acceptable in the payment of a good or service, or of a debt.
Functions of money
Medium of exchange. It enables the buying and selling of products, making
exchange easier. Money eliminates the need for barter.
Measure of value. It enables a value to be placed on products so they can be bought
and sold with ease. Money creates a unit of measure that enables comparisons
between the relative values of products.
Store of value. It is a convenient way of storing wealth so that it can be spent at a
later date. Money will tend to hold its value in the short term as long as inflation
remains low.
Method of deferred payment. It enables borrowing and lending. This means someone
can borrow money in order to buy a product rather than waiting until enough funds have been saved. A price is usually set for borrowing and lending — this is known as the rate of interest.
