1.1 Flashcards
(42 cards)
Why do economists develop models, how is it done, what happens next?
To explain how the economy works e.g- theories of supply and demand
Model is put forward, evidence is gathered, it is then accepted changed or rejected
Why are assumptions made
Too many variables which can change an economic model
What is ceteris paribus
All other things remain equal
What is a positive statement
A statement which is objective, made without any value judgment or emotions
Can be tested or proven
What is a normative statement
Subjective, based on opinions so cannot be proven or disproven
What is the role of value judgments
Different economists may make different judgments from the same statistic therefore is can influence economic decision making
What is the problem of scarcity
People have finite needs but infinite wants. People have infinite wants but resources are limited
How do economies try to solve the problem of scarcity
Working out what to produce, whom to produce for and how to produce
What is an opportunity cost
The next best alternative forgone
What are the 4 factors of production and what is recieved
CELL
Capital - owners receive interest
Enterprise - owners receive profits
Land - owners receive rent
Labour - labourers receive wage
What does the PPF show
Maximum possible combination of capital and consumer goods that the economy can produce with its current resources and technology
Why is it difficult to make scientific experiments in economics
Economics is a social science, therefore it is difficult to set up experiments to set up hypothesis, this is because economists gather data in the everyday world where variables keep changing
Who are the 3 economic agents
Consumers, producers, government
How is opportunity cost important to consumers
Consumers will make choices on how to use their limited income based on what brings them the greatest level of satisfaction
How is opportunity cost important to producers
Producers must choose what to do with their limited resources and their decisions will be based on profit
How is opportunity cost important to the government
Government must make decisions on where they should spend their limited tax revenues based on what will maximize social welfare.
What part of the PPF represents the maximum productive potential of the economy
Any point on the curve
what does it mean if a point is within the curve but not maximising output
inefficient allocation of resources
What does it mean when the curve on the PPF shifts to the right, how is it caused
Economic growth,
quantity, quality of resources increased
e.g
Higher productivity
Better management
Increase in stock of capital and Labour
Innovation and invention
Discovery of land
What does it mean if the curve on the PPF shifts to the left, how is it caused
Economic decline
Natural disasters
Natural resources running out
Quality and quantity of Labour- war, migration, depression
What does it mean if there is a fall in capital goods but no change in consumer goods n in PPF
fall in efficiency or a change in resources that only affects capital good manufacture
What does it mean if there is an increase in ability to produced consumer goods but no change in capital goods on PPF
Improvement in tech that makes production of consumer goods more efficient
What does a movement along a curve indicate compared to a shift of the curve on the PPF
Movement-change in combination of goods produced with the same allocation of resources
Shift-change in productive potential of the economy/change in number of resources
difference between capital and consumer goods
consumer- goods demanded and bought by household individuals
capital- help aid production of consumer goods