1.1 Flashcards

(42 cards)

1
Q

Why do economists develop models, how is it done, what happens next?

A

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

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2
Q

Why are assumptions made

A

Too many variables which can change an economic model

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3
Q

What is ceteris paribus

A

All other things remain equal

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4
Q

What is a positive statement

A

A statement which is objective, made without any value judgment or emotions

Can be tested or proven

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5
Q

What is a normative statement

A

Subjective, based on opinions so cannot be proven or disproven

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6
Q

What is the role of value judgments

A

Different economists may make different judgments from the same statistic therefore is can influence economic decision making

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7
Q

What is the problem of scarcity

A

People have finite needs but infinite wants. People have infinite wants but resources are limited

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8
Q

How do economies try to solve the problem of scarcity

A

Working out what to produce, whom to produce for and how to produce

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9
Q

What is an opportunity cost

A

The next best alternative forgone

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10
Q

What are the 4 factors of production and what is recieved

A

CELL

Capital - owners receive interest
Enterprise - owners receive profits
Land - owners receive rent
Labour - labourers receive wage

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11
Q

What does the PPF show

A

Maximum possible combination of capital and consumer goods that the economy can produce with its current resources and technology

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12
Q

Why is it difficult to make scientific experiments in economics

A

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

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13
Q

Who are the 3 economic agents

A

Consumers, producers, government

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14
Q

How is opportunity cost important to consumers

A

Consumers will make choices on how to use their limited income based on what brings them the greatest level of satisfaction

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15
Q

How is opportunity cost important to producers

A

Producers must choose what to do with their limited resources and their decisions will be based on profit

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16
Q

How is opportunity cost important to the government

A

Government must make decisions on where they should spend their limited tax revenues based on what will maximize social welfare.

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17
Q

What part of the PPF represents the maximum productive potential of the economy

A

Any point on the curve

18
Q

what does it mean if a point is within the curve but not maximising output

A

inefficient allocation of resources

19
Q

What does it mean when the curve on the PPF shifts to the right, how is it caused

A

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

20
Q

What does it mean if the curve on the PPF shifts to the left, how is it caused

A

Economic decline

Natural disasters

Natural resources running out

Quality and quantity of Labour- war, migration, depression

21
Q

What does it mean if there is a fall in capital goods but no change in consumer goods n in PPF

A

fall in efficiency or a change in resources that only affects capital good manufacture

22
Q

What does it mean if there is an increase in ability to produced consumer goods but no change in capital goods on PPF

A

Improvement in tech that makes production of consumer goods more efficient

23
Q

What does a movement along a curve indicate compared to a shift of the curve on the PPF

A

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

24
Q

difference between capital and consumer goods

A

consumer- goods demanded and bought by household individuals

capital- help aid production of consumer goods

25
What is specialization
The process of focusing on a specific task or area of production
26
What is division of Labour
When Labour becomes specialized in a particular part of the production process
27
Adam smith in specialization and division of labour
showed how it can increase labour productivity allowing firms to increase efficiency and decrease cost of production. visited factory and observed pin making process
28
Advantages of specialization and division of Labour in organizing production
Labour productivity will increase - quicker and better workers due to concentration on one thing, therefore higher quality of work - more skilled Time is not wasted moving between jobs or getting out tools Trained to do one specific task - cost effective cost effective to develop specialist tools
29
Disadvantages of Specialisation and division of Labour in organizing production
Work may get boring-poor quality of work- leave business (play music can be a solution) reduction of craftsmanship due to mechanisation If workers lose jobs, may be hard to find new ones if they are trained in one skill no wide industrial training therefore suffer from structural unemployment
30
Advantages of specialization in production of goods and services to trade
Comparative advantage- countries should specialize in producing goods where they have a lower opportunity cost so they are best at producing. So economy will boost - greater output globally
31
Disadvantages in specialization in production of goods and services to trade
Countries may become over depended on one export- economy may collapse if fail Countries may specialize in non renewable resources which could run out High interdependence, could be problematic if trade is prevented
32
What are the functions of money
A medium of exchange - as barters was only applicable with double coincidence of wants. But money can be used to buy all goods and services A measure of value - compare value of 2 goods Store of value- can keep value compared to barters where goods like fruits lost value if expired A method of deferred payment- buy now pay later
33
What is a free market economy
Where governments leave markers to their own devices, so the market force of supply and demand allocate scarce resources
34
Friedrich Hayek blurt
Argued state control of economy leads to loss of freedom Believed that individuals know what they need in their own situation
35
Advantages of free market economy
System is automatic due to the invisible hand - resources are moved out of a production of a good when people stop wanting it or costs are too high Consumers have freedom of choice High motivation - working hard can lead to high potential rewards Firms will produce goods at the lowest cost they can - productive efficiency
36
Disadvantages of the free market economy
High levels of inequality May be lack of merit goods and limited control of demerit goods Resources could be wasted on unproductive expenses such as advertising
37
What is the command economy
All factors of production is owned by the state and Labour is directed by the state. There is no private property and everyone working is assumed to be working for a common good.
38
Karl Marx blurt
Believed in the command economy and criticized capitalism Capitalists profit came from exploited Labour as they underpaid workers for the value they created.
39
Advantages of the command economy
Easier to coordinate resources in times of crisis Government can compensate for market failure Inequality reduces welfare may be maximized Monopoly power can be prevented
40
Disadvantages of the command economy
Consumer preferences may not be met Limits personal freedom Governments fail, may not be fully informed on what to produce
41
What is the mixed economy
Market is controlled by the government and forces of supply and demand
42
What is the governments role in a mixed economy
Create framework of rules -e.g-property rights Supplements and modified the price system-produce pubic and merit foods and limit demerit goods Redistributes income-take money from rich and give it to poor- income tax Stabilize Economy-fiscal and monetary policy