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Microeconomics > 1.1 > Flashcards

1.1 Flashcards

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 cost of one thing in terms of the next best option which has been given up

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10
Q

What are the 4 factors of production

A

CELL

Capital
Enterprise
Land
Labour

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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,

Higher productivity - increased output per unit of input used in production

Better management-reduces waste, improves quality

Increase in stock of capital and Labour

Innovation and invention

Discovery of land

Increasing quantity and quality of factors of production

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

What is specialization

A

The production of a limited range of goods by a company/country/individual which means that trade is essential as it is the only way they are able to access all that they need

25
Q

What is division of Labour

A

When Labour becomes specialized in a particular part of the production process

26
Q

Blurt Adam smith

A

Developed ideas of specialization and division of Labour and showed how it can increase Labour productivity based on observations in a pin factory

Free market economy, invisible hand which allocated resources to everyone’s advantage

Competition lowers prices as firms want to be competitive which benefits consumers

Argued state needed to provide things the free market economy wouldn’t have e,g laws and property rights

27
Q

Advantages of specialization and division of Labour in organizing production

A

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

28
Q

Disadvantages of Specialisation and division of Labour in organizing production

A

Work may get boring-poor quality of work- leave business (play music can be a solution)

If workers lose jobs, may be hard to find new ones if they are trained in one skill

29
Q

Advantages of specialization in production of goods and services to trade

A

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

30
Q

Disadvantages in specialization in production of goods and services to trade

A

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

31
Q

What are the functions of money

A

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

32
Q

What is a free market economy

A

Where governments leave markers to their own devices, so the market force of supply and demand allocate scarce resources

33
Q

Friedrich Hayek blurt

A

Argued state control of economy leads to loss of freedom

Believed that individuals know what they need in their own situation

34
Q

Advantages of free market economy

A

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

35
Q

Disadvantages of the free market economy

A

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

36
Q

What is the command economy

A

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.

37
Q

Karl Marx blurt

A

Believed in the command economy and criticized capitalism

Capitalists profit came from exploited Labour as they underpaid workers for the value they created.

38
Q

Advantages of the command economy

A

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

39
Q

Disadvantages of the command economy

A

Consumer preferences may not be met

Limits personal freedom

Governments fail, may not be fully informed on what to produce

40
Q

What is the mixed economy

A

Market is controlled by the government and forces of supply and demand

41
Q

What is the governments role in a mixed economy

A

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

42
Q
A

Microeconomics (2 decks)

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