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Micro Economics (theme 1) > 1.1 > Flashcards

1.1 Flashcards

1
Q

what is meant by a model

A

a simplified version of reality used to provide insight into economic decisions and events

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2
Q

what are models used for

A

to predict what will happen in a market, or economy when a variable is changed

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3
Q

what does ceteris paribus mean

A

all other things being equal

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4
Q

what is a positive statement

A

a testable and refutable statement, a statement about what is, eg ‘10% of the population are diabetic’

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5
Q

what is a normative statement

A

a statement that involves a value judgment about what ought to be done, eg ‘people should stop smoking’

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6
Q

what is the economic problem

A

the problem of scarcity

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7
Q

what is meant by scarcity

A

a situation that arises when people have unlimited wants in the face of limited resources

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8
Q

what are economic goods

A

goods that are scarce

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9
Q

what are free goods

A

goods that are not scarce

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10
Q

what are renewable resources

A

resources that have the ability to replenish themselves if they are not depleted at the current rate of use

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11
Q

what are non renewable resources

A

finite resources that cannot be replenished in a reasonable time period

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12
Q

what is meant by opportunity cost

A

the next best alternative foregone when an economic decision is made

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13
Q

what is the central purpose of economic activity

A

the production of goods and services to satisfy needs and wants

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14
Q

what are four categories of economic resources

A

land
labour
capital
entrepreneurship

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15
Q

what is involved in land

A

goods like minerals
raw materials
land itself

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16
Q

what is involved in labour

A

workforce
skills
ability/intelligence

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17
Q

what is involved in capital

A

machines
stock of goods
services

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18
Q

what is meant by enterprise

A

the risk takers who are prepared to work to bring the other factors of production together to make goods and services

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19
Q

why is choice a necessary element in the economic problem

A

each individual must choose which goods and services to consume, they must prioritise consumption of the commodities they need

20
Q

what is a PPF

A

a PPF shows all the different combinations that can be produced from two goods when all other factors of production are fully and efficiently employed

21
Q

what is meant by capital goods

A

goods used to make other goods or provide a service

22
Q

what is meant by consumer goods

A

goods which are consumed by the end user

23
Q

why is the PPF curved

A

because of the law of diminishing marginal returns - as you increase the units of one resource and keep other factors constant, the marginal benefit from the extra units will eventually start to decline

24
Q

why does the PPF shift outwards/inwards

A

it shifts outwards because of economic growth which is because the productivity capacity of the economy has increased
shifts inwards because of negative growth, output decreases

25
Q

what do points under the PPF mean

A

there are factors of production being underemployed

26
Q

what do points outside the PPF mean

A

they are unattainable factors of production

27
Q

what is meant by allocative efficiency

A

this occurs when a specific combination of goods is efficient for society. As this refers to a specific combination of goods, it refers to a point on the PPF, not the entire curve, so not all points on the PPF are allocatively efficient

28
Q

what is marginal analysis

A

a way of making economic decisions based on considering the marginal benefits and costs of a change in behaviour

29
Q

draw a PPF

A 
consumer goods - y axis
capital goods - x axis
curved line
two points on the PPF
dotted lines to each point 
arrow on PPF to show opportunity cost
numbers to represent goods
30
Q

what may cause an inward shift in the PPF

A

damaging effects of natural disasters
destruction/loss of factor inputs caused by civil war/conflict
large scale net outward labour migration

31
Q

what is meant by Specialisation

A

when a household or economy concentrates on producing the goods that they are most efficient at, then trade the surplus

32
Q

name three benefits of specialisation

A

greater economic efficiency
consumer benefits
opportunity for growth for competitive sectors

33
Q

what does productivity mean

A

the efficiency at which a good is produced in a time period. measured by rate of output per unit of input

34
Q

what is meant by division of labour

A

where the production procedure is broken down into a sequence of stages and workers are assigned to a particular stage

35
Q

what are three disadvantages of specialisation

A

risk of worker alienation
risk of disruptions to production process
risk of structural unemployment due to occupational immobility

36
Q

what are the functions of money

A

medium of exhange
store of value
measure of value
method of deferred payment

37
Q

what is meant by production

A

output in a time period

38
Q

what is meant by labour productivity

A

output per unit of labour in a time period

39
Q

what is a free market

A

this type of market allocates scarce resources becased on the price mechanism

40
Q

what are the benefits of a free market

A

efficient - highest value products are in demand

it rewards entrepreneurship

41
Q

what are the negatives of the free market

A
  • inequitable - what is fair in the free market may not be fair in reality
  • missing markets - goods we need in society may not be produced if they cannot generate a profit
  • monopolies may arise
42
Q

what is a command economy

A

where the government is in charge of resource allocation (eg N.Korea)

43
Q

what are the benefits of a command economy

A
  • can correct inequalities that exist in a free market
  • possible reduction in unemployment
  • they can break up monopolies
44
Q

what are the negatives of a command economy

A
  • less efficient - the government is not a profit maximisng entity, so the incentive for entrepreneurship and efficiency pushing activities is reduced
  • asymmetric information - the government may not actually know what is best
  • choice restriction
45
Q

what is the mixed economy

A

the government forms the public sector
firms form the private sector
together, they are responsible for the allocation of scarce resources

Micro Economics (theme 1) (6 decks)

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