1.1 and 1.2 (nature of economics and how markets work) Flashcards
define ceteris paribus
“other things being equal” .used to focus on changes in one variable while holding the others constant.
what is a positive statement?
.A statement or fact that can be scientifically tested to see if it is correct or incorrect. (objective)
what is a normative statement?
.A statement that includes a value judgement and cannot be proved wrong just by looking at the evidence, also it is normally and opinion and contains the word “should”. (subjective)
what is the basic economic problem?
There are infinite wants but there is finite resources to meet the wants.
what is opportunity cost?
. The cost of giving up the next best alternative when making a decision.
what is a production possibility frontier (PPF) ?
. PPF’s show the maximum possible output and shows the options that are available when you consider the production of just two types of goods or services.
define trade-offs
. when you have to choose between conflicting objectives because you cant achieve all your objectives at the same time.
what are mixed economies?
. mixed economies have a private and public sector and are controlled by governments
what is a free market?
. A market that allocates resources based on supply and demand and the price mechanism, meaning anything can be sold at any price that people will pay for it, also in free market economies there is no government intervention.
what are the pros and cons of a free market economy?
pros:
.lower prices because of more competition
.efficiency= because any product can be bought and sold
.entrepreneurship= the rewards for good ideas in a market economy would make entrepreneurs a lot of money.
.choice= The incentives for innovation can lead to an increase in choice for consumers.
cons:
.inequalities= market economies can lead to huge differences in income. (uneven distribution of income)
.non-profitable goods may not be made, for example ; drugs to treat rare medical conditions
.monopolies= successful business can become the only suppliers , this dominance can be abused.
what was karl marx’s economic theory?
(command economies)
karl marrx believed that free markets lead to capitalism, in which the owners of the factors of production exploited the workers.
.karl marx was a communist
.karl marx criticised the private ownership of factors of production to avoid capitalism and exploitation
what was Adam smith’s economic theory?
(free markets)
. Adam smith advocated for free markets with low levels of government intervention.
what was Fredrick hayek’s economic theory?
(free markets)
. Fredrick believed that command economies were flawed because he identified gaps which he said would lead to shortages or surpluses of goods and services in command economies.
what are command economies?
where the government is in charge of resources allocation. (centralised economies)= decision making is done by a member at the top of the organisational structure.
define specialisation + and - s
is the focus on the production of a good or service by a country, region or area.
+ .increased production/output
+. increased quality
+. a bigger market( opportunities for economies of scale)
-.vulnerability from over dependence on other countries
-. structural unemployment
-.competition
-.;overuse and exploitation of natural resources.
define division of labour + and - s
when production is broken down into many different tasks.
+.increased productivity
+.higher quality goods
-.employee demotivation/ boredom
-.if one process is delayed, every other task must stop
what are the 4 functions of money?
+ brief definitions
.Deferred payment= buying now and paying later(loans)
.Unit of account=used to compare the price of one good with another
.medium of exchange= purchasing goods and services.
.Store of value= saved or invested and retains its purchasing power which can be spent in the future (real estate)
what is herd behaviour?
when decisions are made based on the decisions of other around you.
what is habitual behaviour?
when decisions are influenced by previous habits, even of there is a cheaper alternative.
what is computational weakness?
this occurs when consumers find it difficult to calculate the probability of something happening
what is diminishing marginal utility?
the satisfaction gained from consuming or producing a product from each unit consumed or produced, as you consume more the less satisfaction you get.
define marginal utility
satisfaction gained from consuming each additional unit.
what are the factors that affect demand
P population
I income
R related goods
A advertising
T taste/fashion
E expectations
S seasons
define demand
The willingness and ability to purchase a good or service
