1.1 Nature of Econ Flashcards
1.1.1
define ceteris paribus
ceteris paribus is the challenge of holding all other variables constant in an effort to isolate what is driving change.
Define Economics
social science studying how scarce recourses are allocated among unlimited wants and human satisfactions
Define MicroEconomics
single factors, effects of an individuals choices
1.1.3 A
scarcity
unlimited wants but limited recourses happens due to society not having enough
factors of production
capital - assets—physical tools, that allow for increased work productivity example machinery / software, hardware
enterprise - an organisational unit producing goods or services that has choice in decision-making
land - elements in creating goods and services eg - sea , farmland
labour - work people do to produce goods and services
what choices are needed to be made in a society due to scarcity
what to produce
how to produce
whom to produce for?
1.1,3 B
The distinction between renewable and non-renewable
resources
renewable resources can naturally replenish themselves while nonrenewable resources cannot
1.1.3 C
What is Opportunity cost and why is it important?
The next best alternative forgone when choosing one “thing” over another
eg: producing more x will lead to fall in production of y if you have the a limited recourse like labour
economic goods vs free goods
econ - scarce so opp cost
free - not scares so no opp cost (air)
1.1.4 A
what does a ppf(production possibility frontier) show?
shows output combination of two good when ALL RESORCES ARE FULL AND EFFIENCETY EMPLOYED
(check notes for diagram #1)
concave pff shows
diminishing marginal returns
more and more units of a commodity are sacrificed to gain an additional unit of another commodity increasing at a constant
1.1.4 B
attainable and unattainable ppf
what does data below the curve show
what does data along the curve show
what does data above the curve show
below happens due to waste unemployment and inefficiency
along is max efficiency - these are both attenable
above is unattainable with current resources
(check notes for diagram #2)
attainable and unattainable ppf - opp cost
below to along
along on the curve
no opp cost
opp cost
(check notes for diagram #2)
1.1.4 A
economic growth long run
ppf SHIFTS outwards
happens due to more labour / capital available or technological improvements (CELL)
(check notes for diagram #3)
What happens if increase in capital but only for one side of the ppf
(check notes for diagram #5)
economic growth short run
below the curve has unemployment and moving towards the curve unemployment falls
this is growth within so no shift as using unused resources
(check notes for diagram #4)
how to increase production without growth
reallocating production
Linear ppf measuring the opp cost
gradient
example - -1800/600 = -3
therefore o/c is 1 x per 3 y
(check notes for diagram #6)
1.1.4 C
The distinction between capital and consumer goods
capital goods make consumer goods and services eg - machinery / software, hardware
consumer goods satisfy our needs
consumer durables - steady flow - phones
consumer non durables - coffee
consumer services - haircut
1.1.5 A
specialisation
specialisation occurs when economic units concentrate on producing a specific good or service
economic unit - individual , firm . state
helps increase productivity and scarcity
divisor of labour
adam smith
workers are doing specific tasks
leads to inc eff and performance
1.1.5 B
The advantages and disadvantages of specialisation and
the division of labour in organising production
+ve) higher wages , more eff production
-ve) one person not doing their job can effect others ,
tedium , missing working can have large effects as people cant do the same job as eff , high chance if absence as work can be monotonous , low demand of good means less profit.
1.1.5 C
benefits and cost of specialisation trade
ben
allow for trade
improved national income
choice for consumer
better quality goods
cost
over reliance on others
risk of unemployment
threat from external factors (weather, natural disasters)
less developed countries discourages to join new industries
1.1.6 A
What are the type of economies and give an explanation of them
1)free market economy - limited government indeed government protects rights
2) planned or command economy - scares resources are owned by the government, the state allocated the recourses. how? who for ? how much?
3) mixed economy - some resources owned by state, some private.
1.1.6 B
advantages and disadvantages of a free market
A) Choice – if enough demand there will be
supply. Market
equilibrium – allows markets to operate at their equilibrium. This maximizes both consumer and producer surplus
D) Profit maximization – The main objective of firms is to profit maximise. Therefore, without state allocation of resources consumers may have to pay high prices and suffer from lower quality goods
Monopolies –
if an economies has a lack of competition . This will lead to higher prices and lower qualities as firms don’t need to be efficient
1.1.6 B
advantages and disadvantages of panned or command economy
A) Prevention of monopolies – As the state allocates all resources it mitigates the risk of monopolies being created.
More equal society – state allocates acts in society’s best interest, maximizing social welfare rather than to maximize profit.
D) Inefficient allocation of resources – The main disadvantage of a command economy is due to the fact that they lack a profit motive. Cost will be higher
1.1.6 C
The role of the state in a mixed economy
state corrects market failure, supplies public , quasi public and merit goods.
quasi - can be priv and public for example a hospital
merit - education - goods that are considered to be benefits to a individual
