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Economics Theme 1 (micro) Old > 1.1 Nature of Economics > Flashcards

1.1 Nature of Economics Flashcards

1
Q

Economy

A

All the goods & services produced in an area

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2
Q

Difference between a good & service

A 
Good = tangible (can be touched)
Service = intangible (can’t be touched)
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3
Q

Order of economies from largest to smallest

A

US
China
Japan
Germany
UK

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4
Q

Factors of production definition

A

Resources used to produce goods & services

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5
Q

Factors of production:

A
  • capital (things used to make goods/services)
  • enterprise (willingness of people in business(entrepenuaers) to take risks to make profit, seeking out profitable opportunities)
  • land (natural resources- oil/forest)
  • labour (all work done by humans in production)
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6
Q

List the 2 types of land & definition

A
  • renewable resources (capable of being regenerated)
  • non-renewable resources (not capable of being regenerated)
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7
Q

What is capital split into

A
  • machinery (printers, computers)
  • tools (hammers, spades)
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8
Q

Why are factors of production scarce

A
  • not enough skills/space
  • not well educated ppl
  • not enough workers
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9
Q

Scarce

A

Not sufficient in quantity or amount

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10
Q

The economic problem

A

How to use the available scarce resources to satisfy people’s infinite needs & wants as effectively as possible

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11
Q

3 key questions to answer the economic problem

A

What to produce? = ‘the consumption decision’
How to produce it? = ‘the production decision’
Who to produce it for? = ‘the distribution decision’

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12
Q

Economic agents definition

A

Groups that participate in the economy

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13
Q

Economics agents:

A
  • producers (create goods/services)
  • consumers (buy goods/services made by firms(businesses))
  • government (sets rules other economic agents follow, produces some goods/services eg. Roads/health care)
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14
Q

Why do economists develop models

A

To explain & predict economic phenomena / the impact of economic change

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15
Q

Why is it difficult for economists to conduct experiments

A

Too many variables/factors that impact economic activity constantly changing, can’t be controlled

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16
Q

Theoretical models (definition/purpose)

A

= based on theory

  • explain economic phenomena
  • simplifying complex economic phenomena
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17
Q

Empirical models (definition/purpose)

A

= based on economic data
- predict economic phenomena

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18
Q

What do economists rely on to make models

A
  • data
  • assumptions
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19
Q

‘Ceteris Paribus’ assumption

A

= all other things being equal
= assuming other variables remain constant

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20
Q

Why is the ceteris paribus assumption necessary for economic analysis

A

It overcomes the problem of the many changing factors that can impact economic activity

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21
Q

Why is economics a social science

A

= studies society & the people in it

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22
Q

Opportunity cost of a decision =

A

= the value of the next best alternative forgone as a result of the choice made

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23
Q

Forgo

A

= to give up or do without

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24
Q

Uses of opportunity cost

A
  • consumers: to decide what to spend incomes on
  • producers: to decide what & how to produce goods & services
  • governments: to decide what policies to choose
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25
Q

PPF (production possibility frontier)

A

= shows the maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully & efficiently used, given the current level of technology

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26
Q

(Negative)Economic growth

A

= an increase(a decrease) in the production of goods & services in an economy

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27
Q

Causes of economic growth

A
  • an increase in quantity of the factors of production
  • an improvement in quality of the factors of production
  • combination of both
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28
Q

What represents economic growth on a PPF

A

An outward shift in the PPF

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29
Q

What represents negative economic growth on a PPF

A

An inward shift in the PPF

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30
Q

Consumer goods:

A

= goods which do not produce other goods, used to by people to satisfy their needs & wants

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31
Q

Capital goods

A

= goods which are used to produce other goods & services

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32
Q

Why might an economy be below its PPF curve

A
  • an inefficient use of resources
  • underutilisation of resources
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33
Q

What causes an economy to be on the PPF curve

A
  • efficient allocation of resources
  • as none are wasted/under-utilised
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34
Q

What will an increase in capital goods result in

A

= a long term increase in the productive potential of an economy (as it produces other goods/services)

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35
Q

Objective

A

= based on real fasts & not influenced by personal beliefs/feelings

36
Q

Subjective

A

= influenced by or based on personal beliefs or feelings

37
Q

Positive economic statements:

A

= can be proven true/false
= objective statements

38
Q

Normative economic statements

A

= express opinions & can’t be proven true/false
= subjective statements

39
Q

Duty:

A

= a tax paid on goods that are bought or imported

40
Q

Words that indicate a normative economic statement:

A
  • fair
  • unfair
  • should
  • ought
  • better
  • worse
41
Q

What do governments do in decision making:

A
  • make value judgements on economic issues
  • use positive analysis to help them make decisions
42
Q

Specialisation:

A

= when an individual, firm, region or countries concentrates on the production of a limited range of goods & services

43
Q

Why does specialisation allows individuals to become more skilled

A

They repeat the same tasks regularly so develop more knowledge and therefore become more efficient/productive

44
Q

The division of labour

A

= the specialisation of workers on specific tasks in the production process

45
Q

Why do firms benefit from the division of labour

A

= more efficient/productive, improves quality and faster work

46
Q

Productivity:

A

= the measure/effectiveness of productive effort
Measured in terms of the rate of output per unit of input

Productivity = output produced / total inputs used

47
Q

Increased productivity leads to:

A
  • higher output & higher quality
  • higher living standards
  • more efficient use of resources
48
Q

Advantages of division of labour for firms

A
  • workers become more skilled through repetition of tasks
  • productivity of workers rises = output increases
  • time saved by workers focusing on narrow range of tasks
  • workers easier & cheaper to train
49
Q

Advantages of division of labour for workers

A
  • higher skill levels as trained more
  • potentially higher wages
50
Q

Disadvantages of division or labour

A
  • repetition of tasks can lead to boredom = quality & morale drops
  • simplified job roles can reduce pride workers feel in their jobs
51
Q

Advantages of specialisation:

A
  • better quality & higher quantity of products
  • more efficient use of scarce resources
  • higher trade with other countries
  • higher economic growth -> higher living standards
52
Q

Disadvantages of specialisation

A
  • over-reliance on a few industries is risky
  • increased interdependence reduces self-sufficiency
53
Q

What can cause problems with inter-dependence and relying on other countries

A
  • political turmoil = trade wards = stop imports/exports
  • natural disasters = unable to produce/export/import goods
54
Q

2 methods of trading:

A
  • barter (exchange of 1 good for another)
  • money (for transaction/purchase, represents value)
55
Q

Functions of money:

A
  • medium of exchange
  • measure of value
  • store of value
  • method of deferred payment
56
Q

Medium of exchange

A

= something commonly accepted in exchange for goods & services

57
Q

Measure of value:

A

= price of goods reveals its value

58
Q

Store of value

A

= value is maintained & can be kept for a long time

(saving money, savings account)

59
Q

Method of deffered payment

A

= allows debt to be created

(mortgage, credit card)

60
Q

unit costs

A

= average cost to produce a unit of output

Unit cost = total production costs in period / total output in period

61
Q

What does lower unit costs lead to

A

= higher profit…

  • higher investment
  • greater chance of new & improved products emerging
  • higher wages
  • lower prices
62
Q

Ways to allocate resources

A
  • planning
  • price(market) mechanism
63
Q

Planning

A

= process by which government allocates resources, funded through taxation

64
Q

Price mechanism

A

= process by which the market allocate resources

65
Q

Market

A

= anywhere buyers & sellers exchange goods & services (physical or digital)

66
Q

Command economy

A

= an economy in which resources are allocated solely by the state(planning)

67
Q

Mixed economy

A

= an economy in which resources are allocated by the state(planning) & the price mechanism

68
Q

Free market economy

A

= an economy in which resources are allocated solely by the price mechanism

69
Q

Public sector:

A

= part of an economy controlled or owned by the government

70
Q

Private sector

A

= part of the economy not controlled or owned by government

71
Q

Where are profit motives present & why

A

Firms have a profit motive in

  • free market economies
  • mixed economies
72
Q

Why do profit motives lead to wider choice

A

It incentivises:

  • firms to develop new products
  • firms to meet consumer demand
73
Q

Why is the profit motive absent in command economies

A

Firms are told what to produce
= limited choice for consumers

74
Q

What limits choice in free market economies & mixed economics

A
  • concentrated markets
  • monopolies
75
Q

Concentrated markets:

A

= a few large suppliers (smartphones)

76
Q

Monopolies

A

A sole supplier of a product/service
Sell 25%

(Microsoft, google)

77
Q

What does competition and profit motive presence in an economy lead to

A
  • higher quality
  • higher innovation
    (consumers can switch between competitors, so always have an incentive to produce the best & cheapest good/service)
78
Q

Efficiency

A

= optimal production & distribution of scarce resources

79
Q

Why are mixed economies & free market economies more efficient than command economies

A

= command economies lack competition & a profit motive

(as all controlled by state, no incentive)

80
Q

Why is there a less equitable distribution of wealth & income in free market / mixed economies than command economies?

A

owners of capital & land accumulate wealth over time & pass privilege on to children through

  • property
  • private education
  • social networks
81
Q

Why might command economies still lack equitability and what for?

A
  • higher incomes / power have access to best education & health care
  • opportunity & access to public services
82
Q

What is the state made up of?

A
  • territory
  • citizens (population)
  • government

Government rules over a state

83
Q

Difference between government & state

A
  • state is permanent, government is not permanent
  • state made up of all citizens, government not
84
Q

Roles of state in mixed economy

A
  • allocates resources through planning
  • redistributes incomes through welfare spending
  • regulates consumers & firms
85
Q
A

Economics Theme 1 (micro) Old (4 decks)

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