Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Old Micro > 1.1 Nature of Economics > Flashcards

1.1 Nature of Economics Flashcards

1
Q

Factors of Production

A

Capital, enterprise, land and labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Capital

A

Things which are used to make goods and services

E.g. machinery

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Enterprise

A

The willingness of people in business to take risks to make a profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Land

A

The natural resources such as oil, forests and land itself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Labour

A

All of the work done by humans in production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Economic Questions

A

What to produce?
How to produce it?
Who to produce it for?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Economic Problem

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Economic Agents

A

Groups that participant in the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Three Economic Agents

A

Producers, consumers and governments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Economic Agents

Producers

A

Producers create goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Economic Agents

Consumers

A

Consumers buy goods and services made by firms.

Individuals and firms can be consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Economic Agents

Governments

A

Governments set rules that the other economic agents have to follow. It also produces some goods and services such as roads and healthcare

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Models

A

Economist explain how the economy works by developing models.
These are used to predict the impact of economic change

It is difficult for economists to conduct experiments.
Therefore they rely on data and assumptions to explain and predict economic phenomena

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Types of Models

A

Theoretical model and empirical model

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Theoretical Model

A

Based on theory.
Explains economics phenomena.
Simplifying complex economic phenomena.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Empirical Model

A

Based on economic data.

Predict economic phenomena.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Ceteris Paribus

A

Assuming other variables remain constant

Economics is a social science with several constantly changing factors making it hard to decide if evidence supports or disagrees with a hypothesis thus they assume all other factors stay the same

Isolates factors that are being analysed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Opportunity Cost

A

Value of the next best alternative forgone

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Opportunity Cost Consumers Use

A

Decide what to spend their incomes on

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Opportunity Cost Producers Use

A

Decide what and how to produce goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Opportunity Cost Governments Use

A

Decide what policies to choose

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

PPF

A

Production Possibility Frontier

The maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully and efficiently employed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Economic Growth

A

An increase in the production of goods and services in an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Negative Economic Growth

A

A decrease in the production of goods and services in an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How is economic growth shown on a PPF

A

Outward shift

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is negative economic growth shown on a PPF

A

Inward shift

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Causes of Economic Growth

A

An increase in the quantity of the factors of production
An improvement in the quality of the factors of production
Combination of the two

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Consumer Goods

A

Goods that do not produce other goods.

Used to satisfy people’s wants and needs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Capital Goods

A

Goods which are used to produce other goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What does it mean if an economy is below its PPF curve

A

Inefficient use of resources

Underutilisation of resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What does an increase in capital goods lead to

A

A long term increase in the productive potential of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Objective Statement

A

A statement based on real facts and not influence by personal beliefs or feelings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Subjective Statement

A

A statement influenced by or based on personal beliefs or feelings rather than based on facts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Positive Economic Statement

A

Statements that can be proven true or false.

Objective statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Normative Economic Statement

A

A statement that expresses opinions and cannot be proven true or false.
Subjective statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What do governments do in decision making

A

Make value judgements on economic issues.

Use positive analysis to help them make decisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Specialisation

A

Production of a limited range of goods by a producer

38
Q

What is needed for specilisiation to work

A

High levels of trade

39
Q

Division of Labour

A

Specialisation of workers on specific tasks in the production process

40
Q

Why does specialisation lead to higher skilled workers

A

The workers are focused on only one task and they are constantly repeating said task thus becoming more skilled

41
Q

How do firms benefit from the division of labour

A

It increases efficiency which boosts productivity and output

42
Q

Productivity

A

The effectiveness of productive effort

Measured in terms of the rate of output per unit of input

43
Q

How does capital increase labour productivity

A

Machinery aids workers making them more efficient increasing output

44
Q

What does increased productivity lead to

A

Higher output and quality
Higher living standards
More efficient use of resources

45
Q

Division of Labour Advantages

A

Workers become more skilled through repetition
Productivity increases leading to output increase
Time is saved by workers
Cheaper to train workers

46
Q

Benefit of division of labour on firms

A

Greater quantity and higher quality of output

47
Q

Benefit of division of labour on workers

A

Higher skill levels and potentially higher wages

48
Q

How is productivity calculated

A

Output Produced / Total Inputs Used

49
Q

Division of Labour Disadvantages

A

Repetition of tasks lead to boredom causing drop in quality and morale
Simplified job roles reduce pride of works in their role and they feel insignificant

50
Q

Specialisation Advantages

A

Better quality and higher quantity of goods
More efficient use of scare resources
Higher trade with other countries
Higher economic growth => higher living standards

51
Q

How does specialisation lead to increased output

A

Workers are constantly repeating the same tasks making them more skilled. This means they will be able to work at a more efficient pace than if they were not specialised. Increase in efficiency leads to increased production and increase output.

52
Q

How does specialisation lead to higher living standards

A

Increase quantity of products are produced at a higher quality. This leads to economic growth occurring which leads to higher living standards.

53
Q

Specialisation Disadvantages

A

Over-reliant on a few industries is risky

Increased interdependence reduces self-sufficiency

54
Q

What are the two methods of trading

A

Money and bartering

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 and services

57
Q

Measure of Value

A

The price of a good reveals its value

58
Q

Store of Value

A

Value is maintained and can be kept for a long time

59
Q

Method of Deferred Payment

A

Allows debt to be created

60
Q

Unit Cost Formula

A

Total production costs in period / total output in period

61
Q

What is the difference between bartering and money

A

Bartering is giving something worth a similar amount for a good or service.
Money is buying something for the value it is worth

62
Q

How is a mortgage an example of a method of deferred payment

A

Deferred payments are payments which are made overtime. A mortgage is paid over time in monthly instalments as it is a loan taken from the bank which is considered to be debt.

63
Q

What do lower unit costs lead to

A

Higher investments
Greater chance of new and improved products emerging
Higher wages
Lower price

64
Q

What are the ways used to allocate resources

A

Market mechanism

Planning

65
Q

Price Mechanism

A

The process by which the market allocates resources

66
Q

What is the allocation of resources through planning

A

The process by which a government allocates resources. This is funded though taxation

67
Q

Command Economy

A

An economy in which resources are allocated solely by the state

68
Q

Mixed Economy

A

An economy in which resourced are allocated by the state and the price mechanism

69
Q

Free Market Economy

A

An economy in which resources are allocated solely by the price mechanism

70
Q

Public Sector

A

The part of an economy which is controlled or owned by the government

71
Q

Private Sector

A

The part of an economy which is not controlled or owned by the government but by firms, organisations and individuals instead

72
Q

What does a profit motive lead to

A

Firms to develop new products

Firms to meet consumer demands

73
Q

What type of economies is the profit motive present in

A

Free market and mixed economies

74
Q

What is the effect of the profit motive being absent in a command economy

A

Firms are told what to produce leading to limited choice for consumers

75
Q

Why is the profit motive absent in a command economy

A

Command economies are controlled by the government. The government is not a business so its main focus is not to generate profit but provide for its citizens instead

76
Q

Why is choice limited in certain markets in a mixed/free economy

A

Monopolies are present

77
Q

Profit Motive

A

The desire for financial gain as an incentive in economic activity

78
Q

Why is quality and innovation higher in mixed/free economies

A

Both competition and the profit motive are present

79
Q

Why does the presence of profit motive lead to higher quality and increased pace of innovation

A

Firms want to be able to increase the price of their products for the profit motive. This is done through improving profits through faster innovation

80
Q

Why does the presence of competition lead to higher quality and increased pace of innovation

A

Firms want consumers to buy products from them and not their competitors thus leading to higher quality products and faster innovation to attract them

81
Q

Efficiency

A

The optimal production and distribution of scare resources

82
Q

Which types of markets are more efficient and why

A

Mixed/free economies are more efficient than command economies due to the presence of competition and the profit motive

83
Q

Why does competition lead to lower production costs

A

Competition leads to lower prices for consumers to pay. To make up for this, producers try to lower their production costs to maintain profit

84
Q

Why do mixed/free economies have a less equitable distribution of income and wealth than command economies

A

The owners of capital and land accumulate wealth over time passing ownership to their children though property, private education and social networks. Command economies lack equitablity in terms of opportunity and access to public services

85
Q

What is a state made up of

A

Government
Citizens
Territory

86
Q

What is the difference between income and wealth

A

Income is the flow of money that comes into households while wealth is the total net worth of an individual

87
Q

Who rules a state

A

Governments.

The state is permanent while the government is not

88
Q

What is the role of states in a mixed economy

A

Allocate resources through planning
Redistributed incomes through welfare spending
Regulate consumers and firms

89
Q

How does the state support citizens that are unable to work in a mixed economy

A

Proving benefits (redistribution of income through welfare spending)

90
Q

Adam Smith

A

Stated concept of specialisation and division of labour and showed how it increases labour productivity allowing firms to increase efficiency and lower costs of production

91
Q

Friedrich Hayek

A

Argued state control leads to loss of freedom
Believed that poor in free market countries are better off than those in command economies as they have freedom
Individuals don’t make supply and demand decisions based on information, they know best what they need in their own situation

92
Q

Karl Marx

A

Believed in command economy criticising capitalism
Capitalist’s profit exploited labour underpaying workers for value
Remove difference between incomes of owners and workers
Two class system
Workers would inevitably rise against property owners and seize control

Old Micro (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions