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A Level Economics Theme 1 > 1.1 Nature of economics > Flashcards

1.1 Nature of economics Flashcards

1
Q

Ceteris Paribus

A

All other influencing factors are held constant

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2
Q

Normative statement

A

Opinion about what ought to be. Subjective, value judgements.

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3
Q

Positive statement

A

Objective, can be tested or rejected with evidence.

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4
Q

Barter

A

Practice of exchanging goods or services without using money

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5
Q

Basic economic problem

A

Infinite wants, finite factor resources with which to satisfy them.

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6
Q

Capital goods

A

used to produce other G+S, result in long term increase in productive potential of economy

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7
Q

Economic agent

A

Participant in economic system

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8
Q

Land

A

natural resources available for production.
Return of rent

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9
Q

Labour

A

Human input into production process
Return of wages and salaries

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10
Q

Capital

A

goods used in supply of other products
Return of interest

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11
Q

Enterprise

A

organise FOP and take risks
Return of profit

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12
Q

Free goods

A

do not use any factor inputs when supplied. zero opportunity cost

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13
Q

Need

A

Essential for survival

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14
Q

Want

A

Something desirable but not essential for survival

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15
Q

Non-renewable resources

A

Finite and cannot be replaced

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16
Q

Renewable resources

A

Replaceable

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17
Q

Rationing

A

Method of allocation when there is excess demand.

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18
Q

Scarcity

A

Limited

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19
Q

Allocative efficiency

A

Value that consumers place on G/S equals cost of resources used in production

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20
Q

Concave PPF

A

Rising marginal OC as you produce more of 1 good. Due to imperfect factor mobility.

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21
Q

Consumer goods

A

Bought by consumers. Do not produce other goods. Satisfies wants and needs.

22
Q

Economic efficiency

A

Making best or optimum use of scarce resources among competing ends so economics and social welfare secured.

23
Q

Pareto efficiency

A

Only way to make one better off is to make another person worse off

24
Q

PPF

A

Production possibility frontier - maximum potential output of combination of 2 G/S an economy can achieve when all resources fully and efficiently employed, given the current level of technology.

25
Q

Productive potential

A

Amount of output an economy produced if all FOP were fully and efficiently employed

26
Q

Alienation

A

Not part of team. Workers do not feel satsifacation of producing finished product.
CAN REDUCE MOTIVATION AND PRODUCTIVITY

27
Q

Division of labour

A

specialisation of labour in specific tasks, intended to increase productivity.

advantages: workers become more skilled through repetition of tasks, productivity rises so output rises, time saved by workers focussing on narrow range of tasks, workers are easy and cheap to train.

disadvantages: repetition can lead to boredom, simplified job roles can reduce pride workers feel in their job

28
Q

Measure of value

A

used to judge value of G/S

29
Q

Medium of exchange

A

facilitates transactions between buyer and seller

30
Q

Method of deferred payment

A

making payments at a later date

31
Q

Advantages of specialisation/DoL

A
  1. Higher output - from increased productivity and efficiency (workers become more skilled through repetition)
  2. Increased variety for consumers
  3. Larger market - economies of scale exploitable
  4. Workers are easier and cheaper to train
32
Q

Cons of specialisation/DoL

A
  1. Structural unemployment due to lack of training and skills (occupational immobility)
  2. Over-reliant, interdependent, more vulnerable to global shocks
  3. Bored workers can cause morale drop, drop in productivity
  4. Reduce pride they feel in work.
  5. Reduction in self-sufficiency
33
Q

Specialisation

A

Business focusses on prod of limited scope of products to gain greater productive efficiency

34
Q

Store of value

A

Money can be saved and exchanged

35
Q

Command economy

A

Resources allocated by government

36
Q

Free market economy

A

No state intervention, price mechanism

37
Q

Consumer sovereignty

A

Exists when economic system produces G/S which reflect wishes of consumers.

38
Q

Mixed economy

A

Resources partly allocated by state and price mechanism

39
Q

ADAM SMITH

A

FREE MARKET ECONOMIST
writes about invisible hand of resource allocation
warned of monopolies, hence recognised need for some gov intervention
maintain law and order, because the many poor would want to take over the property of the rich
issuing of patents and copyright (to protect invention)
providing national defence, regulating the banking sector, building infrastructure, and public goods

40
Q

FRIEDRICH HAYEK

A

STRONG SUPPORTER OF FREE MARKET
argued strongly against command economies
beef w Keynes who was supporter of large gov intervention
little gov intervention - except to maintain law and order and safety net for those who cannot work

41
Q

KARL MARX

A

FOCUSSED ON NEGATIVES OF FREE MARKET
Developed Smith’s ideas.
Supporter of free market economies - large increases in productivity and output
Owners would push wages to subsistence levels and exploitation will occur.
exploited workers would work together and overthrow capitalism in a revolution
Capitalism becomes socialism

42
Q

Law of diminishing marginal returns

A

not all factor inputs (such as land, labour and capital) are equally suited to producing different goods leading to lower productivity
Cause of concave PPF

43
Q

Pros of free market

A

efficient allocation of scarce resources – factor resources tend to go where the expected profit is highest

Competitive prices for consumers as suppliers look to increase and then protect their market share

Innovative dynamism provides major benefits to consumers by bringing them new goods and new processes

profit motive stimulates investment which encourages economies of scale arising from big-scale production and ultimately lower prices for consumers

Competition through trade helps to reduce monopoly power and increases choice whilst lowering prices

44
Q

Cons of free market

A

Free market activity can lead to a rise in income and wealth inequality

Businesses can develop monopoly power which leads to higher prices and damage to consumer welfare

Under or non-provision of pure public goods

Under-provision of merit goods such as health and education – which many cannot afford – leading to lower social welfare

Free markets may fail to address negative externalities from production and consumption leading to unsustainable economic growth

Deregulated financial markets often prone to bouts of instability – the fallout from which affects millions not directly involved

less equitable distribution of income and wealth because owners of capital and land pass privilege on to children

45
Q

Gini coefficient

A

measure of statistical dispersion intended to represent the income inequality or the wealth inequality within a nation or a social group

46
Q

Cons of planned economy

A

Bureaucratic costs - petty officialdom can lead to wasteful inefficiencies and therefore higher costs

government planners are unlikely to be as accurate as the market in determining suitable prices leading to numerous shortages and surpluses

Absence of incentives for both workers and businesses can damage productivity and lead to large levels of
over-employment / hidden unemployment and, ultimately, lower living standards

Low productivity and weak incentives can lead to rising losses for many state-owned enterprises. The
incentive to innovate is limited leading to a less dynamic economy

Changing consumer needs and wants are not expressed as preferences in markets – the state is often slow to react to these

information failures and endemic corruption

higher risk of mal investment driven by political motivations

HOWEVER, tend to have higher income and wealth inequality than other economies.

47
Q

Economies of scale

A

cost advantages that a business can exploit by expanding their scale of production. The effect of economies of scale is to reduce the average (unit) costs of production.

48
Q

Opportunity cost

A

Value of next best alternative foregone

49
Q

Below PPF

A

Inefficient and underutilisation of resources

50
Q

Productivity

A

Effectiveness of productive effort (rate of output per unit input)

51
Q

Cons of specialisation/DoL

A
  1. Structural unemployment due to lack of training and skills (occupational immobility)
  2. Over-reliant, interdependent, more vulnerable to global shocks
  3. Bored workers can cause morale drop, drop in productivity
  4. Reduce pride they feel in work.
  5. Reduction in self-sufficiency
52
Q

functions of money

A

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

A Level Economics Theme 1 (4 decks)

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