Brainscape's Knowledge GenomeTM

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


See full index

economics - theme 1 > 1.1 Nature Of Economics > Flashcards

1.1 Nature Of Economics Flashcards

1
Q

economics as a social science

A

it studies societies and human interactions within those societies

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

developing models

A

economists develop models by putting forward a model, gathering evidence and then accepting, changing, or disregarding it

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

purpose of models

A

to explain how the economy works, to make predictions about the economy’s future, and to decide how to act

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

difference between theories and models

A

there is no exact distinction, but usually, theories are expressed in words and models are expressed in mathematical terms

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

assumptions in models

A

assumptions are necessary for models, e.g. generalisations about behaviour & choices, to account for complex human behaviour and constantly changing variables

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

criticism of models

A

they’re unrealistic as they have to be simplified to be useful

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

ceteris paribus

A

‘all other things remaining equal’

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

purpose of ceteris paribus

A

it allows economists to simplify and explain causes and effects of specific variables

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

inability to make scientific experiments

A

it’s hard to set up experiments to test a hypothesis, so social sciences use the ‘social scientific method’ to test a hypothesis

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

social scientific method

A

a variation of the scientific method, where you develop a hypothesis using ceteris paribus, and conduct empirical research through observations, surveys, etc.

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

issues with the social scientific method

A

the results of the same hypothesis can vary significantly when conducted by different researchers at different time periods and between different places and cultures

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

use of experiments

A

economists can develop economic models once a hypothesis has been repeatedly proven or rejected in different circumstances

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

positive statement

A

an objective statement based on empirical evidence, made without any obvious value judgement or emotions, so can be refuted or supported by evidence, i.e. assumptions from a model

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

normative statement

A

a subjective statement, based on opinion, so can’t be proven or disproven, i.e. assumptions from personal opinions

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

influence of value judgements

A

can influence economic decision making and policy, e.g. it can influence government choices regarding the economic policies they choose to adopt and spend money on

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

scarcity

A
  • resources are finite and scarce, e.g. there are limited amounts of land, water, oil, food, etc.
  • however, resources may not necessarily be scarce in themselves, but they’re scarce in relation to the demands placed upon them
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

basic economic problem

A

people have infinite wants but there are finite resources

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

solving the basic economic problem

A

economists have to allocate their scarce resources, so they have to make choices on what to produce, how to produce it, and for whom production should take place

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

renewable resources

A

resources that can be used repeatedly and naturally replenished, e.g. oxygen, solar power, etc.

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

non-renewable resources

A

resources that can’t be naturally replenished at a pace that keeps up with consumption, e.g. fossil fuels such as oil, coal and gas

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

factors of production

A

the resources of a country:
- land (natural resources, e.g. raw materials, minerals, sea produce, etc.)
- labour (all human effort, both physical and mental, involved in the production of a good/service)
- capital (any man-made resources used to produce other goods / services)
- entrepreneurship (the willingness and ability to take risks and combine the factors of production to make a good / service)

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

opportunity costs

A

the cost of one thing in terms of the next best alternative foregone

23
Q

opportunity cost example

A

if you have £1 and buy a chocolate bar instead of a bag of crisps, the OC is the bag of crisps you couldn’t buy due to your limited resources

24
Q

economic goods

A

created from resources that are limited in supply, so they command a price

25
Q

free goods

A

unlimited in supply, so consumption by one person doesn’t limit consumption for others, and opportunity costs of consuming it are 0

26
Q

production possibility frontiers (PPF)

A

an economic model which shows the maximum possible combinations of capital and consumer goods that an economy can produce with its current factors of production

27
Q

PPF diagram

A

diagram 1

28
Q

shifts in the PPF

A

diagram 2

29
Q

capital goods

A

assets that help a firm produce output (manufacturing), e.g. robotic goods

30
Q

consumer goods

A

final products which have no future productive use, e.g. a watch

31
Q

specialisation

A

when a country / company / individual focuses on producing a particular good or service

32
Q

division of labour

A

when labour is split up into specialised tasks as part of the production process

33
Q

adam smith

A
  • the ‘father of economics’
  • stated the concept of specialisation and division of labour to show how it can increase labour productivity (output per worker)
  • this would allow firms to increase efficiency and lower their costs of production
34
Q

adam smith pin factory example

A
  • in a pin factory, he noted that one worker couldn’t make more than 20 pins a day as it involved 18 different processes
  • but, if the labour was divided and workers specialised in a specific task, he estimated that 10 workers could produce 48,000 pins a day
35
Q

advantages of specialisation and the division of labour in production

A
  • higher labour productivity
  • lower cost per unit for firms
  • lower prices for consumers
  • higher profits for firms which can lead to higher wages for workers
  • firms save time and money as workers only need to be trained for one task
  • higher quality of goods / services as workers are more skilled at their jobs
36
Q

disadvantages of specialisation and the division of labour in production

A
  • task repetition can lead to boredom and less motivation
  • this can cause poor manufacturing quality
  • reduction of craftsmanship due to mechanisation
  • mass produced products can lack variety and don’t account for different consumer preferences
  • if production in one process is delayed, each other task has to stop until it’s solved
  • if workers lose their jobs, it’ll be hard to find work as they’re only trained in one skill, so may suffer from structural unemployment
37
Q

advantages of specialisation and the division of labour in trade

A
  • a firm’s goods can be more competitive internationally (exports)
  • leads to economic growth
  • leads to higher incomes and a better standard of living
  • more disposable income can be spent on imports, thus increasing variety of goods available in a country (greater choice)
  • greater output globally
  • comparative advantage; countries should specialise in goods they have a lower OC for
38
Q

disadvantages of specialisation and the division of labour in trade

A
  • countries may become over-dependent on a particular export and if this fails, their economy may collapse
  • there will be high interdependence, which will cause issues if conflict arises, e.g. war (Russia gas during Ukraine Crisis)
  • some industries may not be able to compete globally, so will go out of business
  • many firms in an industry closing will lead to structural unemployment
  • specialisation using a country’s own resources will increase the rate of resource depletion
39
Q

functions of money

A
  • a medium of exchange
  • a measure of value
  • a store of value
  • a method of deferred payment
40
Q

a medium of exchange

A
  • money can be used to buy and sell goods, and is acceptable everywhere
  • without money, buyers and sellers would barter (exchange goods), which was problematic as it requires both parties to want each other’s good (a double coincidence of wants)
  • with money, no double coincidence of wants is necessary, so it easily facilitates the exchange of goods
41
Q

a measure of value

A
  • money ascribes value to different goods / services
  • allows people to compare the value of two goods
  • it puts a value on labour
42
Q

a store of value

A
  • money holds its value over time
  • this means money can be saved
  • with barter, many goods, e.g. fruits, went out of date so couldn’t keep their value
43
Q

a method of deferred payment

A
    • money can allow for debts to be created
  • terms of credit, e.g. loans, can be arranged in monetary terms to settle future debts
  • this allows people to acquire goods in the present, and pay for them in the future
  • it relies on money storing its value
44
Q

free market economy

A
  • there is no government intervention in the allocation of resources; they’re allocated through the price mechanism (interaction between businesses and consumers)
  • there are no pure free market economies, as the govt. still has to have a small input in any country
45
Q

friedrich hayek

A
  • believed that free markets with no govt. intervention provided the most efficient allocation of resources
  • identified information gaps between what the economies required and what the central planners in command economies were saying it required
  • these gaps led to shortages / surpluses of goods and services in command economies
  • thus govt. intervention was a threat to efficiency and economic growth
46
Q

advantages of a free market economy

A
  • the system is automatic due to the invisible hand
  • consumer sovereignty (consumers have freedom of choice)
  • profit incentives motivate people to work, so higher productive efficiency
  • competition encourages innovation and product development
  • better quality of goods / services
  • political freedom
  • they tend to have higher growth overall
47
Q

disadvantages of a free market economy

A
  • higher levels of inequality, as the rich own more factors of production, so can grow richer
  • there may be a lack of merit goods and little control of demerit goods
  • monopolies, who exploit consumers by charging high prices, may develop
  • product quality may fall as firms lower quality standards to increase profits
  • externalities
48
Q

command (planned) economy

A
  • all resources are owned by the state, and the government controls the distribution of goods and services
  • e.g. North Korea
49
Q

karl marx

A
  • believed in the command economy as he said that free markets lead to capitalism
  • said that businesses (capitalists) have a drive for profit, so exploit workers by paying them wages lower than the value of their work
  • inequality would increase and there would eventually be a revolution, leading to communism
50
Q

advantages of a command economy

A
  • wellbeing is the goal, rather than profit maximisation, so merit goods are encouraged while demerit goods aren’t produced
  • the govt. owns monopoly businesses so consumer exploitation through high prices can be avoided
  • the state provides a minimum standard of living
  • less unemployment
  • all workers receive the same wage, creating social equality
  • less wastage of resources as there’s no need for competitive services or advertising
51
Q

disadvantages of a command economy

A
  • the state may not make many correct decisions due to information gaps, leading to over/under supply and a waste of resources
  • increase in bureaucracy (decision making and processes will be slow)
  • increase in bribery and corruption
  • receiving the same wage causes less motivation and efficiency, and disincentivises people from pursuing harder careers, e.g. a doctor
  • lack of competition means less innovation and product development
  • increase in black markets
  • freedom is restricted
52
Q

mixed economy

A
  • a blend of the free market and command economy as both the free market mechanism and the government planning process allocate a significant amount of total resources in the country
  • e.g. the UK
53
Q

adam smith

A
  • advocated for free markets with some govt. intervention
  • argued that competition and self-interest of people acts as an ‘invisible hand’ which regulates the free market, allocating resources to everyone’s advantage
  • however, also believed that some govt. intervention was required to provide a framework for free markets to operate in, to break up monopolies, and to provide goods / services the free market wouldn’t, e.g. roads and bridges, etc.
54
Q

role of the state in a mixed economy

A
  • creating a framework of rules, e.g. preventing the abuse of monopolies, ensuring safety standards, protecting property rights, etc.
  • supplements, e.g. producing public and merit goods, such as emergency services, and limiting production of demerit goods, e.g. drugs
  • redistributing income, e.g. using income tax to take money away from the rich, then give it to the poor through welfare benefits
  • stabilising the economy, e.g. managing the level of demand to prevent extremes, through fiscal or monetary policies

economics - theme 1 (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions