1.1 - Nature of Economics Flashcards
What is used to explain how economics works in simple terms?
Models and theories
What does ‘Ceteris Paribus’ mean?
‘All other variables remain the same’.
What is a positive statement?
A statement which is objective and made without valued judgement.
What is a normative Statement?
A statement based on an opinion or judgement (therefore can’t be proven or disproven)
What is the basic economic problem? Briefly Explain what this is.
Scarcity: People have finite resources, but finite wants. Although wants are infinite, resources are finite.
How do economies try to solve the basic economic problem?
By working out: What to produce, How to produce it and whom to produce for.
What is Opportunity Cost?
Cost of choosing one thing in terms of the next best option (or producing one good at the expense of the other)
What are the four factors of production?
Capital, Enterprise, Land, Labour
What does a PPF show?
Shows the maximum possible combination of capital and consumer goods an economy can produce with its current resources and technology.
What is specialisation?
The production of a limited range of goods by a country/company
(or process wherein the company decides to focus their labour on a specific type of production)
What is division of Labour?
When Labour becomes specialised in a particular part of the production process
(or just labour becomes specialised in specific tasks)
What are the 4 functions of money?
- A medium of exchange
- A measure of value
- A store a value
- A method of deferred payment
what is a free market econonomy?
Individuals are able to make their own choices and own the factors of production without government intereferance
- Resources allocated through price mechanism
what is a Command economy?
All factors of production (except labour) is owned by the government.
- There is no private property and everyone is assumed to be working for the common good
- Everything (including resources) allocated by Government
what is a mixed economy?
Comination of free and command economy
- Both free market mechanism and government planning allocate resources
