1.1 nature of economics Flashcards
economics as a social science
problem-cannot have controlled conditions like a lab as economics is always changing
solution-ceteris paribus ‘all other things remain equal’ used to develop economic models
1.develop theory and create model
2.use simplifying assumptions to limit variables
3.test theory against known fact
4.use empirical data to prove model
5.use these models to make predictions
positive and normative economic statements
positive=fact that can be proven by supporting evidence
normative=an opinion someone may feel, can’t be proven
-gov makes decisions based purely off their judgement which is why different parties develop
the economic problem and how to solve it
4 factors of production are scarce/ limited; land, labour, capital and enterprise
solving the problem- use free/ renewable goods in replacement
-question of why, how and who needs to be asked before allocating resources
what is opportunity cost
-benefit lost from the next best alternative forgone
-these choices are made considering goods where resources are scarce but wants are unlimited
what is production possibility frontier
-diagram used to calculate opportunity cost
-shows the combination of goods which can be produced if all resources are fully efficiently organised
what does ppf show - 5 things
1.maximum productive potential of an economy
2.opportunity cost
3.economic growth or decline
4.possible or unobtainable production
5.efficient and non efficient allocation of resources
gathering results from ppf
how to find-
1.max productive potential=curve/ frontier of entire line
2.opportunity cost=lines from each axis and where they meet curve
3.economic growth/ decline= growth is expansion of curve and vice versa
4.efficient/ non efficient allocation of resources= efficient on line, non is inside of line
5.possible/ unobtainable production = past or on/ inside of curve
ways of improving productivity
-specialisation
-qualifications
-morale of workforce
-land, labour + capital substitution
-improved tech
-improved infrastructure
why productivity matters
-leads to faster growing economy
-helps keep inflation low
-increases wages as more is earned overall
-international competitiveness of exports
-others cannot compete with our business prices
specialisation and division of labour- advantages and disadvantages
-occurs when production is broken down in to seperate tasks
adv=less mistakes, efficient, higher paid workers, variety of high quality products
dis=lack of flexibility, demotivated workers, replaced by machines, expensive training
consumer vs capital goods
consumer= do not produce other goods
capital= used to produce other goods
4 functions of money
- medium of exchange
- measure of value of goods and services
- store of value overtime
- standard/ method of deferred payment
4 main economic systems
- traditional (next gen retains economic position of parent or grandparent)
- command (state controls all resources)
- pure free market (based only on consumer buying decisions)
- mixed (combination of command and free market)
command economy- advantages and disadvantages
adv=
-gov can minimise income inequality
-low unemployment as gov provides jobs
-prevents monopolies where single firms dominate market
dis=
-poor decision making from lack of info
-consumers have little choice, firms make what they are told
-no incentive to take risks or innovate as do not need profit
free market economy- advantages and disadvantages
adv=
-firms have incentive to make high quality products to beat competition
-entrepreneurship rewards good ideas
-greater consumer choice
dis=
-anyone unable to work would receive no income
-non profitable goods would not be made e.g. drugs for rare conditions
-monopolies
