1.1 Nature Of Economics Flashcards
What is social science
The study of society and the manner in which people behave and influence there world.
What is Ceteris Paribus?
Latin word for all other things being equal.
It is difficult for economists to analyse variables and influences so they focus on the effect of one variable to another while they assume all other variables remain the same.
What is an economic model?
Simplified representation of reality to test for economic variables.
It is not flawless
Who are the economics agents?
Households (consumers)
Firms (Producers)
Government
What is a positive statement?
statement which is objective and made without valued judgement or emotions.
can be tested to be proven or disproven - often expressed in the form of a hypothesis that can be analysed and evaluated
What is a normative statement?
statement which is subjective and has a valued judgement so cannot be proven or disproven
What is the role of a valued judgement?
influences economic decision making and policy. Economists may have different judgements from the same statistics
economists use positive statements to back up normative statements
What is the basic economic problem
Limited resources for peoples unlimited wants
How do economies try solve the basic economic problem?
what to produce
how to produce it
whom to produce for
-this is the importance of opportunity cost to economic agents
What is renewable and non-renewable resources
Renewable is a resource of economic value that can be replenished
Non-renewable is a resource that cannot be replaced
Why must people make decisions on how to use the limited resources?
the same resources cannot be used to produce different goods at the same time
What is opportunity cost?
the cost of one thing of the next best alternative given up
What do consumers base their choices on how to use their income?
they base it on what gives them the greatest satisfaction
What do producers base their choices on how to use their limited resources?
they base it on what will make the highest profits
What do the governement base their choices on how to spend their limited tax revenues?
they base it on what will maximise social welfare and living standards
What does sustainability mean?
meeting the needs of today without compromising the meeting of needs for future generations
What does sustainable development mean?
economic development that is conducted without depletion of natural resources
What are the four factors of production?
land, labour, capital, enterprise
What is PPF?
Production possibility frontiers shows the maximum possible combinations of capital and consumer good that the economy can produce with its current resources and technology
When is there maximum potential ?
any point on the curve
When the PPF diagram shifts what does this mean.
left means economy is declining as it can produce less goods than previously
right means economy has grown and can produce more goods
What is a movement on the PPF curve?
change in the combinations of good produced - same amount of resources are allocated
What is a shift in the PPF diagram?
change in the productive potential of the economy
What are consumer and capital goods?
consumer goods is goods demanded and brought by households and individuals
capital goods are goods that are produced in order to aid the production of consumer gods
What is specialisation?
The process of concentrating on produce it one good to service.
What is the division of labour?
When labour becomes specialised in a particular part of the production process
Who was Adam Smith?
Stated the concept of specialisation and the division of labour and showed how it can increase labour productivity allowing firms to increase efficiency and lower their costs of production
What are advantages of the division of labour/specialisation?
- Labour productivity increases
- High quality goods or services due to workers more skilled at their job
- Lower costs = lower price for consumers/ higher profits -> higher wages
- Workers only need that specific skill -> creates low skilled jobs
What are disadvantages of division of labour/specialisation?
- task repetition = boredom and decrease in workers motivation - can lead to poor quality
- if workers lose or leave their jobs it will be hard to find someone who is as highly skilled
- if one process in the production is delayed every other task becomes delayed
- workers do not have a lot of skill so will suffer from structural unemployment
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