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A level Economics > 1.1 Nature of Economics > Flashcards

1.1 Nature of Economics Flashcards

1
Q

why is economics a social science?

A

it studies human behaviour and decision making within and beetween markets

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2
Q

why are models and theories developed?

A
  • theories: helps to explain the many choices
  • models: help predict the impact of economic change
  • built on assumptions
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3
Q

what is the need to make assumptions?

(prior conditions made before a macro/micro analysis is built)

A
  • the asumptions help to simplify analysis, however can be critised for not being realisticsimplification of economic idea
  • simplification of an economic relationship
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4
Q

what is ceteris paribus?

A

isolates the relationship between two variables, by assuming that all influencing factors are held constant

an assumption

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5
Q

assumptions

EXAM TIP

A
  1. write at least one assumption during analysis
  2. later on critique and evaluate your analysis later by questioning this assumption

eg: an increase in goods……assuming they rae normal goods, however……..

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6
Q

why are models only built of data and assumptions?

A

economists cannot conduct scientific experiments

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7
Q

why is it difficlut for economists to run experiments?

A

the factors are variously changing

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8
Q

what is the economic problem?

A

the problem of scarcity:
* unlimted wants as a society
* finite resources

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9
Q

what are examples of finite resources?

A

limited
* workers
* machines
* acres of land
* reserves of oil

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10
Q

describe non-renewable resources:

A
  • finite in supply
  • rate of extraction is determined by current market price. Higher prices= more profit= inrease in rate of rxtracttion since higher profits

coal, oil, gas

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11
Q

describe renewable resources

A
  • replaceable (rate of extraction/consumption < rate of resource renewal)
  • exhausatable if not manged properly
  • tragedy of the commons & unsusuainable use of common pool resources

solar energy, tidal power,

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12
Q

what is tragedy of the commons?

A

an economic theory :
where people act out of self inteest an eventually finsh a resource- without acknowledging wider impacts

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13
Q

who are the three main economic agents?

A
  • conusmers
  • goverment
  • producers
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14
Q

What is opportunity cost?

A
  • the unavoidable trade offs in the prescence of scarcity
  • the value of the next best alternative

what you sacrifice

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15
Q

what is an economy?

A

the goods and services produced in an area

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16
Q

what is the importance of opportunity costs on the economic agents?

A
  • consumers: decide what to sepnd their incoome on
  • producers: decide how and what to produce goods
  • goverment: decide which policies to choose
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17
Q

what are the 4 factors of production?

A
  • land :natural resources
  • capital : things used to make goods and services
  • labour : work done by humans during production
  • enterprise: wilingness of people to make risks and take profits
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18
Q

what is automation?

A

uses capital and machinary /new technology to replace or enhance human labour

replacing labour= capital labour substitiution

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19
Q

what is investment?

A

the purchase of capital

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20
Q

what is production possibility frontier?

A

shows the maximum potential output combinations of two goods or serices that an economy can achieve when all it’s resources are fully and efficently employed

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21
Q

what is the law of diminishing marginal returns?

A

a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output.

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22
Q

what is economic growth and how it is caused?

A

increase in production of goods and services
due to:
* increase in quantity of factors of production
* increase in quality of facrors of production

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23
Q

Describe this Production possibility Frontier

A
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24
Q

Show economic growth and negative economic growth on a PPF

A

Economic growth : arc shift Outwards
Negative economic growth : arc shift inwards

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25
Q

why is it impossible for economist to run scientific experiments?

A

there are too many variables to isolate

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26
Q

what needs to happen for an economy to produce a currebtly unobtainable comnination of goods/servives in the future?

A
  • quality and quanitity of factors of production needs to increase
  • increase in productivity
  • improvement in technology
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27
Q

what are consumer goods?

A

goods that are used to satisfy people’s wants and needs

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28
Q

what are capital goods?

A

goods which are used to produce othergoods and services

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29
Q

what does it mean for an economy to be at any point on a PPF?

A

an efficent allocation of resources, since non are being wasted or under utilised

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30
Q

Why might the graph shift from point B to C?

A

An increase in disposable income (wages)

31
Q

what happens if there is an increase in capital goods?

A

there will be a long term incresae in the productive potential of the economy

32
Q

why might a ppf shift inward?

A
  • war
  • conflict
  • net migration of people out of a country
  • resource depletion (because of climate change)
33
Q

what are positive economic statements?

A
  • can be proven true or false
  • (objective statements)
  • “will” or facts
34
Q

what are normative economic statements?

A
  • express opinion and connot be proven true/false
  • subjective statements
  • “should”, “fair”, “unfair”,
  • are value judgments
35
Q

what are value judgements?

A

a view of rightness or wrongness of something, based on a perosnal view

36
Q

where are normative and postive statements used?

A
  • normative : goverments make value judgment on economic issues
  • postivive analysis is done to help them make decisions
37
Q

what is specialisation?

A

when an individual, firm, region, country concentrates on the production of a limited range of goods and services

38
Q

what are the advantages of specialisation?

A
  • increased quality and quantity
  • more efficent use of resources
  • higher output–> higher economic growth–> higher living standards
    *
39
Q

what is the division of labour?

A

the specialisation of workers on specific tasks in the production process

production process broken into many seperate tasks

40
Q

what are the disadvantages of specialisation?

A
  • over reliance on industies which could be risky (if they collapse)
  • **reduced self sufficency ** due to increased interdependance
41
Q

why is output increased with division of labour?

A

a task is divided up into sections, workers can complete their tasks accuratley in less time

42
Q

what are some of the advatnages of divion by labour?

A
  • increased output per person (repetion of a task)
  • lower supply costs per unit(gain in labour productivity)
  • workers become more skilled through repetition (learning by doing)
  • workers are easier and chaeper to train
  • time is saved by workers focussing on a narrow range of tasks
43
Q

what are the disadvantages of division of labour?

A
  • unrewarding- repetive work, lowring motivation and productivity
  • workers take less pride in work- quality may suffer
    *
44
Q

what is the benefit of division of labour to firms and workers?

A

firms: greater quantity and quality of output
workers: higher skill levels potentially higher wages

45
Q

what is productivity?

equation

A
46
Q

what does increased productivity lead to?

A
  • higher output and higher quality
  • higher standard of living
  • more efficent use of resources
47
Q

what is productivity- definition?

A

the effectivness of producitive effort, measured in terms of the rate of output per unit of input

48
Q

what are the two methods of trading?

A
  • bartering (negotiating a price/haglling)
  • money
49
Q

what are the 4 functions of money?

A
  • medium of exchange: comonly accepted in exchange for gods and services
  • measure of value: the price reveals a good’s value
  • store of value: value is miantained and can be kept for a long time
  • method of deffered payment: allows debt to be created (mortage)
50
Q

what did Adam Smith have to say about divsion of labour?

A
  • it increased output
  • incraese in productiity came from workers being able to just focus on one task, but could lead to bordom

studied effects ina pin factory

51
Q

What are the three different types of economies ?

A
52
Q

Describe free market economies

A
  • resources are allocated by markets using the price mechanism
  • no goverment intervention (taxes, subsisdisation, regulations)
53
Q

Describe command market economies

A
  • all resources are alloctaed soley by the state
54
Q

Describe what a mixed economy looks like

A
  • resources are allocated using the price mechanism and the goveremnt (healthcare & transport )
  • public and private sector
55
Q

what is the public sector?

A

part of an economy which is owned or controlled by the goverment

56
Q

what is the private sector?

A

the part of an economy which is owned or controlled by individuals or groups of people, who seek to maximise profit or raise awareness

firms

57
Q

what were smiths views on economies?

A
  • supported free markets
  • thought that the price mechanism was very efficent at allocating resources
  • goverments should leave markets alone, only act in market failure
58
Q

what is Marx’s view on economines?

A
  • against free markets as it leads to capitalism, where workers are exploited, and inequality increases
  • idea: command economy, goverment could divide resources freely
59
Q

what were Hayek’s view of economies?

A
  • having a command economy is unrealistic for one goverment to collect all information
  • whereas a free economy works well with price mechanism as a good communication network

prevents people starving due to goverment underestimation

60
Q

describe the price mechanism

A
  • prices fall to eliminate excess supply
  • prices rise to eliminate excess demand
  • comminication network
61
Q

what are the pros and cons of a free market economies?

A

pros:
* increased compettion in frims, cuttin costs, improve efficency,** lowers prices**
* price mechansim is super effcient
* more choices

cons:
* inequality
* monopolies
* market failures

62
Q

what are monopolies?

A
  • when a firm owns 25% or more of the market share
  • therfeore they can exploit their consumers (higher prices and lower quality)
  • limiting choices in free markets and mixed economies
63
Q

what is a market failure?

A
  • public goods are underprovided
  • externalities are not internalised (smoking)
  • information gaps can mislead the public (not eating enough vegables)

inefficent allocation of resources

64
Q

why is there wider choice in a free market for consumers?

A

firms have profit motive this means that in order to keep up with competition, firms develop new products and must meet consumer demand…. leading to more choice

65
Q

why are quality and innovation high in mixed and free market economies?

A
  • competition
  • profit motive
66
Q

what are the pros and cons of command economies

A

pros:
* correct market failure
* less inequality
* stops monopoly abuse

cons:
* goverment failure
* destroy incentives (workers slack off and become less productive, entreprenurs innovate less because no profit incentive)
* slow economic growth and little
* limited choice

67
Q

what are direct and indirect taxes?

A

direct: such as income/ coroperation tax
infirect: imposed on particular goods (cigarretse- to stop consumption of negative externalities)

68
Q

what is goverment failure?

A
  • unintended consequences such as black maket and smuggling
  • hard to set the size of subsidy,
69
Q

what is the role of the state in a mixed economy?

A
  • allocates resources through planning
  • redistributes incomes through welfare spending
  • regulates consumers and firms
70
Q

what is the state?

A

consists of:
* territory
* citezens
* goverments

is permenat unlike the goverment- rules over a stae at a given time

71
Q

why are free market and mixed economies less equal?

A

owners of land and capital accumulate wealth over time and pass this privillage on to their children through property, private education and social networks

72
Q
A
73
Q
A
73
Q
A

A level Economics (8 decks)

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