Brainscape's Knowledge GenomeTM

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


See full index

Econ Theme 1 > 1.1 Nature Of Economics > Flashcards

1.1 Nature Of Economics Flashcards

1
Q

What is the basic economic problem?

A
  • there are scarce resources to satisfy infinite human wants
  • leads to a problem of how humans allocate these resources to satisfy these wants
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does scarcity cause?

A
  • scarcity forces people to make choices
  • each individual must choose which goods + services to consume
  • need to prioritise the consumption of what commodities they need or want - cannot satisfy all their wants
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is opportunity cost?

A
  • the next best alternative
  • an individual chooses to consume one good at the cost of the item that would have been next on their list of priorities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the economic agents?

A

Consumers (individuals + households)
- make choices about their expenditure
- demand goods and services
- need an income to buy (make decisions about the supply of their work)

Producers (firms)
- produce outputs of goods or services
- make choices on what goods or services to produce, and techniques of production to be used and prices to sell

Government
- undertakes expenditure
- influences economy through taxation + regulations of market

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

Factors of production

A

Land - natural resources

Capital - machinery, tools, man made aids to production

Enterprise- organises production, entrepreneurs take calculated risks to sell goods

Labour - key input

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

Renewable resources

A
  • can be replenished but there is a danger of depleting these resources due to over-consumption e.g. over-fishing , deforestation in rainforests, solar energy
  • highlights importance of sustainable development
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Non-renewable resources

A
  • resources are finite as stock levels decrease over time since they can’t be replenished
  • oil which is in high demand is being extracted at too high of rate - leading to search of substitutes (renewable resources)
  • the price increase of non-renewable resources could discourage consumption + give incentives to firms to develop other sources of energy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is a free market economy?

A
  • private sector - owned by private individuals
  • resources privately owned
  • resources allocated by price mechanisms, demand and supply and economic agents
  • aim is to make as much profit as possible (p = revenue - cost)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How are resources allocated in a command economy?

A
  • government
  • financed through taxation, borrowing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How do consumers make choices?

A
  • they will make choices on how to use their limited income based on what will give them the greatest satisfaction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do producers make choices?

A

Producers must choose what to do with their limited resources and their decision will be based on profit

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

How do the government make decision?

A

The government must make decisions on where they should spend their limited tax revenues based on what will maximise social welfare

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

Explain land as a FOP?

A
  • land is all natural resources used in production, such as raw materials, minerals, land and produce of the sea
  • owners receive rent from land or money from the sale of land
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Explain capital as a FOP?

A
  • capitals refers to all man-made resources used to produce goods or services in the future
  • owners of capital receive interest on their land
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Explain entrepreneurship as a FOP?

A
  • entrepreneurship is the willingness and ability to take the risks of combining the other 3 FOP, to make a product/service
  • a profit is earned in these activities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How do economies solve the basic economic problem?

A

They work out:
- what to produce
- how to produce it
- for whom production should take place

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a positive statement?

A
  • a statement that is objective and made without any obvious value or judgement or emotion
  • they can be tested with reference to data or evidence
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Give an example of a positive statement?

A

Raising taxes will lead to an increase in tax renue

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

What is a normative statement?

A
  • a statement that is subjective and based on opinion so can’t be proven or disproven
  • they express views of what’s considered good/bad
  • often include words such as ought and should
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Example of a normative statement

A

The government should increase taxes

21
Q

How do economists use positive statements?

A

Economists tend to use positive statements to back up normative statements

22
Q

How do value judgments influence economic decision making and policy?

A

Different economists may make different judgements from the same statistic

23
Q

What does production possibility frontier show?

A
  • PPF shows the combination of goods and services that can be produced with a full and efficient use of resources
  • also used to test concept of opportunity cost
24
Q

What does any point on the curve represent?

A

The maximum productive potential of the economy, the most that the country can produce

25
Q

What is the OC ratio for a straight line PPF

A
  • a straight line PPF implies a constant opportunity cost ratio
26
Q

What does a normal shape PPF show?

A
  • the shape is concave to the origin of the graph
  • a PPF that is concave to the origin implies that opportunity cost increases the more we produce more of a product
27
Q

Reason for PPF being concave to the origin?

A
  • not all resources are identical
  • thus as the nation concentrates more on the production of one good, it has to start using resources that are less and less suitable - resources that would have been better suited to producing the other good
  • the opportunity cost of the other good will increase
28
Q

How does a PPF shift show potential economic growth?

A
  • outward shift
  • shows the economy having the productive capacity to produce more goods + services
  • caused by increase in quality/quantity of FOP
  • e.g. technological advances, better educated labour
29
Q

How does a PPF shift show an economic decline?

A
  • inward shift
  • FOP destroyed due to civil war, extreme weather, reduced immigration
30
Q

What is specialisation?

A

The production of a limited range of goods by a company/ individual/ country

31
Q

What is division of labour?

A

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage

32
Q

What did Adam smith state?

A
  • agreed with specialisation and division of labour, and how this production method could increase production and create wealth
  • by breaking down the production process into smaller, specialised parts, productivity rises
  • this is because this process helps incorporate automation into production and also means workers spend less time switching between task
  • the repetition of the task makes their efficiency increase
33
Q

Advantages of division of labour

A
  • increases labour productivity - quicker and efficient as workers concentrate on only one task, with the repetition meaning they become more skilled
  • lower training costs - only trained for one specific task, saves time and money
  • no time is wasted moving from one job to another, increasing productivity
34
Q

Disadvantages of division of labour

A
  • task becomes repetitive/boring which may result in more mistakes and higher absence —> higher staff turnover—> higher recruitment costs
  • skill of worker many be replaced by machine —> leading to unemployment
  • specialised workers find it difficult to switch other tasks —> limited work + possible higher training costs if demand or supply conditions change
35
Q

Advantages of specialisation?

A
  • higher output -> total production of goods and services raised, quality can be improved
  • variety —> consumers have access to a greater variety of quality products
  • lower prices -> increased competition acts as an incentive to minimise costs and keep price down
36
Q

Disadvantages of specialisation

A
  • countries become over dependent on one particular export -> if it fails the economy collapses
  • high interdependence-> cause problems if trade is prevented due to war or natural disasters
  • workers may find it hard to work in other sectors -> unemployment
37
Q

How do money and specialisation relate to each other?

A

Specialisation occurs due to the existence of money.
- money facilitates specialisation
- workers specialise then get paid a salary/ wage
- with the wage, workers pay other workers for the goods

38
Q

Give the function of money

A
  • a medium of exchange
  • a measure of value
  • a store value
  • a method of deferred payment
39
Q

Explain a medium of exchange

A
  • used to buy and sell goods and services - acceptable everywhere
  • problem with barter is people can only trade if there is a double coincidence (both parties want the good the other party offers)
40
Q

Explain a measure of value

A
  • used to compare the value of two goods
  • also able to put a value on labour
41
Q

Explain a store of value

A
  • money keeps its value as long as we spend it, for a long time
  • with barter, goods like fruit, go out of date so don’t keep value
42
Q

Explain a method for deferred payment

A
  • money can allow for debts to be created
  • people can pay for things without having money in the present, and pay later (reliant on money storing value)
43
Q

Karl Marx opinion

A
  • Marx believed that capitalists whose objective is to make profit will end up exploiting workers
  • this means that workers will earn lower wages + capitalists have an incentive to replace labour with machines, creating unemployment
  • this combined effect will create exploited and alienated workforce- leading to social unrest
  • he argued even if owners paid fair wages this would increase costs + cause bankruptcy- increasing unemployment + increase supply of labour so wages will go down - either way capitalism is doomed
44
Q

Why do economists develop models?

A
  • economists develop models to explain how the economy works
  • e.g. theory of supply + demand
45
Q

How are models developed?

A

They’re developed by putting forward a model, gathering evidence and then accepting, changing or disregarding the model

46
Q

What is the purpose of theories + modelling?

A

They’re used interchangeably and are used to explain why something is as it is and simplified to be made more useful

47
Q

Why must assumptions be made?

A

They are too many variables which can change within an economic model and so assumptions must be made

48
Q

What is ceteris paribus?

A

All other things remaining equal

Econ Theme 1 (11 decks)

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