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Economics Theme 1 > 1.1- Nature Of Economics > Flashcards

1.1- Nature Of Economics Flashcards

1
Q

What is scarcity?

A

A finite amount of a resource

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2
Q

What are resources?

A

The amount of goods that a society has to give to individuals

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3
Q

What is ceteris paribus?

A

All other things being equal

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4
Q

What assumptions do economists use when making models?

A

Assume ceteris paribus to focus on the changes in one variable while holding others constant

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5
Q

What is a model?

A

A theoretical concept that looks at how different variables interact

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6
Q

What is a social science?

A

The study of society and human behaviour

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7
Q

Why is it difficult to set up experiments in economics?

A

Humans are ever changing

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8
Q

What is a positive statement?

A

A statement that is verifiable by data

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9
Q

What is a normative statement?

A

A statement that is based on a value judgement that can’t be verified

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10
Q

What are value judgements?

A

Decisions made based on values and opinion

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11
Q

What do value judgements influence?

A

Economic decisions and policies

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12
Q

What is the economic problem?

A

Wants are unlimited but resources are finite

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13
Q

What choices have to be made due to the economic problem?

A

What to produce, how to produce it, and who to produce for

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14
Q

What is a renewable resource?

A

A resource that can be replenished, providing that the rate of extraction is less than the natural rate at which the resource renews itself

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15
Q

What is a non renewable resource?

A

A resource that can’t be readily replaced by natural means on a level equal to consumption

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16
Q

How can renewable resources be managed?

A

By limiting deforestation or imposing fishing quotas

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17
Q

What is opportunity cost?

A

The value of the next best alternative forgone

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18
Q

How do consumers make choices?

A

Based on what gives them the greatest level of satisfaction

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19
Q

How do producers make choices?

A

Based on profit

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20
Q

How do governments make choices?

A

Based on what will maximise social welfare

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21
Q

What is the opportunity cost for free resources?

A

No cost

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22
Q

What is a need?

A

The minimum that is necessary for a person to survive as a human being

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23
Q

What is a want?

A

Desires for the consumption of goods and services

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24
Q

What are the factors of production?

A

Land, Labour, capital, and entreprise

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25
Q

What is land?

A

All natural resources, such as raw materials, land, water,etc

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26
Q

What is the reward for land?

A

Rent

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27
Q

What is Labour?

A

All productive human effort

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28
Q

What is the reward for labour?

A

Wages

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29
Q

What is capital?

A

Al man made resources that are used to produce goods or services

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30
Q

What is the reward for capital?

A

Interest from the investment

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31
Q

What is enterprise?

A

Willingness and ability to take risks and combine the three other factors of production

32
Q

What is the reward for enterprise?

A

Profit

33
Q

What is sustainable development?

A

Each generation should pass on at least as much ‘capital’ as it inherits

34
Q

What is a production possibility frontier?

A

A diagram showing the maximum productive potential of an economy, using a combination of two goods and services when resources are fully and efficiently employed

35
Q

When is the productive potential of the economy maximised on the curve?

A

Any point on the curve

36
Q

Where on the diagram of a PPF is it unattainable at the current level of technology?

A

Point above the curve

37
Q

When on the PPF curve is the allocation of resources inefficient?

A

Inside the curve

38
Q

Why does the PPF curve shift outwards?

A

If quality of resources increases, investment in capital increases, immigration increases

39
Q

Why does the PPF curve shift inwards?

A

Decrease in the quality/quantity of resources, natural disasters, war

40
Q

What is a consumer good?

A

Goods bought and demanded by households and individuals

41
Q

What is a capital good?

A

Goods produced in order to aid production of consumer goods

42
Q

What is an economic system?

A

A way of allocating finite resources to solve the economic problem

43
Q

What is division of labour?

A

When labour becomes specialised into a number of tasks performed by separate people or groups

44
Q

What is specialisation?

A

Production of a limited range of goods by a company/country/individual

45
Q

What was Adam Smith’s theory about specialisation and the division of labour?

A

He stated that these concepts were able to increase productivity due to visiting a pin factory

46
Q

What are the advantages of division of labour?

A

-labour productivity increases
-higher quality
-less training needed
-workers are skilled in their task
-time saved

47
Q

What are the disadvantages of division of labour?

A

-repetitive work which lowers motivation and productivity
-more structural unemployment as skills may not be transferable
-if one process is delayed, every other task has to stop

48
Q

Where should countries produce goods and services?

A

Where they have low opportunity cost to boost the economy

49
Q

What are the advantages of specialising in the production of goods and services to trade?

A

-better quality and higher quantity of products
-efficient use of scarce resources
-higher trade with countries
-more opportunities for economies of scale
-greater variety of goods and services produced

50
Q

What are the disadvantages of specialising in production of goods and services in trade?

A

-structural unemployment due to narrow skill sets
-over reliance on industries
-increased interdependence reduces self sufficiency

51
Q

What are the functions of money?

A

-a medium of exchange
-a measure of value
-a store of value
-a method of deferred payment

52
Q

What is medium of exchange?

A

It allows people to buy goods and services in exchange for money/ barter

53
Q

What is measure of value?

A

The prices of goods/services can reveal its value

54
Q

What is store of value?

A

Different goods/services hold different values though the use of money

55
Q

What is method of deferred payment?

A

Allows people to buy things without having enough money and debt to be created

56
Q

What are the advantages of going cashless?

A

-easy to track tax evasion and fraud
-reduces need to transport, sort and store cash
-easy to use

57
Q

What are the disadvantages of going cashless?

A

-in undemocratic countries, purchases can be tracked to see your political status
-cyber attacks can occur where data is stolen
-not everyone knows how to use the internet
-hard for homeless to use cards

58
Q

What is comparative advantage?

A

You should specialise in the goods and services that you are relatively best at, meaning the lowest opportunity cost and the most productively efficient

59
Q

What is a free market economy?

A

Where there is little to no government intervention, and where consumers and producers interact to supply and demand goods through the price mechanism

60
Q

What did Adam Smith believe about free market economies?

A

The invisible hand states that the price mechanism is responsible for the allocation of resources, which means they are efficiently allocated

61
Q

What happens in reality to free market economies?

A

Governments usually intervene by implementing laws and public services

62
Q

What did Friedrich Hayek believe about free market economies?

A

He believed governments didn’t have enough knowledge about consumers and producers to be able to allocate resources efficiently. Believed that central planning by governments led to what a small minority wanted being forced on the whole society

63
Q

What are the advantages of free market economies?

A

-consumers have freedom of choice
-competition between firms means lower prices
-automatic system that means there is no excess demand/supply
-high motivation due to competition and higher potential rewards

64
Q

What are the disadvantages of free market economies?

A

-lack of competition creates monopolies, meaning higher prices
-high levels of inequality
-overconsumption of demerit goods
-firms may not provide public goods which aren’t profitable

65
Q

What is a command economy?

A

An economy where the government allocates all of the scarce resources. All factors of production except labour are owned by the government, no private property, all receive the same wages

66
Q

What did Karl Marx believe about command economies?

A

Agreed with them as he believed that capitalist profit’s came from exploiting labour as they underpaid workers, which increased inequality gaps

67
Q

What are the advantages of a command economy?

A

-state maximises social welfare, so less inequality
-easier to coordinate resources in times of crises, like war
-abuse of monopoly power is prevented
-less resources wastage as there is no need for competitive services or advertising

68
Q

What are the disadvantages of a command economy?

A

-may not meet consumer preferences
-limits democracy and personal freedom
-less motivation and efficiency as they all receive the same wage
-impossible for the state to make so many decisions correctly, which could lead to a waste of resources

69
Q

What is a mixed economy?

A

An economy where resources are allocated by the state and price mechanism

70
Q

What is the governments role in a mixed economy?

A

-to create a framework of rules
-to supplement and modify the price system
-to redistribute income
-to stabilise the economy

71
Q

Why is it helpful for the government to create a framework of rules?

A

-consumer protection laws
-protect property rights
-ensure safety standards
-prevent abuse of monopolies

72
Q

Why is it helpful for the government to supplement and modify the price system?

A

-to produce public/merit goods
-limit the production of demerit goods

73
Q

Why is it helpful for the government to redistribute income?

A

Use taxes to give benefits and provide services for all like education and the NHS

74
Q

Why is it helpful for the government to stabilise the economy?

A

To manage the level of demand through fiscal and monetary policy

75
Q

What is market failure?

A

When the free market fails to allocate resources to the best interest of society

Economics Theme 1 (14 decks)

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