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Economics > 1.1 nature of economics > Flashcards

1.1 nature of economics Flashcards

1
Q

what are economic goods?

A

certain utility to society, willing to pay, degree of scarcity and therefore has an oppurtunity cost

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2
Q

what are free goods?

A

cannot be traded, characterised by abundance

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3
Q

what is the basic economic problem?

A

how can available scarce resources be used to satisfy peoples infinite needs and wants as effectively as possible? (limited amounts of resources resulting in choices)

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4
Q

what is a need?

A

something which is neccesary for survival

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5
Q

what is a want?

A

something which is desired, isn’t a need

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6
Q

what is ceteris paribus?

A

means that when the effect of a change in one variable is considered, it is assumed that all other variables is considered, it is assumed that all other variables are held constant

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7
Q

what is a positive statement?

A

positive statement describes facts or how something is

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8
Q

what is a normative statement?

A

normative statement describes opinions or how things should be

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9
Q

what is an economic agent

A

economic statement is people or groups of people who fall into the same category, by performing some function in economic activity

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10
Q

what do economic agents do?

A

economic agents make decisions on how resources are allocated

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11
Q

who are the economic agents?

A

economic agents are producers, consumers, household or the government

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12
Q

what do producers do?

A

producers are firms or people who make goods or provide services

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13
Q

what do consumers or households do?

A

consumers or households are people or firms who make or provide goods or services

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14
Q

what does the governments do?

A

governments sets rules that other participants in economy have to follow, also produces and consumes goods and services

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15
Q

what does CELL mean, and do

A

Capital (equipment, factories, schools help produce)
Enterprise (entrepenues that take risk)
Land (earth natural resources)
Labour (work done by people ‘labour force’)

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16
Q

what does PPF mean

A

production possibility frontier

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17
Q

what do PPFs show

A

combination of two goods or services, showing maximum output combinations when using all available factors of production efficiently

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18
Q

what could allow nations to consume beyond their own PPF

A

trade between countries allow nations to consume beyond their PPF, potentially leading towards gains in economic welfare

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19
Q

what shows welfare or gain in allocative efficiency

A

shown through more of both goods with same resources

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20
Q

A, B and C are on the curve, what does that mean?

A

maximum efficiency

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21
Q

D is inside the curve, what does that mean?

A

inefficient, too little being produced, unemployed resources used inefficiently

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22
Q

E is outside the curve, what does that mean?

A

unattainable, cant produce more due to current factors of production

23
Q

what can increase the current factors of production?

A

increase in factor resource, increase in productivity, improvement in technology

24
Q

what does a straight PPF mean?

A

marginal opportunity cost of switching resources between consumer and capital goods is constant

25
Q

what does diminishing returns mean?

A

additional resources are devoted to producing a good, marginal increase in smaller output

26
Q

what does economic growth entail

A

changes in production or technology

27
Q

what is a capital good?

A

a good which is required to produce other goods

28
Q

what is a consumer good?

A

a good which provides satisfaction to consumers

29
Q

what does specialisation mean?

A

concentration of production on a narrow range of goods or services

30
Q

what can specialise

A

countries, regions, firms or workers can specialise within an industry

31
Q

what are advantages of specialising?

A

higher output, wider range of goods or services, greater allocative efficiency, higher productivity

32
Q

what are disadvantages of specialising?

A

finite resources, change in fashion or tastes, deindustrialisation, national interdependance

33
Q

how is higher output an advantage?

A

resources are purely focused onto efficient production, resulting in higher trade and higher growth

34
Q

how is greater allocative efficiency an advantage?

A

greater allocative efficiency is an advantage as it decreases scarcity

35
Q

how is higher productivity an advantage?

A

there is a better use of workers, with a decreased cost of production

36
Q

how is change in fashion/ tastes a disadvantage?

A

becoming overspecialised could potentially mean that there is unwanted items

37
Q

how is deindustrialisation a disadvantage?

A

there are better, more efficient firms, when businesses deindustrialise there is higher rates of unemployment

38
Q

how is national interdependence a disadvantage?

A

national interdependence means that countries need to be able to export surplus and import goods and services which are needed

39
Q

what did Adam Smith say

A

free market system along with free trade would produce true national wealth, economic growth through division of labour

40
Q

what is division of labour?

A

division of labour is the breaking down of the production process into separate tasks upon specialisation

41
Q

what are advantages of division of labour?

A

higher production, specialist capital for workers, lower prices

42
Q

what are disadvantages of division of labour?

A

demotivation of workers, higher worker turnover, risk of long-term unemployment, highly standardised goods or services

43
Q

why is risk of long term unemployment a disadvantage?

A

overspecialisation of workers, automated machines can do the jobs

44
Q

what are limits to division of labour?

A

size of markets, type of market, transport costs

45
Q

what are the functions of money?

A

medium of exchange, measure of value, store of value and method of deferred value

46
Q

what are the main characteristics of free market economies

A

private ownership of resources, market force determine prices, producers aim to maximise profit, consumers aim to maximise utility, resources are allocated by price mechanism

47
Q

what are advantages of free market economies?

A

flexibility, officials not needed to allocate resources, competition and profit motive promote efficient allocation of resources, consumers and producers have their own rights

48
Q

what are disadvantages of free market economies?

A

inequality (less resources, less rich), instability (booms and slumps), imperfect information, danger firms will exploit consumers if only supplier.

49
Q

what did Friedrich Hayek say?

A

‘state planning would involve restrictions on freedom and use of force’

50
Q

what are the main characteristics of a command economy?

A

public ownership of resources, state determines prices, producers aim to meet production targets set by state, state allocates resources, greater equality of wealth and income than free market economies

51
Q

what are disadvantages of command economies?

A

greater equality, booms and slumps smoothed out, external benefits and costs accounted, no exploitation, full employment

52
Q

what are disadvantages of command economies?

A

inefficiency (allocation inefficient, absence of profit motive and competition), lack of incentive to take risks, restriction of freedom of choice, inflexibility)

53
Q

what is a mixed economy?

A

a mixed economy is a mixture of a free market economy and a command economy, with some resoruces being allocated by price mechanism while others are allocated by the state.

54
Q

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

A

defence and national security, provision of public goods, provision of public services such as education and health, redistribution from the rich to the poor

Economics (20 decks)

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