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Economics > 1.1 - Nature of economics > Flashcards

1.1 - Nature of economics Flashcards

1
Q

Define the term ‘ceteris paribus’

A

‘all other things being equal’

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2
Q

What is a positive economic statement?

A

An objective statement based on evidence or fact that can be proven or disproven.

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3
Q

What is a normative economic statement?

A

A subjective statement based on judgement that cannot be proven or disproven.

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4
Q

What is the basic economic problem?

A

Wants are infinite, but resources are finite.

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5
Q

What are the 4 factors of production?

A

Capital
Enterprise
Land
Labour

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6
Q

What is capital?

A

Any man-made aid to production, e.g. machinery.

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7
Q

What is enterprise?

A

2 roles are:

Bringing together the other factors of production so that goods and services can be produced.

Taking the risks involved in production.

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8
Q

What is land?

A

Includes all resources, raw materials and resources found in the sea.

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9
Q

What is labour?

A

Refers to those involved in the production of goods and services.

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10
Q

What are renewable resources?

A

Those that can be replaced naturally after use.

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11
Q

What are non-renewable resources?

A

Those where continued consumption will eventually result in their exhaustion.

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12
Q

Define opportunity cost.

A

The benefit forgone of the next best alternative.

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13
Q

What does a production possibility frontier (PPF) show?

A

Shows combination of two goods that can be produced by an economy if all of its resources are employed fully and efficiently.

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14
Q

What does an outward shift of a PPF curve indicate?

A

Economic Growth.

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15
Q

What is economic growth?

A

An increase in real GDP.

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16
Q

Name 4 factors that would cause an outward shift in a PPF curve.

A

Discovery of new natural resources.

Advances in technology.

Improvements in education or training.

Increased size of workforce.

(Anything causing a rightward shift in LRAS)

17
Q

Name 4 factors that would cause an inward shift in the PPF curve.

A

Natural disasters.

Depletion of natural resources.

Reduction in size of workforce.

A deep recession.

(Anything causing a leftward shift in LRAS)

18
Q

What is the meaning of division of labour?

A

Occurs when worker specialise on very specific tasks.

19
Q

Who set out the view that economic growth could be achieved by increasing the division of labour?

A

Adam Smith.

20
Q

Name 3 advantages of specialisation and the division of labour in organising production

A

Each worker specialises in a task that they are best suited to.

Workers only have to be trained once in one area, saving money.

Less time is wasted as workers don’t need to move between jobs.

21
Q

Name 3 disadvantages of specialisation and the division of labour in organising production

A

Work can become monotonous for workers, reducing productivity.

Loss of skills, workers only have few detailed skills.

A strike by one group of workers could bring entire production to a standstill.

22
Q

What is an advantage of specialising in the production of goods and services to trade?

A

If a country exchanges the goods and services it does produce for ones it doesn’t then this can be positive and allow increased output.

23
Q

What is a disadvantage of specialising in the production of goods and services to trade?

A

Could mean a country becomes over-dependent on imported goods and services.

24
Q

Name 3 factors influencing the extent of division of labour.

A

The size of the market.

The type of product.

Transport costs.

25
Q

What are the 4 key functions of money?

A

As a medium of exchange.

A store of value.

A measure of value.

A means of deferred payment.

26
Q

What is a free market economy?

A

An economic system in which price is determined by supply and demand with no government intervention. Resources are allocated by the price mechanism.

27
Q

Who was pro free market economy?

A

Adam Smith
Friedrich Hayek

28
Q

What was Adam Smith’s view?

A

He stated when individuals follow their own self-interest, they indirectly promote the good of society.

29
Q

What was Friedrich Hayek’s view?

A

He felt state planning would involve restrictions on freedom and the use of force.

30
Q

What is a command economy?

A

An economy in which resources are allocated by the state.

31
Q

Who was pro command economy?

A

Karl Marx

32
Q

What was Karl Marx view?

A

He thought that capitalism was inherently unstable because workers are exploited by the owners of the factors of production.

33
Q

What is a mixed economy?

A

A combination of a free market and a command economy.

34
Q

Name 3 advantages of a free market economy.

A

Flexibility - market system can respond quickly to changes in consumer wants.

Efficiency - competition and profit motive promote efficient allocation of resources.

Increased choice - consumers have a wider choice of goods and services compared with a command economy.

35
Q

Name 3 disadvantages of a free market economy.

A

Inequality - those who own the factors of production are likely to be richer than those who don’t own the factors of production.

Trade cycles - may suffer from instability in the form of booms and slumps.

Externalities - the benefits and costs to third parties due to the production or consumption of a good is not taken into account by the free market.

36
Q

Name 3 advantages of a command economy.

A

Equality - state can ensure people can live a high standard of life.

Macroeconomic stability - state can ensure booms and slumps are smoothed out.

Externalities - these can be taken into account when planning production.

37
Q

Name 3 disadvantages of a command economy.

A

Inflexibility - state may be slow to react tho changes in consumers needs.

Inefficiency - lack of profit motive and competition may result in efficient allocation of resources.

Lack of choice - people would be directed into jobs the state deemed necessary.

38
Q

What is the role of state in a mixed economy?

A

Defence and internal security.

Provision of public goods.

Provision of public services.

Redistribution between the rich and poor.

Economics (13 decks)

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