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economics > 1.1 - nature of economics > Flashcards

1.1 - nature of economics Flashcards

1
Q

what is ceteris paribus

A

the assumption that all other influencing factors stay constant

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2
Q

what are economic models

A

used to make predictions of the course of the economy to find ways to improve performance

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3
Q

criticisms of models

A
  • unrealistic and too simple
  • some are altered to emphasise points
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4
Q

positive statements

A

statements that are objective, based on facts
- find out how economies and markets actually work

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5
Q

normative statements

A

value judgments of how economies and markets ought to be

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6
Q

use of value judgements

A

value judgements can influence economic decisions
- positive statements used to back up normative

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7
Q

what is the problem of scarcity (basic economic problem)

A

humans have infinite wants but finite resources and factors of production
- everything has an opportunity cost

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8
Q

what is an opportunity cost

A

the value of the next best alternative foregone

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9
Q

how do economies try to solve the basic economic problem

A

by working out what to produce and for whom production should take place

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10
Q

factors of production

A

Capital - physical goods that can be used for production
Enterprise - innovation, making use of FoP
Land - physical space used for factories, natural resources eg. coal, oil, wheat
Labour - human capital , workers

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11
Q

what is the law of increasing opportunity cost

A

when production of one increases, production of another decreases

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12
Q

PPF

A

anywhere on the graph = efficient + all resources used
- under the graph = inefficient use of resources
- outward shift = economic growth, better quality or quantity of FoP

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13
Q

efficiencies on PPF

A

allocative - when production satisfies consumer demand
productive - any point on the curve, all resources being used efficiently
pareto - any point, no one will be better off without making someone else worse off

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14
Q

what are capital goods

A

goods that can be used to produce other goods (eg. machinery)

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15
Q

what are consumer goods

A

goods that cannot be used to produce others
- final product (eg. clothes)

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16
Q

specialisation

A

method of production where a business focuses on the production of a limited scope of products or services to gain greater productive efficiency

17
Q

adam smith

A

said specialisation and the division of labour can increase labour productivity and allow firms to increase efficiency

18
Q

advantages of specialisation and the division of labour

A
  • labour productivity increased
  • higher quality of goods and services
  • cost effective way to develop specialist tools
  • time not wasted
  • workers only need to be trained to do one task
19
Q

disadvantages of specialisation and the division of labour

A
  • workers can get bored = poor quality work
  • reduction of craftsmanship
  • one slow area = production delayed everywhere
  • workers dont have wide industrial training so could face structural unemployment
20
Q

advantages of countries specialising

A

theory of comparative advantage states countries should specialise in good where they have low opportunity cost
- helps boost economy
- globally there is greater output

21
Q

disadvantages of countries specialising

A

may become over-dependent on one export
- if this falls, overall economy declines/ collapses
-could run out of non-renewable resources
- high interdependence will cause problems if trade prevented
- more competition to cut costs = wages fall
(ev. not necessarily true)

22
Q

what are the 4 functions of money

A
  • medium of exchange
  • measure of value
  • store of value
  • method for deferred payments
23
Q

money as a medium of exchange

A

can be used to buy and sell goodsmone

24
Q

money as a measure of value

A

can compare the value of 2 goods
- eg. a table and a skirt

25
Q

money as a store of value

A

able to keep value and can be kept for a long time

26
Q

money as a method of deferred payment

A

allows for debts, people can pay for things without having the money currently
- relies on money storing its value

27
Q

what is a free market

A

an economy without government intervention
- resources allocated through the price mechanism
- consumers make decisions based on satisfaction and producers on profit

28
Q

adam smith vs friedrich hayek

A

S - believed in free market, ‘invisible hand’ which allocated resources to everyone’s advantage
- competition in market = lower prices
H - argued state control = loss of freedom
- believed the poor would be better off bc atleast they had personal freedom

29
Q

advantages of the free market

A
  • automatic system due to the invisible hand
  • consumer sovereignty, have freedom of choice
  • high motivation bc working hard = higher rewards
  • political freedom
  • productive efficiency bc firms in competition
  • higher growth
30
Q

disadvantages of the free market

A
  • high levels of inequality bc rich get richer
  • lack of merit goods and little control of demerit
  • resources could be wasted on unproductive expenses
  • if competition disappears = monopolies
  • problem of externalities
31
Q

what is a command economy

A

all FoP is owned by the state and labour is directed by the state (basically communism)
- no private property

32
Q

karl marx

A

believed capitalist profits came from exploited labour

33
Q

advantages of a command economy

A
  • state provided min standard of living
  • less wastage of resources
  • long term planning
  • standardised products = cost effective production
  • gov motivated by well-being of the country
34
Q

disadvantages of a command economy

A
  • possible waste of resources, hard to make all right decisions
  • could be increase in bribery and corruption bc making decisions takes time
  • less motivation and efficiency in workers bc hard work ≠ rewards
  • consumers lose freedom
35
Q

what is a mixed economy

A

compromise economy between free market and command
- free market mechanism and gov plan to allocate resources

36
Q

role of gov in mixed economy

A
  • create framework of rules
  • supplements and modifies price system
  • redistributes incomes
  • stabilises economy

economics (5 decks)

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