1.1 Nature of economics Flashcards

1
Q

what does ceteris paribus mean?

A

All other variables remain constant

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2
Q

What are normative statements

A

Focus on value judgements. Judgements are built around opinions and beliefs. e.g. every economy SHOULD aim to provide free healthcare

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3
Q

What are positive statements

A

Based on evidence and are able to be true or false. e.g. prices in the UK have risen, partly due to the 20% increase in the price of oil

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4
Q

What are value judgments?

A

They influence individuals choices in the economic decisions that they make.

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5
Q

What is the basic economic problem?

A

Scarcity. There are finite resources available yet people have infinite wants and needs.

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6
Q

Renewable resources

A

Able to be used repeatedly and naturally replenished e.g. wind energy

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7
Q

Non-renewable resources

A

Cannot be naturally replenished. e.g. coal and oil

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8
Q

What are opportunity costs?

A

It is the loss of the next best alternative when making a decision. e.g. if I was to buy a new phone I may be unable to buy myself a new pair of shoes.

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9
Q

What is the PPF model?

A

An economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods/services.

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10
Q

What are capital goods?

A

Assets that help a firm to produce output. e.g. machinery in a factory

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11
Q

What are consumer goods?

A

End products that no future productive use, ready to be sold to the consumer. e.g. a watch or a phone.

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12
Q

Shifts in the PPF

A

An outward shift= economic growth

An inward shift= economic decline

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13
Q

How does economic growth occur?

A

When there is an increase in the productive potential; (output) of an economy. This is demonstrated by an outward shift of the entire curve.

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14
Q

How does economic decline occur?

A

When an economy reduces the quantity or quality of the available factors of production. e.g. an earthquake or tsunami may effect the output level of an economy.

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15
Q

What is division of labour?

A

When a task is broken up into several smaller tasks. This results in higher output per worker as they become specialised at one certain task/skill.

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16
Q

What is specialisation?

A

When we concentrate on a product or task.

17
Q

Pros to the division of labour and specialisation

A

Higher labour productivity.
Lower unit costs
lower costs= lower prices for consumers
higher profits

18
Q

Cons of the division of labour and specialisation

A

Task repetition= decreased worker motivation
lower productivity?
Workers only have one skill e.g. making burgers at a fast food chain.

19
Q

What are the four functions of money?

A

A medium of exchange
A measure of value
A store of value
A method of deferred payment

20
Q

what does a medium of exchange mean?

A

It allows buyers and sellers to exchange goods. Without money bartering would occur which is problematic as it requires two people to want others goods.

21
Q

What does a measure of value mean?

A

Money provides a means of adding a value to different goods and services. Without this measure it would be difficult for buyers and sellers to agree a reasonable exchange

22
Q

What does a store of value mean?

A

Money holds its value over time, this means that money can be saved and remains valuable over time`

23
Q

What does ‘A method of deferred payment’ mean

A

Money is an acceptable way to arrange terms of credit and settle any debts. This allows consumers to acquire goods that they may not be able to currently afford but pay for them over tme or in the future. e.g. a house.

24
Q

What is a free market economy? (Adam Smith)

A

A free market has no government intervention in the allocation of resources

25
Q

What is a command economy? (Karl Marx)

A

A command economy is where all resources are owned by the state and the government controls the distribution of goods and services.

26
Q

What is a mixed economy? (Friedrich Hayek)

A

A mixed economy is a blend of a free market and command economy. Individuals, firms and governments own factors of production and distribute goods and services.

27
Q

What did Adam Smith believe in?

A

He advocated for free markets with low levels of government intervention. He believed governments played a role to ensure efficiency in the allocation of resources and to provide public and merit goods. But believed economies functioned best when individuals work in their self- interest.

28
Q

What did Friedrich Hayek believe in?

A

Command economies were flawed. Identified information gaps between what was saying was required and what was actually required. This led to shortages or surpluses in goods and services. Overly heavy gov intervention is a threat to economic growth.

29
Q

What did Karl Marx believe in?

A

Free markets lead to capitalism, in which workers would be exploited by the rich (capitalists). He believed that the state should become the central planner of the economy.

30
Q

Pro’s of free market economies

A

profit incentive motivates people to work harder or to innovate more

Greater variety of goods and services

More competition= better quality, lower prices and more innovation

More efficient use of scarce resources (central economic problem)

31
Q

Con’s to free market economies

A

Wealth can be hoarded by the richest in society

inequality increases

workers get exploited

Monopolies develop, therefore exploitation of consumers and supply chains

32
Q

Pro’s of a command economy

A

Less inequality as profit maximisation is not the goal

All workers receive the same wage

less unemployment

Government owns monopoly businesses so consumers wont be exploited

33
Q

Cons of a command economy

A

Receiving the same wage no matter your role disincentivises people from gaining difficult skills such as a doctor

Lack of competition= less innovation

lack of efficiency

Black markets

less personal freedom

34
Q
A