1.1 Nature of economics Flashcards
what does ceteris paribus mean?
All other variables remain constant
What are normative statements
Focus on value judgements. Judgements are built around opinions and beliefs. e.g. every economy SHOULD aim to provide free healthcare
What are positive statements
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
What are value judgments?
They influence individuals choices in the economic decisions that they make.
What is the basic economic problem?
Scarcity. There are finite resources available yet people have infinite wants and needs.
Renewable resources
Able to be used repeatedly and naturally replenished e.g. wind energy
Non-renewable resources
Cannot be naturally replenished. e.g. coal and oil
What are opportunity costs?
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.
What is the PPF model?
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.
What are capital goods?
Assets that help a firm to produce output. e.g. machinery in a factory
What are consumer goods?
End products that no future productive use, ready to be sold to the consumer. e.g. a watch or a phone.
Shifts in the PPF
An outward shift= economic growth
An inward shift= economic decline
How does economic growth occur?
When there is an increase in the productive potential; (output) of an economy. This is demonstrated by an outward shift of the entire curve.
How does economic decline occur?
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.
What is division of labour?
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.
What is specialisation?
When we concentrate on a product or task.
Pros to the division of labour and specialisation
Higher labour productivity.
Lower unit costs
lower costs= lower prices for consumers
higher profits
Cons of the division of labour and specialisation
Task repetition= decreased worker motivation
lower productivity?
Workers only have one skill e.g. making burgers at a fast food chain.
What are the four functions of money?
A medium of exchange
A measure of value
A store of value
A method of deferred payment
what does a medium of exchange mean?
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.
What does a measure of value mean?
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
What does a store of value mean?
Money holds its value over time, this means that money can be saved and remains valuable over time`
What does ‘A method of deferred payment’ mean
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.
What is a free market economy? (Adam Smith)
A free market has no government intervention in the allocation of resources
