1.1 nature of economics Flashcards
1
Q
What is a social science (in terms of economics)?
A
- Studying society and the relationships between people
- Analysing different aspects of human behaviour and the relationships between the 4 economic agents
2
Q
What is ‘ceteris paribus’?
A
- “all other things equal”
- the assumption that other variables remain constant when looking at a specific variable
3
Q
What are the 4 economic agents?
A
- Individuals (consumers)
- Workers
- Firms/businesses (producers)
- Government
4
Q
What is a ‘rational’ assumption?
A
- The assumption that consumers buy for the benefit of their economic welfare, rather than their personal preference
5
Q
What is the role of individuals?
A
- They have a limited income, so must make choices
- Objective is to maximise utility (satisfaction)
6
Q
What is the role of workers?
A
- Want to maximise their gains from employment
- Objective is to initially maximise income, working conditions and job security
- However, objectives may change and they might accept lower income if other benefits occur
7
Q
What is the role of firms?
A
- Objective is to maximise profit
- Some are not-for-profit and objective is to focus on social causes
8
Q
What is meant by disposable income?
A
- Income remaining after tax is applied
9
Q
What is the role and objective of the Government
A
- To represent the best interests of their people
- To maximise the welfare of the citizens
10
Q
What is a positive statement?
A
- Objective statements that can be tested and rejected by referring to available evidence
11
Q
What is a normative statement?
A
- Subjective statements that are based on opinion and carry value judgements
12
Q
What is the basic economic problem?
A
- The idea that we have unlimited wants and finite needs
13
Q
What 3 key questions can summarise the basic economic problem?
A
- What to produce?
- How to produce?
- For whom to produce?
14
Q
What is excess demand?
A
- When demand>supply
15
Q
What are some ways of allocating resources?
A
- Means-tested (those who need it most)
- Ballot
- Auction
- Income
- Postcode
16
Q
What is a capital good/service?
A
- A good/service, which is used to make other goods and services
17
Q
What is a consumer good/service?
A
- A good/service, which is used to satisfy utility
18
Q
What is a non-renewable resource?
A
- A finite resource
19
Q
What is a renewable resource?
A
- A replaceable and infinite resource
20
Q
What is a free good?
A
- A good with zero factor input and opportunity cost
- An example would be air or gravity
21
Q
What are the advantages of a competitive market?
A
- Efficient allocation of scarce resources
- Competitive prices
- Drives innovation and invention
- Profit motive stimulates capital investment
- Reduced domestic monopoly power, increasing choice
22
Q
What are some roles of the state in a mixed economy (like the UK)?
A
- State owns certain industries
- Provide a range of welfare benefits such as pensions
- Government spending on public services
23
Q
Opportunity cost…
A
- Next best alternative foregone (sacrificed)
24
Q
What is a Production Possibility Frontier and what does it show?
A
- A PPF is a normally-concave curve that shows the maximum output of 2 types of goods that can be produced with current resources and technology
- Can be used to show opportunity cost of producing goods
25
What are assumptions made in a PPF?
- All factors of production are utilised efficiently
- Only 2 types of goods that can be produced
- Illustrates opportunity cost
- 1 type of each good
26
what is productive efficiency?
productive efficiency is when all factors of production available are being maximized.
27
What are some conditions that cause an outwards shift of the PPF?
- QUANTITY of resources available for production increases
- QUALITY of existing resources improve
- TECHNOLOGY available improves
28
What are some conditions that cause a PPF to shift inwards?
- Deep recession (slump), causing some firms to close and resources harder to obtain
- External shocks and natural disasters
29
what happens on any point on the curve
outside the curve
and inside the curve on ppf
any point on the curve is productive as it is being used or maximizing the use of fops.
any point outside the curve is unattainable given the fops
any point inside the curve is not being utilised and is wasted
30
what is allocative efficiency?
its where whats being produced has satisfied consumer demand and wants
31
what is dynamic efficiency?
refers to an economy's ability to grow and expand its production possibilities over time.
productive efficiency of the firm overtime
innovate
efficient growth over time.
32
what is specialization?
its the production of a narrow range of goods/services by an individual, firm, or country in cooperation with others to make a complete range of goods/services
eg.uk financial services and pharmaceuticals
south africa: de beers diamond and gold
33
what is the division of labor?
who is adam smith and what did my man say?
The division of labor a form of specialization where the production process is broken down into separate tasks
He argued that specialization leads to increased productivity and economic growth.
34
what are the advantages of specialisation?
higher output(wants and needs satisfied)
quality improvements
wider range of goods/services e.g Dyson
variety(people have access to range of goods)
a bigger market(increase trade and specialisation)
competition lower prices
higher productivity through better use of workers
35
disadvantages of specialisation?
Dependency: vulnerable to economic shocks if dependent on single industry or export.
international trade issues: affect import and exports
changes in fashion and taste
dependant on finite resources like oil
36
benefits of division of labour?
firms' perspective
Higher output per person reduces cost per unit as workers focus on narrow small tasks.
individual perspective
higher pay
37
disadvantages of divison of labour
risk of long-term unemployment
receiving narrow training, and not able to find alternative jobs. capital replaces them
demotivated workers if they do unrewarding repetitive work. cost of production increases efficiency decreases.
38
Advantages of Specializing for Trade?
Comparative Advantage: Nations can focus on producing goods and services where they have a comparative advantage, leading to higher efficiency.
Increased Standard of Living: Trade allows access to a wider variety of goods and services, enhancing overall living standards.
39
Disadvantages of Specializing for Trade?
Vulnerability to External Shocks: Reliance on trade exposes nations to risks, such as changes in global demand or supply disruptions.
Income Inequality: Specialization may benefit certain industries or regions more than others, leading to income inequality.
40
what is a command economy?
In a command economy, the government or central authority makes all economic decisions.
Key figures: Karl Marx, who envisioned a classless society with centralized planning, and Friedrich Hayek, a critic of central planning who believed in free markets.
41
what happens if PPF has a slight shift to one product?
if curve slightly shifts its favouring one production of an item.
42
what is a barter system?
a barter system works by swapping one good for another good without the use of money eg rolex for car
43
what are the four functions of money?
-a medium of exchange(used to buy and sell goods)
-a measure of value(acts as a unit of account)
-a store of value(allows people to save for future consumption)
-method of deferred payment(allows individuals and firms to take loans providing means of transferable credit
44
what are the assets of money?
-cash
notes coins cash is token money.
-money in current account
cash can be withdrawn and debit card and cheque books can be used to purchase goods/services.
-money substitutes
Credit cards are money subs as they are used instead of money.
-assets near monies
ca be used as a measure of value but not as a medium of exchange. eg liquid money
