1.1 Nature of Economics Flashcards

1
Q

what does cetaris paribus mean

A

all other variables remain constant

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2
Q

what is a positive statement

A

one that is a statement of fact - can either be true or false

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3
Q

what is a normative statement

A

one that is based on opinions or beliefs - they cannot be proven

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4
Q

what is the basic economic problem

A

resources are scarce - humans have infinite wants and needs but only finite resources

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5
Q

what is a renewable resource

A

one that can be used repeatedly and naturally replenished

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6
Q

what is a non-renewable resource

A

one that cannot be naturally replenished

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7
Q

what is opportunity cost

A

the loss of the next best alternative when making a decision

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8
Q

what does a PPF show

A

the maximum possible output of two G/S a country can generate if it uses all of its FOPs

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9
Q

what is a capital good

A

assets that help a firm or country to produce output (manufacturing)

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10
Q

what is a consumer good

A

end products that have no future productive use

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11
Q

what does an outwards shift of a PPF mean

A

economic growth - increase in the productive potential of an economy

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12
Q

what causes an outward shift of a PPF

A

an increase in the quality or quantity of available FOPs

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13
Q

what is the division of labour

A

when a task is broken up into several component tasks

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14
Q

what are the pros of the division of labour and specialisation

A

lower cost per unit due to higher productivity
lower costs can mean lower prices
lower costs can mean higher profits and higher wages
increased productivity can allow firms to break into international markets
creation of low skilled jobs

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15
Q

what are the cons of the division of labour and specialisation

A

task repetition can lead to decrease in worker motivation and boredom
decreased motivation can lead to lower productivity and poorer manufacturing quality
may increase worker turnover rates
mass produced products often lack variety
if a worker loses a job its harder to find a new one since they are only trained in one skill

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16
Q

what is the preferred medium of exchange

A

money/currency - a measure and store of value and a method of deferred payment

17
Q

why is bartering problematic

A

it requires two people to want each other’s good (double coincidence of wants)

18
Q

what are the 3 main economic agents

A

consumers
producers
the government

19
Q

what are the three fundamental economic questions

A

what to produce?
who to produce for?
how to produce it?

20
Q

what did Hayek believe

A

free markets with no government intervention are best. that there were information gaps between what the economy actually required and what the central planners in charge said it required, which created shortages or surpluses of G/S in command economies

21
Q

what did Smith believe

A

free markets with some government intervention are best (mixed economy). governments ensure efficiency in the allocation of resources, but felt economies functioned best when private individuals work in their own self-interest

22
Q

what did Marx believe

A

free markets lead to capitalism where bosses exploit their workers. which creates inequality. the State should should share means of production and ownership with all workers in society. abolition of private property, and the State becomes the central planner

23
Q

what is a free-market economy

A

an economy with no government intervention in the allocation of resources and distribution of G/S

24
Q

what is a command economy

A

an economy where all the resources are owned by the state and the government controls the distribution of G/S

25
Q

what is a mixed economy

A

a mix of a command economy and a free market, where the government owns some FOPs and distributes some G/S

26
Q

what are the advantages of a free market

A

profit incentive motivates people to work
greater variety of G/S
competition leads to higher quality G/S
competition encourages innovation
unlimited profits, income and wealth so higher standards of living
more efficient use of scarce resources

27
Q

what are the disadvantages of a free market

A

wealth is concentrated as the rich are able to buy up scarce FOPs
increased inequality
product quality may fall as firms try to increase profit
exploitation of workers and consumers
monopolies develop as firms increase market power

28
Q

what are the advantages of a command economy

A

less inequality
all workers receive the same wage to achieve social equality
less unemployment
resources can be directed to urgent priorities
the government owns monopoly businesses so consumer exploitation is avoided

29
Q

what are the disadvantages of a command economy

A

receiving the same wages disincentives people from gaining difficult skills
lack of competition means less innovation
lack of efficiency as central planning always leads to surplus of G/S
black markets exist to address shortages
lower standards of living
restricted personal freedoms