1.1 nature of economics key words Flashcards
meaning of ceteris paribus & what it allows for
all other things equal. helps to define what is causation by isolating independent variables
three main economic agents
households/indidivuals
firms
governments
what are social sciences
the study of human behaviour within human society
what is opportunity cost
measures the cost of any choice in terms of the next best alternative forgone
positive statements
a statement that is verifiable by data
normative statements
a statement that involves a value judgement
Subsidies
a sum of money granted by the state to a certain industry to keep prices steady
tax
govt takes money from workers to fund public endeavors
goods
tangible products
labour
jobs and the people that do them
the economic problem
resources are scarce & our wants often exceed them
what are renewable resources
commodities that are inexhaustible or replaceable over time providing that the rate of extraction of the resource is less than the natural resource renews itself
finite / non renewable resources
cant be renewed
sustainable development
refers to how each generation should pass on at least as much ‘capital’ as it inherits
eg. environmental capital or machinery
production possibility frontier
is used to show different combinations of outputs for two products given available resources. it illustrates the issue of choosing how to use scarce resources when producing goods and services
the PPF diagram captures these concepts
trade offs & conflicting objectives
Shift in the PPF diagram OUTWARDS & TO THE RIGHT shows
an increase in the productive capacity of the economy where a greater output can be produced
What might result in a shift inwards of the PPF diagram?
Natural disasters, civil unrest, emigration, ageing population, obselete equipment
Shift in the PPF diagram INWARDS & TO THE LEFT shows
a decrease in the productive capacity of the economy ie. Less ouptut can be produced
the 4 functions of money
medium of exchange
measure of value
deferred payment
store of value
potential benefits from specialisation
higher output
greater variety for consumers
a bigger market
competition thus lower prices
what is the division of labour
a type of specialisation wherein the production of a good is broken down into separate tasks each performed by one person or a small group
limitations of division of labour
may eventually reduce efficiency & increase unit costs as the work becomes unrewarding & repetitive for workers & they lack motivation & productivity
also if one machine breaks down ur done for
what is a free market economy & example
limited role of govt & resources are privately owned. prices are set freely between seller & consumer
eg. hong kong
what is a mixed market economy & example
decisions on what and for who to produce are partly made by the private sector and partly by the public sector. The public sector supplies public, quasi-public and merti goods and intervenes in markets to correct percieve market failure eg. UK
what is a command market economy & example
wherein the govt makes all decision eg. north korea
what is the index of economic freedom
an annual index and ranking to measure the degree of the economic freedom in the worlds nations
eg. singapore being the highest
explain the invisible hand
idea propped up by adam smith in the 18th century.
refers to the self regulating behaviour of the market place. individuals seeking to maximise personal gains will lead to an efficient allocation of resources
explain the invisible hand
idea propped up by adam smith in the 18th century.
refers to the self regulating behaviour of the market place. individuals seeking to maximise personal gains will lead to an efficient allocation of resources
advantages of free market economy
increased efficiency & innovation
competitive market
consumer choice
rewards entrepreneurship
disadvantages of free market economy
poor quality
inequalities in wealth
market monopolies
advantages of command economy
low levels of inequality & unemployment
the common good replaces profit as the primary incentive for production
prevents monopolies
disadvantages of command economy
less incentives to work hard
businesses struggle to maintain high production levels
lack of competition & innovation
what did fredreich hayek believe about free market economies
the state should not interfere in the free market and that its role should be to maintain the rule of law
what belief did fredreich hayek subscribe to
mixed market economy, where decisions are left in the hands of individuals & firms but the state acts as a safety net
quote from marx
workers of the world unite. you have nothing to lose but your chains
