1.1.1 + 1.1.2 + 1.1.3 + 1.1.4 PPFs,the economic problem, Economics Flashcards
why is economics a social science?
it studies human behaviour and decision making within and beetween markets
why are models and theories developed?
- theories: helps to explain the many choices
- models: help predict the impact of economic change
- built on assumptions
what is the need to make assumptions?
(prior conditions made before a macro/micro analysis is built)
- the asumptions help to simplify analysis, however can be critised for not being realistic simplification of economic idea
- simplification of an economic relationship
what is ceteris paribus?
isolates the relationship between two variables, by assuming that all influencing factors are held constant
an assumption
assumptions
EXAM TIP
- write at least one assumption during analysis
- later on critique and evaluate your analysis later by questioning this assumption
eg: an increase in goods……assuming they rae normal goods, however……..
why are models only built of data and assumptions?
economists cannot conduct scientific experiments
why is it difficlut for economists to run experiments?
the factors are variously changing
what is the economic problem?
the problem of scarcity:
* unlimted wants as a society
* finite resources
what are examples of finite resources?
limited
* workers
* machines
* acres of land
* reserves of oil
describe non-renewable resources:
- finite in supply
- rate of extraction is determined by current market price. Higher prices= more profit= inrease in rate of rxtracttion since higher profits
coal, oil, gas
describe renewable resources
- replaceable (rate of extraction/consumption < rate of resource renewal)
- exhausatable if not manged properly
- tragedy of the commons & unsusuainable use of common pool resources
solar energy, tidal power,
who are the three main economic agents?
- conusmers
- goverment
- producers
What is opportunity cost?
- the unavoidable trade offs in the prescence of scarcity
- the value of the next best alternative
what you sacrifice
what is an economy?
the goods and services produced in an area
what is the importance of opportunity costs on the economic agents?
- consumers: decide what to sepnd their incoome on
- producers: decide how and what to produce goods
- goverment: decide which policies to choose
what are the 4 factors of production?
- land :natural resources
- capital : things used to make goods and services
- labour : work done by humans during production
- enterprise: wilingness of people to make risks and take profits
what is automation?
uses capital and machinary /new technology to replace or enhance human labour
replacing labour= capital labour substitiution
what is investment?
the purchase of capital
what is production possibility frontier?
shows the maximum potential output combinations of two goods or serices that an economy can achieve when all it’s resources are fully and efficently employed
what is economic growth and how it is caused?
increase in production of goods and services
due to:
* increase in quantity of factors of production
* increase in quality of facrors of production
Describe this Production possibility Frontier
Show economic growth and negative economic growth on a PPF
Economic growth : arc shift Outwards
Negative economic growth : arc shift inwards
why is it impossible for economist to run scientific experiments?
there are too many variables to isolate
what needs to happen for an economy to produce a currebtly unobtainable comnination of goods/servives in the future?
- quality and quanitity of factors of production needs to increase
- increase in productivity
- improvement in technology
what are consumer goods?
goods that are used to satisfy people’s wants and needs
what are capital goods?
goods which are used to produce othergoods and services
what does it mean for an economy to be at any point on a PPF?
an efficent allocation of resources, since non are being wasted or under utilised
Why might the graph shift from point B to C?
An increase in disposable income (wages)
what happens if there is an increase in capital goods?
there will be a long term incresae in the productive potential of the economy
why might a ppf shift inward?
- war
- conflict
- net migration of people out of a country
- resource depletion (because of climate change)
what are positive economic statements?
- can be tested as true or false
- objective statements
- “will” or facts
in Q: “it is possible to test whether……”
what are normative economic statements?
- express opinion and connot be tested true/false
- subjective statements
- “should”, “fair”, “unfair”, are value judgements
- always contain a value judgement
quote specific words when answering Q
what are value judgements?
a view of rightness or wrongness of something, based on a perosnal view
where are normative and postive statements used?
- normative : goverments make value judgment on economic issues
- postivive analysis is done to help them make decisions
define normative staments
subjective statements that cannot be tested as true/false
define positive statments
objective statments that can be tested as true/false
define value judgments
a view of the rightnessor wrongness of something, based on a personal view
define capital goods
help to aid production of consumer goods in the future
define factors of production
the resources used to produce goods and services
land, labour, capital, enterprise
define opprtunity cost
the cost of any choice in terms of the next best forgone alternative
define production possibility frontier
shows the maxiumum potential output of a combination of two goods and services an economy can achieve when all of it’s resources are fully and efficently employed
define consumer goods
goods used to satisfy consumer wants and needs
define ceteris paribus
a principle where the relationship between two variables is isolated, assuming that all other factors are held constant
define the economic problem
the problem of scarcity; wants and needs are unlimted but resources are finite so choices must be made
define renewable resources
resources which can be replenished; so the stock of resources can be maintained over a period of time
define non renewable resources
resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed
define maximum productive potential
the amount of output an economy could produce if all of its resources were fully and efficently employed
define economic growth
an increase in the productive potential of a country - shown by an outward shift of the PPF
