4.1.1 = Basics + PPF Flashcards
What is the definition of economics?
It has no single defintion, a basic deifintion by the Economist’s Dictionary of Economics is: ‘The study of the production, distribution and consumption of wealth in human society’.
What is the difference between positive and normative statements?
Positive = A statement of what is and the way the economy actually works
Normative = Usbjective. Statement of what should be and the way the economy ought to work.
Define Ceteris Paribus
‘All other factors/things being unchanged or constant’
Why does economics differ from natural sciences?
Because it is practically impossible to conduct controlled experiments. Economics is a social science.
Why are some economic decisions made not the correct ones?
Because people’s views regarding what is the ‘best decision’ are based on normative aswell as positive consequences, meaning opinions can differ and outcomes can be misjudged.
What is the purpose of economic activity?
The production of goods and services to satisfy societies needs and wants.
What is the fundamental economic problem?
The decision of what and how to produce, to whom and how to allocate goods and services, and so how to satisfy the infinite, insatiable human wants given finite, limited resources.
What are the 4 key economic resources / factors of production
CELL
Capital = Man-made physical stuff used to make other goods/services
Enterprise = Individuals who set up and allocate the pther 3 resources as a business
Land = All natural resources
Labour = Work done by individuals contributing to the production process
What’s the difference between capital and consumer goods?
Capital = Goods used to produce other goods
Consumer = Goods used to satisfy the consumer
What is a ‘market’?
A market is a distrubtion mechanism. It is any place where buyers and sellers meet to exchange goods/services, It does not have to exist in one physical place or location.
What is a ‘free market’?
A market in which there is no 3rd part intervention and prices are dictated solely buy supply and demand. In a free market we assume both parties behave rationally.
Name 3 advantages and 3 disadvanteges of a free market economy
Advanatages:
- Efficiency. As any good/service can be marketed, only the best products in terms of quality and price willl be demanded therefore putting pressure on firms to operate efficiently.
-Innovation. The possibility for large profits will encourage entrepreneurship.
-Choice. Compeition paired with innovation leads to large choice for consumers.
Disadvantages:
-Inequalities. There will be huge differences in wealth and income in the form of uneven distribution.
-Monopolies and Oligopolies. Without regulation firms can come to dominate and promote oligopolistic or monopolistic outcomes.
-Non profitable goods aren’t produced. Certain essential goods such as medicine may not be produced as it is not profitable for firms to do so.
What is an ‘economic system’?
The means by which societies/governments allocate and distribute available resources, goods and services accross a geographic region.
What are the 4 main types of economic systems?
Traditional Economy = A system that relies on custom, history and time-honoured beliefs.
Command Economy = A system in which allocation decisions are made by a centralised organisation.
Market Economy / free market = Allocation is through interactions between firms and consumers with very little government interference.
Mixed Economy = Combined characterisitcs of command and market systems.
What is an opportunity cost?
The potential benefits that are missed out by chosing to allocate resources in a specific way.
