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Business Studies Theme 4 (A- Level) > 4.1.1 Economic methodology and the Economic Problem > Flashcards

4.1.1 Economic methodology and the Economic Problem Flashcards

1
Q

What does Economics as a social science mean

A

It means we can never be sure how people and businesses will respond to the changing circumstances around them

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2
Q

What is a positive statement

A

Objective statements that can be tested

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3
Q

What is a normative statement

A

Are subjective statements

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4
Q

What are the 3 Economic agents

What do they wish for

A

Rational consumers - Wish to maximise satisfaction
Firms- wish to maximise profits
Governments- Wish to improve economic and social welfare of its citizens

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5
Q

Define Microeconomics

A

Is the study of economics at the level of the individual firm, industry or consumer

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6
Q

What are most economic decisions influenced by ?

A

Influenced by value judgements, which vary from person to person, causing debate

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7
Q

What is a value judgement

A

Is a judgement made on opinion

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8
Q

Define Equity

A

A way of considering fairness in the distribution of income and wealth in the outcome of economic activities

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9
Q

What are the four factors of production

A

Land- raw materials and resources available
Labour- people available to work
Capital- tools and machinery used in production
Enterprise- Investing in other production processes to make a profit

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10
Q

What are the rewards of the factors of production

A

Land- rent
Labour- wages
Capital- interest
Enterprise- profit

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11
Q

What are scarce resources

A

Goods and services which are scarce because of the limited availability of the factors of production

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12
Q

Define rationing

A

Is a way of allocating scarce goods and services when market demand outweighs the available supply

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13
Q

What are the ways of allocating scarce resources

A 
Market price (main)
Consumer income 
Assessment of need
Education level
Age
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14
Q

What are the types of market

A 
Command economies (North Korea)
Mixed economies (UK)
Free market (USA)

Every market is regulated to some extent

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15
Q

Define the basic economic problem

A

Where finite resources are allocated to satisfy needs and wants

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16
Q

What does producing on the PPF curve mean

A

Productively efficient
Lowest possible unit cost
Waste is minimal

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17
Q

What does producing below the PPF curve mean

A

Inefficient use of resources (FOP)

More waste

18
Q

What does producing above the PPF curve mean

A

Unattainable given resources

Can become attainable

19
Q

What is opportunity cost

Give 4 examples

A

Measures the cost of a choice made in terms of the next best alternative foregone or sacrificed

Work leisure choices
Government spending priorities
Investing today for consumption tomorrow
Use of scarce farming land

20
Q

What is economic investment and what is it needed for

A

Adds to the capital stock of the economy

Needed to continue to be productively efficient

21
Q

What are capital goods

A

Used to make consumer goods and services

22
Q

What are consumer goods

A

Satisfy are needs and wants directly

23
Q

If the PPF line is straight what does it mean in terms of marginal opportunity cost

A

Switching resources between capital and consumer goods is constant

24
Q

If the PPF line is concaved what does it mean in terms of marginal opportunity cost

A

Means changing production between goods is not easily substitutable

25
Q

How does the law of diminishing marginal returns occur

A

Because not all factor inputs are equally suited to producing items, leading to lower productivity

26
Q

What are the ways of increasing the PPF curve

A

Q2

Quality - better trained/motivated staff, better capital

Quality - More staff, land and capital

27
Q

How can a reduction in the PPF curve occur

A

Capital depreciates over time. Not able to produce the quality of goods, consumer goods will decrease

28
Q

What is the price mechanism

A

Market forces of supply and demand determine what is produced and sold at what price.
Determines the allocative efficiency

29
Q

What is allocative efficiency

A

Efficient level of output is the combination of goods and services that best meets the needs and wants of society

30
Q

What are the functions of the market (price mechanism)

A 
They allocate resources
The signalling function (following demand to generate most profit as possible)
The rationing function (when a resource is scarce prices go up as it is rationed)
Providing incentives (higher prices give businesses incentives to supply more)
31
Q

What is a Production Possibility Frontier curve

A

A diagram that shows the different production combinations that can be produced given a fixed resource stock

32
Q

What is a free good

A

Goods with no opportunity cost to producing and consuming them, e.g. air

33
Q

What is imperfect information

A

Where consumers do not possess all the information required to make fully rational decisions

34
Q

What is asymmetric information

A

A source of information failure where one economic agent knows more than another , giving them power in a market transaction.

35
Q

What does allocative efficiency allow in terms economic value

A

Allocative efficiency allows the people who best see economic value and utility in something to pay for it.

36
Q

Define Diminishing marginal return

A

As individuals consume more units of a good or service , the additional units give smaller increases in total satisfaction.

37
Q

Define supply

A

Is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period

38
Q

What is the basic law of supply and what are the reasonings for it

A

Is that as the price of a product rises businesses expand supply tl the market

Profit motive
Productions and costs
New entrants coming to the market

39
Q

What is a a supply curve

What does it represent

A

Shows the relationship between market price and how much a firm is willing and able to sell (shows marginal cost curve)

Represents minimum price firms would accept to produce quantity of output

40
Q

Define marginal cost

A

The additional cost of producing one more unit of output

41
Q

What does a supply curve represent

A

The quantity of goods and services that can be sold in current market conditions . An increase or decrease in the supply curve can change price of output, it can change based on wants of people

42
Q

What is the acronym for factors that can change supply

A 
Productivity 
Indirect taxes (tax to produce)
Number of firms in the market 
Technology 
Subsidies (money granted by government to keep price low)
Weather/natural disaster/war
Cost of production

Business Studies Theme 4 (A- Level) (5 decks)

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