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A Level Economics- Year 1 > A Level Economics- Year 1: Nature Of Economics > Flashcards

A Level Economics- Year 1: Nature Of Economics Flashcards

1
Q

Define ceteris paribus

A

All other things remain the same

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2
Q

How is ceteris paribus used to make assumptions?

A

Allows economists to focus on particular changes without the interaction of other factors.

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3
Q

Define a social science

A

The study of people in society and how they interact with each other

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4
Q

How is economics different to other sciences?

A

The inability to make scientific experiments because other variables are always changing

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5
Q

What is the process of developing models in economics?

A

Putting forward a model, gathering evidence and then accepting, changing or disregarding the model

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6
Q

What is a positive statement?

A

A statement which is objective, based on value judgements and emotions and can be proven

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7
Q

What is a normative statement?

A

A statement which is subjective and based on opinion and cannot be proven or disproven

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8
Q

How do value judgements influence decision making?

A

Different economists may make different judgements from the same statistic

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9
Q

Define the basic economic problem

A

People have infinite wants and needs but resources are finite and scarce

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10
Q

How do economists solve the economic problem?

A

By working out what to produce, how to produce it and whom to produce for

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11
Q

Define renewable resource

A

Resource of economic value which can be replaced on a level equal to consumption

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12
Q

Define non-renewable resource

A

Resource of economic value that cannot be replaced on a level equal to consumption

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13
Q

Who are the economic agents?

A

Individuals, households, firms and government

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14
Q

Define opportunity cost

A

The next best alternative foregone when making a choice

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15
Q

How do consumers make choices?

A

Based on what gives them the greatest level of satisfaction

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16
Q

How do producers make choices?

A

Bases on what gives them the greatest level of profit

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17
Q

How do government make choices?

A

Based on what will maximise social welfare

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18
Q

What are the factors of production?

A

Land- all natural resources used in production
Labour- all productive human effort
Capital- all man-made resources used to produce goods and services
Enterprise- the willingness and ability to take risks of combining the other factors of production to make a product

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19
Q

What does a PPF show?

A

The maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology

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20
Q

Why is the PPF a curve?

A

The first resources switched from capital to consumer good production are resources that are not adding much to capital goods but will be much more productive in the production of consumer goods

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21
Q

How does the PPF help economists?

A

It gives no indication of which combination of goods is best and so countries have a choice of what to produce

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22
Q

How does economic growth on the PPF occur?

A

Increasing the quantity and/or quality of

resources.

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23
Q

How does economic decline on the PPF occur?

A

Natural disasters, natural resources running out, or a decrease in the quantity/quality of labour, due to
war, migration or a fall in spending on education.

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24
Q

When are all resources allocatively efficient?

A

At all points

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25
Q

When is production unobtainable on the PPF?

A

Beyond the PPF because there are not enough resources/technology to produce there

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26
Q

When is production inefficient on the PPF?

A

Within the PPF because out is not maximised

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27
Q

What does a movement along the PPF curve indicate?

A

A change in the combination of goods produced

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28
Q

What does a shift of the PPF curve indicate?

A

A change in the productive potential of the economy

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29
Q

Define consumer goods

A

Goods that are demanded and bought by households and individuals

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30
Q

Define capital goods

A

Goods that are produced in order to aid the production of consumer goods in the future

31
Q

Define specialisation

A

The production of a limited range of goods by a company/individual/country

32
Q

Define division of labour

A

When labour becomes specialised

33
Q

What are the advantages of specialisation?

A

.Enables labour productivity to be increased
.Leads to a higher quality of goods/services
.Develop specialist tools
.Trade

34
Q

What are the disadvantages of specialisation?

A

.Over Specialisation leads to vulnerability

.Exhausted resources

35
Q

What are the advantages of division of labour?

A

.Decrease in the cost per unit
.Increased productivity
.Cheaper for consumer
.Workers trained faster

36
Q

What are the disadvantages of division of labour?

A

.Increased boredom

.Lack of productivity

37
Q

Name the functions of money

A

.A medium of exchange
.A measure of value
.A store of value
.A method of deferred payment

38
Q

What does a medium of exchange mean?

A

It can be used to buy and sell goods and services and is acceptable everywhere

39
Q

What does a measure of value mean?

A

It can compare the value of two goods

40
Q

What does a store of value mean?

A

It is able to keep its value for a long time

41
Q

What does a method of deferred payment mean?

A

It can allow for debts to be created so people can pay without having money in the present

42
Q

What is a barter economy?

A

An economy where people exchange goods and services for other goods and services in return

43
Q

What are the problems with a barter economy?

A

.The double coincidence of wants-

.Non-divisibility of certain goods

44
Q

What the benefits of a free market economy?

A

.Individuals are free to make their own choices
.Profit is the main motive for businesses- creates competition
.Producers can produce what they want

45
Q

What are the problems of a free market economy?

A

.Inequality
.Monopolies- exploit the market with high prices
.Overconsumption of demerit goods- negative externalities
.Public goods are not provided

46
Q

Which economists agreed with the free market economy?Why?

A

.Adam Smith- Smith’s famous theory of the invisible hand of the market can be applied to free market economies and the price mechanism, which describes how prices
are determined by the ‘spending votes’ of consumers and businesses.
.Friedrich Hayek- Hayek argued that government intervention makes the market worse.

47
Q

Define a command economy

A

An economy where the government allocates all resources

48
Q

Which economist agreed with the command economy?Why?

A

Karl Marx- saw the free market as unstable, he saw profits created in the free market as coming from the exploitation of labour, and by not paying workers to cover the value of their work.

49
Q

What are the benefits of a command economy?

A

.Monopoly power is prevented
.Inequality reduced
.Ensures basic necessities

50
Q

What are the problems of a command economy?

A

.May not meet consumers preferences

.Limits personal freedom

51
Q

Define a mixed economy

A

An economy where resources are allocated both by the government and economic agents

52
Q

Which economists agreed with the mixed economy?

A

John Maynard Keynes

53
Q

What are the benefits of a mixed economy?

A

.The government provides public goods

.Personal freedom

54
Q

What are the problems with a mixed economy?

A

.Monopolies

55
Q

Section 2

A

Section 2

56
Q

Define demand

A

The willingness and ability of a consumer to buy a good at a given price and time

57
Q

What factors cause a movement along the demand curve?

A

Change in price of a good- decrease causes an extension and an increase causes a contraction

58
Q

What factors cause a shift in the demand curve?

A 
.Population
.Advertisement
.Substitutes
.Income
.Fashion/trend
.Interest
.Complementary goods
.External shocks
.Speculation
59
Q

Why is the demand curve downward sloping?

A

Diminishing marginal utility- the more we consume, the less satisfaction gained

60
Q

Define the theory of demand

A

States that as the price of a good rises, the quantity demanded of the good will fall, vice-versa

61
Q

How does the law of diminishing marginal utility influence the demand curve?

A

.Income effect- when the price of a good increases, people can afford less so demand less
.Substitution effect- when the price of a good increases people switch to alternative goods

62
Q

What equation is used to calculate Diminishing Marginal Utitlity?

A

DMU = ^Utility
_______
^Quantity

63
Q

Define price elasticity of demand

A

Measures the responsiveness of quantity demanded to a change in price

64
Q

What is the equation to calculate the PED?

A

PED = %change in quantity demanded

%change in price

65
Q

What is the PED value and description of a perfectly inelastic good?

A

PED = 0 - Because a change in price has no effect on output so demand is completely unresponsive to price

66
Q

What is the PED value and description of a relatively inelastic good?

A

PED = <1 - Because quantity demanded changes by a smaller percentage than price so demand is relatively unresponsive to price

67
Q

What is the PED value and description of a unitary elasticity good?

A

PED = 1 - Because quantity demanded changes by exactly the same percentage as price

68
Q

What is the PED value and description of a relatively elastic good?

A

PED = <1 - Because a change in price means that quantity falls to 0 and demand is very responsive to price

69
Q

What is the PED value and description of a perfectly elastic good?

A

PED = infinity = Because quantity demanded changes by a larger percentage than price so demand is relatively responsive to price

70
Q

What factors influence PED?

A 
.% of income spent
.Brand loyalty
.Addictiveness
.Necessity vs luxury
.Time period 
.Substitutes
71
Q

Define revenue

A

Income earned from selling goods and services

72
Q

What equation is used to find revenue?

A

Revenue = Price of good x Quantity sold

73
Q

What equation is used to find revenue?

A

Revenue = Price of good x Quantity sold

A Level Economics- Year 1 (2 decks)

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