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Economics > AS Unit 1: Basic Economic Ideas and Resource Allocation > Flashcards

AS Unit 1: Basic Economic Ideas and Resource Allocation Flashcards

1
Q

Economics key concepts

A

Scarcity and choice
The margin and decision making
Equilibrium and Disequilibrium
Time
Efficiency and inefficiency
The role of the government and the issues of equality and equity
Progress and development

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2
Q

The basic economic problem

A

Limited resources trying to fulfill unlimited wants. This requires us to make choices about where to use scarce resources

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3
Q

Opportunity cost

A

Because we have to make choices there are always options not picked. Opportunity cost is the cost expressed in terms of the next best alternative foregone when a choice is made. It will almost always be apart of your evaluation of economic decisions whether its by households, firms or the government

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4
Q

Allocation decisions

A

What to produce?
How to produce?
For whom to produce?

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5
Q

Economics as a social science

A

It looks at how society interacts and behaves
Has theories and models that are put forward and investigated

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6
Q

Scientific method

A
  1. Observation/question
  2. Research topic area
  3. Hypothesis
  4. Test with experiment
  5. Analyse data
  6. Report conclusions
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7
Q

Positive statements

A

Objective facts

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8
Q

Normative statements

A

Subjective opinions

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9
Q

The short run

A

At least 1 factor of production is fixed

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10
Q

The long run

A

All factors of production are variable

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11
Q

The very long run

A

All factors are variable but other key inputs like technology and government regulations are also variable

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12
Q

Ceteris paribus

A

All other things remain equal. Allows economists to isolate the effects of a single change. In reality, this would almost never happen

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13
Q

Microeconomics

A

The study of individual markets

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14
Q

Macroeconomics

A

The study of the whole economy

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15
Q

Factors of production definition

A

The means by which an economy produces a range of goods and services

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16
Q

Land

A

Any natural resource
Reward is rent

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17
Q

Labour

A

The human resources available in an economy
Reward is wage/salary

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18
Q

Capital

A

A physical resource made by humans to aid production
Reward is interest

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19
Q

Enterprise

A

A form of human capital
It organises the other factors of production
Reward is profit

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20
Q

Division of labour

A

Where a manufacturing process is split into a sequence of individual tasks
Raises output but can cause bordeom

21
Q

Specicalisation

A

The process by which individuals, firms and economies focus on producing those goods and services where they have an advantage over others
Requires trading
Specialist skills may become redundant with technological advance

22
Q

The role of an entrepreneur

A

They organise production by putting the factors of production together
They take risks using their own money or by borrowing from banks/others. They lose this money if they fail

23
Q

Qualities of a successful entrepreneur

A

Leaders
Make a business opportunity by putting together factors of production
Are prepared to take risks
Are creative and innovative
Produce something the market wants
Anticipate current and future needs
Have good luck or good fortune
Make the right decisions

24
Q

Economic systems

A

The means by which households, firms and the government make decisions relating to the key allocation decisions

25
Q

The market economy

A

Resources are allocated by the forces of demand and supply through the price mechanism
Allocation decision are made by individuals and firms (government has little or no direct involvement)

26
Q

The price mechanism

A

Excess supply from firms - fall in price - firms less willing to supply - increase in price - firms now willing to supply - increase in supply

27
Q

Role of the government in a market economy

A

Should not interfere in the operation of the price mechanism. They only interfere when it doesn’t provide the best allocation of resources
When the price mechanism doesn’t work efficiently the market fails
The government provides goods that would be under or not provided and price regulation

28
Q

The planned economy

A

The government has a central role in all allocation decisions
Production targets are set for the main sectors of the economy
The ownership of productive resources and property is the state
Some prices are controlled causing excess demand

29
Q

The mixed economy

A

Both the public and private sector make allocation decisions. Decisions involve an interaction between firms, labour and the government through the market mechanism
Privatisation is the transfer of resources form public to private ownerships
The reliability of market forces has caused unemployment in manufacturing for example when factories move.

30
Q

What is a PPC?

A

In an economy, what is produced is determined by the quantity and quality of resources available.
The PPC shows the maximum level of output of 2 goods and services that can be produced. Any point exactly on the curve represents a production situation where output is maximised
The end point of the PPC represents the extreme possibilities of production
Any point on the PPC indicates an efficient allocation of resources

31
Q

Opportunity cost in PPC’s

A

On a straight line, the opportunity cost of switching production from one good to another is constant
On a curve, the reduction in output of one good is matched by a greater increase in the other

32
Q

The shape of the PPC

A

When a PPC is curved and steep, in order to produce more of one good an increasing amount of productive capacity has to be given up from the other or vice vers
When the PPC is a straight line, opportunity cost does not change as the economy shift production. Constant opportunity costs are due to factors of production being equally sioted to the production of both goods

33
Q

Trade-off

A

The process of deciding whether to give up some of one good in order to obtain another

34
Q

Changing available resources

A

Over time there is technological advance in most forms of production so productivity increases. The curve for one good will change position

35
Q

Shifts in the PPC

A

A shift means the productive capacity of the economy has changed:
A shift to the right indicates an increase in productive capacity
A shift to the left indicates a decrease in productive capacity

36
Q

What causes a shift in PPC?

A

More resources become available. The productive capacity of an economy increases when more resources become available or they increase in quality
There is technological change. Advances in technology continue over time which affects the position of the PPC. Where overall change is positive, more of both goods can be produced.

37
Q

Showing choice on a PPC

A

Scarce resources need to be allocated to meet present needs in low-income countries. By allocating more resources to capital, economic growth will increase in the long-run

38
Q

Excludability and rivalry

A

A good is excludable if other consumers can be prevented from using or consuming it
A good is rival if only one person can consume it and in doing so the good is not available for other consumers

39
Q

Private goods

A

The fundamental economic problem only arises when dealing with private goods. They are also called economic goods since the resources used to make them are scarce. Therefore a price is charged. They are bought and consumed for the consumers benefit. They have 2 main characteristics:
Excludability: done through charging a price. If the price is not acceptable, the good won’t be consumed
Rivalry: the consumption by one person reduces the availability for others

40
Q

Free goods

A

Have no opportunity cost since consumption is not limited by scarcity. They have no prices and no factors of production are required to produce them

41
Q

Public goods

A

Have 2 main characteristics:
Non-excludable: once the good has been provided form one consumer, it is impossible to stop anyone else from benefitting from the good
Non-rival: as more people consume a good, the benefit to those already consuming the product is not reduced

42
Q

Quasi-public goods

A

Some goods appear to be public goods but do not meet both characteristics

43
Q

Problem caused by public goods

A

The market in a market economy may not produce these goods. There may be a consumer demand fro them by the market doesn’t have a mechanism for guaranteeing their production.
The free-rider problem arises when people enjoy the benefits of a public good without having paid for it. This is due to their non-excludability
Private firms seek profit so they would not produce these products
The existence of public goods may mean scarce resources are not used properly
People may wish for the provision of such goods but the demand wouldn’t register

44
Q

Merit goods

A

A good which is desirable but is underprovided by the market

45
Q

Demerit goods

A

A product which is undesirable and overprovided by the market

46
Q

Information failure

A

Arises when consumers don’t recognise how good or bad a product is. Either they don’t have the correct information or they lack some information. The internet and labelling helps consumers decide

47
Q

When does information failure occur?

A

When consumers aren’t aware of the benefits or harmfulness of a particular product
When persuasive advertising results in consumption levels that are not good
When product packaging makes misleading or inaccurate claims
When producers know more about a product than consumers

48
Q

Low income and underconsumption of merit goods

A

Consumers may recognise the benefits of merit goods but lack the disposable income to buy. All forms of education should benefit the individual and the economy. A healthy population benefits individuals and the economy.
Consumers may be ignorant or indifferent to the harmful effects of demerit goods

Economics (8 decks)

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