Economic Basic Understanding #1 Flashcards
Describe how scarcity causes the fundamental problem faced by an society.
Existence of scarcity forces people to make choices, as everyone needs to prioritise which need or want they would like to have, as it is finite. Potential not having enough forces people/firms/govenrment to make choices at all levels.
What is economic analysis in terms of choices?
Analysing those choices made by individual people, firms or
governments.
Describe how economic agents and their objectives form the heart of economic analysis.
Economic agents have clear objectives, and that they take decisions that allow them to do the best that they can to achieve those objectives. Their decisions can be analysed by looking at small changes from
their current position, seeing whether a small (marginal) change can improve their
current situation.
Give three different sets of economic agents operating at different levels. (Include example of a type of decision made in each different level).
1) Individual people/household. (take decisions about what goods and services to consume)
2) Firms/ businesses (face choices about what to produce and how to produce them)
3)Governments (decisions about their
spending and taxation policies.)
Briefly explain how the divided between microeconomic analysis and macroeconomic analysis can be considered “artificial divide”.
The same economic reasoning can be applied to both, however the focus is different.
What are the three key questions set out by economic to investigate, that US economist Paul Samuelson (who won the Nobel Prize for Economic Sciences in 1970) identified?
Include brief explaintion.
1)What? What goods and services should be produced in society from it scarce resources. How should resources be allocated among producing various goods and resources.
2)How ? How should the productive resources in economy be used to produce these various goods and services.
3)For whom? Having produced the goods and services, who should these by allocated for the population for consumption.
What are two things to examine and ask when evaluating a model?
1)examine the assumptions that are
made.
2)to ask what happens if these assumptions do not hold.
How does , in one way, Economists justifies the claim that economics is a ‘social science’
The use of models is one way in which economists try to approach their discipline in a ‘scientific’ manner.
How does Economic predict or explain human behavior when it is so unpredictable.
Much of economics is about human behaviour. This complicates
matters because humans do not all act in the same way as each other. This makes individual behaviour difficult
to predict or explain. However,However, when we are dealing with large numbers of people, we can be reasonably sure about how they will behave on average.
What is one assumption made by mainstream economics, give an example regarding consumers and firms.
A key assumption made in mainstream economics is that economic agents act rationally. Consumers take decisions that will bring them as much satisfaction as possible, and firms take decisions that allow them to make as much profit as possible.
What type of statement/analysis will have more agreements?
Positive analysis has much greater agreement than normative analysis which will have differences.
How does time contribute to the outcomes of decisions?
The time period over which decisions are taken has an important influence on
the outcomes, as in the short run firms/people may not be able to adjust due to already made decisions and in the long run they are usually much more flexible.
Give two examples of types of different skills of labour.
Entrepreneur ship and mangement
Give two categories to separate natural resources in the production process (include examples)
Renewable (E.g forests) , Non-Renewable(E.g coal)
