Intro to Economics Flashcards
What is the definition of Opportunity Cost?
The next best alternative forgone
What is ‘Ceteris Paribus’
Is an assumption in building models with “all other things being equal”
Is Economics a Science?
No, because Economics relies on assumptions whereas other sciences base theories/hypotheses on fact/evidence.
What is a Positive Statement?
A Positive Statement is based on fact and evidence. It cannot be disputed.
What is a Normative Statement?
A Normative Statement is based on “value judgements”.
What is the role of value judgements in influencing economic decision-making and policy?
All government economic policies are influenced by value judgements, which vary from person to person, resulting in fierce debate between competing political parties.
What is the Economic Problem?
Solving an infinite number of problems with a finite number of recourses
Chain for benefits of specialization (5 Marks)
1) Increases efficiency
2) Which leads to greater productivity
3) This decreases the cost per unit
4) This means Toyota sells more
5) Which leads to greater profits
6) Allowing profit to be re-invested (employ more people, or invest in capital)
7) Increase in labour force, increases FOP’s
8) So more produced
Possible Impact on PPF with increased investment into car production
1) Increased investment causes capital goods to increase but maybe not consumer goods
2) Increased investment can employ more people (FOP)
3) Therefore more productive
4) More efficient
5) Unit cost decreases
6) More profits
7) Re-invested into capital or FOP’s - Labour (More Specialisation)
8) Increases efficiency and productivity even more
However, an increase in capital goods might not shift the PPF outwards as the new workers don’t know how to use them. Also, if the profits are re-invested poorly and are not affective, the PPF will not shift outwards.
Why is Free Market Good?
- Little Government involvement so private ownership determines all business decisions.
- Leads to greater efficiency, productivity, and innovation as there is more competition.
- Contributes to political and civil freedom - everyone has the right to choose.
- Consumer’s voices are heard
Why is Free Market Bad?
- Free Markets foster wealth inequality. Wealth is not distributed equally.
- Public safety can be ignored due to the competitive environment.
- ## Economy has wild booms and recessions - not stable
Pros of Command Economics
- Low levels of inequality
- Low levels of unemployment
- Common good over profit
Cons of Command Economics
- Quality worse - due to less competition
- ## Inefficient
