Micro test 1 Flashcards
What is a model
A simplified representation of reality and it often includes assumptions
Why do economists use models
To understand how people behave and make predictions about the future
Define Ceteris Paribus
All other things being equal
or
a broad term that defines what variables are changing or what variables are remaining the same in a given situation.
What is a positive statement
A statement which can be tested
e.g Higher interest rated will reduce house pricing
What is a Normative statement
A statement which can’t be tested
e.g. Pollution is the most serious economic problem
Define Basic economic Problem
Resources are scarce and there is not enough for everyone
What is a need
A need is a necessity and a requirement for Survival
e.g. Health, food and water
What is a want
A want is something which is desirable
e.g. Phones, cars and money
Define opportunity Cost
The cost of missing out on the next best alternative.
Define Free goods
Goods which have no opportunity cost (Unlimited amount)
Define Economic goods
Goods which are scarce
Name the 4 factors of production
-Land
-Capital
-Labour
-Enterprise
Explain what Land means in the factors of production and what is the reward for it?
Natural resources or the physical land itself
e.g forrest, desert and the sea
Reward: Rent
Explain what Capital means in the factors of production and what is the reward for it?
The Physical resource and the man-made aid which is used to produce consumer goods (Machinery)
Reward: Interest
Explain what Labour means in the factors of production and what is the reward for it?
Human input into the production process
e.g. Farmers, workers
Reward: Wages
Explain what Enterprise means in the factors of production and what is the reward for it?
The entrepreneur who brings all the factors of production together
e.g. Elon Musk, Steve Jobs
Reward: Profit
Define Production possibility Frontier (PPF)
A Curve that shows the maximum combination of goods and services that can be produced in a given time, using limited resources
Define Productive effeciency
When it is Impossible to produce more of one good without producing less of another
At what point in the curve is there no opportunity cost?
Any where on the inside (Point not touching the line)
What can cause the PPF to shift to the right?
When the country increases the quantity or quality of the factors of production therefore increasing productive capacity
What happens if new machinery or the development of an axis in the PPF increases
The PPF shifts at a certain angle
Define Specialisation
When individuals, firms or countries concentrate on the production of one task or product
Why are economists interested in the concept of specialisation
It enables is to allocate our scarce resources better
Define Specialisation by product
A company makes only one thing they are good at making. e.g. BMW only makes cars
