Models In Economics (LS2+LS3) Flashcards
Models
Economists use them to explain how economy works.
Can be used to predict the impact of economic change e.g the impact on employment if there was a raise in wage
Why is it difficult for economists to run experiments?
They can’t generalise the entire economy with one experiment.
What do economists use to make models?
Data and assumptions
Why is the ceteris paribus assumption necessary for economic analysis?
Because many factors impact economic activity and to overcome it, economists use this phrase to assume other variables remain constant.
Opportunity cost
The value of the next best alternative which you miss out on because of a choice made
Uses of opportunity cost: consumers
Use it to decide what to spend their incomes on
Uses of opportunity cost: producers
Use to decide what and how to produce goods and services
Uses of opportunity cost: governments
Use it to decide what policies to choose
A firm wants to modernise its IT system and hire some new workers but can’t do both. What’s the opportunity cost of modernising it’s IT system?
Hiring new workers
What does ppf stand for?
Production possibility frontier
What does the ppf show?
Maximum potential output of a combination of 2 goods/services an economy can achieve when all its resources are efficiently utilised.
Economic growth
Increase in the production of goods and services in an economy
Negative economic growth
Decrease in production of goods and services in an economy.
What must happen for an economy to produce a currently unobtainable combination of goods/services?
Better use of the 4 factors of production, more training or utilise land etc.
Name 3 economic agents. What is an economic agent?
Government,firms,consumers. They’re individuals or organisations that impact the economy.
