Nature of Economics 1.1 Flashcards
Ceteris Paribus
Means ‘all other things being equal’. It means we ignore other variables and consider the effect of just one variable.
Positive statement
Based on facts that can be tested
Normative statement
Based on an opinion or a value judgement
Economic Problem: Non-renewable resources
Resources that are finite, once used they cannot be reused
Economic Problem: Renewable resources
Resources that can be replenished e.g. wind, solar, water
Economic Problem: Semi-renewable resources
Some resources that are renewable but if they are over consumed they can become extinct e.g. fish stocks
Economic Problem: Sustainable consumption
Occurs when we consume resources at a rate that can be maintained in the long term. e.g. planting trees at the same rate we cut them down
The Economic Problem
Issue of scarcity and how best to produce and distribute these scarce resources
Opportunity Cost
The next best alternative forgone
What does the Production Possibility Frontier show?
A PPF shows the maximum output that an economy can produce if the economy is maximising the use of its resources (LLCE)
Consumer goods
Goods we can use and enjoy e.g. food clothes
Capital goods
These are goods that are used in the productive process e.g. machinery
Causes of economic growth
New raw materials
Increase in size of workforce
Increase in Capital stock
Increase in labour productivity
Specialisation
Occurs when a country or firm concentrates on producing a particular good or service
Division of labour
When workers concentrate on different tasks within a firm
Advantages of specialisation of labour
Less time to be trained
More efficient when producing on a large scale
Spreads the work out
Problems of specialisation
Jobs can become repetitive leading to boredom
If one person is absent, will affect the assembly line
Money
Object used as an exchange between two parties
Free market economy
A market with no government intervention
Firms are private
Advantages of free market economies
Can result in efficient allocation of resources due to profit incentive
Firms will look to cut costs
Consumers will have freedom to choose the best option
Avoids gov. corruption
Incentives for people to work hard and set up a new business
Disadvantages of Free Market
Risk of monopolies
Public goods may not be provided
Overconsumption of goods with negative externalities
Command Economy
Where the government owns the means of production and decides what and how to produce
Advantages of Command Economy
Gov can reduce inequality
Make all important public goods available to all
Take in to account externalities and intervene
Prevent monopolies
Full employment
Disadvantage of Command Economy
Little to no profit motives
High admin costs
Government information failure risk
Gov may be slow to respond
Lack of choice as people may struggle to set up business creating less options
Mixed economies
A degree of government intervention in parts of the economy whilst many firms remain privately owned
Rational decision making
Assume firms and consumers are rational
Profit
Amount of money a firm gains after subtracting costs from its total revenue. Firms try to maximise.
Utility
The concept of how much benefit people get from consuming a good
Marginal Utility
The satisfaction you gain from the last unit of consumption
