nature of economics Flashcards
is economics a social science
yes
what does ceteris paribus mean?
all other variables remain constant
what is a model?
model is a simplified version of reality
why do models make a range of assumptions?
models make a range of assumptions, and this is necessary because there are constantly changing variables
difference between natural and social science
natural sciences uses scientific method to prove a relationship between 2 variables
social science is used as there’s an inability to make scientific experiments as the circumstances or situations may vary at any point of time
positive statement
based on evidence and tend to be statements of fact
normative statement
value judgements, based on opinions and beliefs
basic economic problem
basic economic problem is resources are scarce
infinite wants, finite resources
4 factors of production
- land
- labour
- capital
- enterprise
how to cope with problem of scarcity
due to problem of scaricity
- choices have to be made by producers, consumers and governments about the most efficient use of these resources
- and about how to allocate limited resources amongst competing wants and needs
the scarcer a resource,
higher the price
less scarce a resource
lower price
renewable resources
can be used repeatedly and naturally replenished
non-renewable resources
cannot be naturally replenished
opportunity cost
opportunity cost is the loss of the next best alternative when making a decision
PPF
PPF is an economic model that considers the maximum possible production (output) that a country can generate if it uses all its factors of production to produce only 2 goods or services
outward shift in PPF
outward shift = economic growth, as there’s an increase in productive potential of an economy
inward shift in PPF
inward shift = economic decline
who came up with division of labour and specialisation
Adam Smith
disadvantages of division of labour and specialisation
- task repetition leads to boredom and decrease in worker motivation
- decrease in motivation = less productivity and poor manufacturing quality
- may increase worker turnover rates
advantages of division of labour
- increased productivity = firms to sell beyond local market into international markets
- higher labour productivity and higher output
- increased exports can result in economic growth for nation
- economic growth = higher income and better standard of living
functions of money
- measure of value
- medium of exchange
who supported mixed economies
adam smith = mixed economy
who supported command economies
command economies = karl marx
who supported free markets
free markets = Friedrich Hayek
