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Microeconomics > Nature of economics > Flashcards

Nature of economics Flashcards

1
Q

Define model.

A

a simplified representation of reality used to provide insight into economic decisions and events

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2
Q

What does ceteris paribus mean?

A

other things being equal

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3
Q

What is a positive statement?

A

a statement about facts

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4
Q

What is a normative statement?

A

a statement that involves an opinion or value judgement

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5
Q

What is the fundamental economic problem?

A

scarcity, ie unlimited wants and limited resources

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6
Q

What is a free good?

A

goods that are not normally regarded as scarce, eg earth’s atmosphere

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7
Q

What is an economic good?

A

a good that is scarce

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8
Q

Give two definitions of poverty.

A
  • situation in which individuals lack basic necessities of life
  • situation when individuals have low incomes relative to their fellow citizens
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9
Q

Define opportunity cost.

A

value of the next-best alternative forgone

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10
Q

What is marginal analysis?

A

an approach to economic decision-making based on considering the additional benefits and costs of a small change in behaviour

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11
Q

Who are the three groups of economic agents?

A
  • consumers
  • producers
  • government
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12
Q

What are the four factors of production?

A
  • labour
  • capital
  • enterprise
  • land
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13
Q

Give three examples of capital.

A

plant and machinery
transport equipment
factory or office buildings

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14
Q

What is an entrepreneur?

A

Someone who organises production and identifies projects to be undertaken, bearing the risk of the activity

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15
Q

What does *land *include?

A
  • actual land
  • natural resources in form of raw materials
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16
Q

What is the reward for labour?

A

wages and salaries

17
Q

What is the reward for capital?

A

interest

18
Q

What is the reward for enterprise?

A

profit

19
Q

What is the reward for land?

A

rent

20
Q

What are renewable resources?

A

natural resources that can be replenished, eg forest that can be replanted or solar energy

21
Q

What are non-renewable resources?

A

natural resources that once used cannot be replenished, eg coal or oil

22
Q

What are the three key economic questions?

A

WHAT goods and services should be produced?
HOW should the productive resources be used to produce those goods and services?
FOR WHOM, ie how should they be allocated for consumption?

23
Q

What does a production possibility frontier show?

A

maximum combination of goods or services that can be produced with a given set of resources in a given period

24
Q

Why might PPF be curved?

A

Because some factors of production better suited to producing one thing than another

25
Q

What are capital goods?

A

goods used as part of the production process, eg machinery or buildings

26
Q

What are consumer goods?

A

goods produced for present use

27
Q

What is potential economic growth?

A

an expansion in the productive capacity of the economy

28
Q

What does Gross Domestic Product measure?

A

economic activity carried out in an economy over a given period

29
Q

Define division of labour.

A

a process whereby production procedure is broken down into a sequence of stages and workers are assigned to a particular stage

30
Q

Why can division of labour increase production?

A
  • workers become skilled in performing specialised tasks, therefore become more efficient
  • don’t lose time moving between tasks
31
Q

Give two disadvantages of division of labour.

A
  • boredom leading to high staff turnover
  • inflexibility eg if worker is sick
32
Q

Define a market.

A

a set of arrangements that allows transactions to take place

33
Q

Name the four key functions of money.

A
  • a medium of exchange [more flexible than barter]
  • a store of value [for future transactions]
  • a unit of account [so can compare value]
  • a method of deferred payment
34
Q

Define a free market economy.

A

an economy in which market forces are allowed to guide the allocation of resources

35
Q

Define command economy.

A

an economy in which decisions on resource allocation are guided by the state

36
Q

What is the main disadvantage of a free market economy?

A

outcome may not be good for society, eg inequality between groups and insufficient protection for the poor

37
Q

What is the main disadvantage of a command economy?

A

inefficiency

38
Q

Define microeconomics.

A

study of economic decisions made by individual economic agents, including households and firms

39
Q

Define macroeconomics.

A

study of interrelationships between economic variables at an aggregate level

Microeconomics (15 decks)

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