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A Level Economics Yr12 Microeconomics > Section 1:The Economic Problem > Flashcards

Section 1:The Economic Problem Flashcards

1
Q

What are wants and needs?

A

Unlimited

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2
Q

The factors of production are….

A

Limited resources

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3
Q

What are the four factors of production?

A

-land
-capital
-labour
-enterprise

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4
Q

How is land a factor of production?

A

Limited space

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5
Q

How Is capital a factor of production?

A

Machinery, tech, vehicles etc are limited

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6
Q

How is labour a limited resource?

A

Workers skilled in a particular area is limited

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7
Q

How is enterprise a limited resource?

A

entrepreneurs

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8
Q

What are the names of the three economic systems?

A

-free market(capitalism)
-command economy(state control)
-mixed economy(in the middle)

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9
Q

What does every choice have?

A

An opportunity cost

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10
Q

What does scarcity mean?

A

Limited resources

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11
Q

Traditional economic theory assumes…

A

Customers seek to satisfy their own satisfaction and that businesses aim to maximise profits

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12
Q

What is microeconomics?

A

The study of economics at the level of the individual, firm or consumer household

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13
Q

What are economic agents?

A

-individuals
-households
-governments
-firms

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14
Q

What do governments want?

A

To improve the economic and social welfare of citizens

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15
Q

What do rational consumers want?

A

Wish to maximise their satisfaction by choosing how to spend their income

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16
Q

What do producers/firms want?

A

Wish to maximise profits:

-producing goods at highest costs
-sell at high costs

Profit

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17
Q

What is profit?

A

Total revenue-total costs

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18
Q

What does the opportunity cost measure?

A

The cost of a choice in terms of the next best alternative

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19
Q

What are work-leisure choices?

A

The opportunity cost of deciding not to work an extra 10 hours a week

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20
Q

What are government spending priorities?

A

The opportunity cost of the government spending 10 billion in defence, that might mean 10 billion less on healthcare

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21
Q

What is investing today for consumption tomorrow?

A

The opportunity cost of an economy investing resources in new capital goods is the production of consumer goods given up for today

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22
Q

What is use of scarce farming land?

A

The opportunity cost of using farmland to grow wheat or bio-fuel—less food available for food production.

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23
Q

Factors of production input and output:

-land

A

Input: natural resources available for production

Output: rental income to owners of land

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24
Q

Factors of production input and output:

-labour

A

Input human input into the process of production

Reward: wages and salary from employment

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25
Q

Factors of production input and output:

-capital

A

Input: goods used in the supply of other products

Reward: interest from savings +dividends from shares

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26
Q

Factors of production input and output:

-enterprise

A

Input: entrepreneurs orations factors of production and take risks

Reward: profit

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27
Q

What are capital goods?

A

Goods that are used to make consumer goods and services

(Capital input includes machinery, hardware software)

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28
Q

Types of customer goods:

A

-customer durables: -products provide a steady flow of satisfaction

-customer non-durables: used up when consumed(food)

-customer services: haircut or ticke

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29
Q

What are free goods!

A

-do not use up any factor inputs when supplied

-zero opportunity costs(marginal cost of supplying an extra unit of a free good is zero)

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30
Q

Describe a free market?

A

-allocate resources

-driven by the profit motive

-limited role for state

-private sector dominates

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31
Q

Describe a mixed economy?

A

-mix of state and private ownership

-government intervention in markets

-mix will vary from country to country

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32
Q

Describe a command economy?

A

-most resources are state owned

-planning allocates resources

-little role for market prices

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33
Q

What is the basic problem in economics?

A

How to best allocate resources

34
Q

What is a trade off?

A

When you have to choose between conflicting objectives

35
Q

What does a trade off involve?

A

An opportunity cost

36
Q

What does a production possibility frontier show?

A

The options you need to consider when you look at goods and services

37
Q

What do mixed economies combine?

A

-free markets
-government intervention

38
Q

What are markets and what happens?

A

Markets are a method for allocating scarce resources

In a market a buyer and seller chooses to exchange something

39
Q

What are the pros of a free market economy?

A

Efficiency: only best products in demand

Entrepreneurship: rewards for new ideas make a lot of money

Choice: wide range of consumer choice

40
Q

What are the cons of a free market economy?

A

Inequalities: huge differences in income

No non-profitable goods: drugs to treat new medical conditions may not be created

Monopolies: successful business es become the only supplier of a product

41
Q

Pros of a command economy?

A

-maximise welfare: government distribute evenly(no inequality)

Low unemployment: -governments provide jobs and salary

Prevent monopolies: no market dominance

42
Q

Cons of a command economy?

A

Poor decision making:-slow, poor decisions

Restricted choice: limited choice for consumers

Lack of risk taking and efficiency: -no incentive to increase efficiency because they don’t need profit

43
Q

Public sector?

A

Government: doesn’t need profit

44
Q

Private sector?

A

Business: needs profit to survive

45
Q

What does utility mean?

A

Satisfaction

46
Q

Economics as a social science:

A
47
Q

What is margin?

A

The change is a variable caused by one unit

48
Q

What are the key assumptions in economic theory?

A

-economic agents are utility maximisers(satisfaction)

-economic agents are rational

49
Q

What do behavioural economics look at?

A

The impacts of social and psychological and emotional factors on decision making and trying to make more realistic predictions

50
Q

Explain the concept of utility maximisation?

A

It’s assumed that a rational individual will attempt to maximise their utility(economic profit)

They do this by

51
Q

What are positive statements?

A

Objective statements: they can be tested amended or rejected by referring to available evidence

52
Q

What does positive economics deal with?

A

Objective explanation and the testing and rejection of theories

53
Q

Is a false statement a positive one?

A

Yes

54
Q

What are the 3 key questions in economics?

A

-what to produce?

-how to produce?

-for whom?

55
Q

What are normative statements?

A

Subjective statements: can’t be proven

56
Q

What comes under macroeconomics?

A

-TNC
-trade
-taxation
-unemployment
-migration
-utilities
-inequalities

57
Q

What does traditional economic theory assume?

A

Everyone has perfect information and can use this to make a rational decision

58
Q

Who controls production in a free market economy?

A

Everyone

59
Q

Who controls production in a command economy?

A

Gov

60
Q

What are the reasons why consumers don’t act rationally?

A

-limited time

-lack of available information

-people may not be able to evaluate the vast amounts of data

61
Q

What is a rational individual?

A

Individual assumed to have complete self-control and will act to maximise their utility

62
Q

What are the types of bias that stop individuals acting in a rational way?

A

-rules of thumb

-anchoring

-availability bias

-social norms

-habitual behaviour

63
Q

Bias: rules of thumb

A

Useful tools that help an individual make a decision e.g choosing a middle priced when faced with a range of different prices for similar products

64
Q

Bias: anchoring?

A

Placing too much emphasis on one piece of information

65
Q

Bias: availability test?

A

Judgements made about the probability of occurring based on how easy it is to remember events occurring

Following a drought people will be more likely to overestimate the probability of another drought

66
Q

Normative statements….. e.g

A

Ought to be
Should be
Must be
Could be

67
Q

Value judgments are…

A

Normative statements, most normative statements of gov are normative statements

68
Q

Bias: social norms?

A

Individuals behaviour can be influenced by their social group

69
Q

Bias: habitual behaviour

A

Same thing over and over again

70
Q

How can fairness affect decision making?

A

Giving to charity is not out of self interest and doesn’t maximise utility

Paying above minimum wage doesn’t maximise utility

71
Q

What type of economics do government use?

A

Behavioural because traditional economic theory makes unrealistic assumptions that are not useful

72
Q

Choice architecture?

A

Where an individual’s choice is influenced by adapting the way a choice is presented

73
Q

What are the 5 ways choice architecture can occur?

A

-default options

-framing

-nudges

-restricted choice

-mandated choices

74
Q

Choice architecture: What are default options?

A

People more likely to choose the default options so this can be used to encourage Individuals to act a certain way

75
Q

Choice architecture: framing?

A

The context in which information is presented can influence a decision

(Changing the wording makes it more desirable)

76
Q

Choice architecture: restricted choice?

A

Occurs when peoples choices are restricted, e.g restricted to only a number of schools in their area

77
Q

Choice architecture :What are mandated choices?

A

Where people have to make a decision e.g gov implemented a policy where people have to to choose if they will or will not donate organs

78
Q

What is the marginal opportunity cost?

A

Amount of sacrifice of a commodity to gain in another commodity

79
Q

What is capital?

A

Goods which can be used to produce other goods in the future?

80
Q

What is economic growth?

A

Increase the amounts of goods and services produced per head of the population over a period of time

81
Q

What will lead to an outward shift in the production possibility frontier?

A

Improvement in the technology available to produce capital goods

82
Q

What are Verblen goods?

A

Goods that we demand because they are expensive,

A Level Economics Yr12 Microeconomics (2 decks)

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