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MICRO-Economics > T.1 — The Economic Problem > Flashcards

T.1 — The Economic Problem Flashcards

1
Q

Why is economics considered a social science

A

it looks at the behaviour of humans as individuals or part of an organisation (like firms and governments) and their use of scarce resources

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2
Q

what methodology do economists use to solve economics

A
  • develop theories to create economic models to explain phenomena
  • use simplifying assumption to limit the number of variables in an investigation
  • test theories and models against known facts by observation, graphs, statistics
  • use empirical data to improve and revise economic models
  • use economic models to make predictions
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3
Q

what is empirical data

A

data collected from experiments or real-life observations

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4
Q

Ceteris Paribus

A

‘All other things remaining equal’
- the effect of one variable on another

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5
Q

When do economists use Ceteris Paribus

A

when looking at the relationship between 2 factors
- assume only those two factors change all other factors

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6
Q

Why is using Ceteris Paribus helpful

A

enable economists to develop theories, models and make predictions

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7
Q

What are Economic Decisions based on

A
  • Normative statements - people’s opinion
  • Moral views and value judgements
  • Political judgements
  • Short-term positive consequences of a decision
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8
Q

What are the 2 types of Economic Statements

A

Positive Statements
Normative Statements

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9
Q

Positive Statements

A

objective statements that can be tested by referring to the available evidence

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10
Q

Example of Positive statements

A

“A reduction in income will increase amount of people shopping in pound shops”
- with suitable data collected over a period of time, economists should be able to tell if the claim is true or false

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11
Q

Why are Positive Statements important

A

they can be tested to see whether economic ideas are correct

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12
Q

Normative Statements

A

subjective statements which contain a value judgement - opinions

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13
Q

Example of Normative Statement

A

“The use of fossil fuels should be taxed more highly than the se of renewable fuels”
- impossible to say whether the statement is true or not = only state whether you agree or disagree

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14
Q

Why are Normative Statements important

A

value judgements influence decision-making and government policy

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15
Q

What is the Economic Problem

A

How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible

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16
Q

Barter

A

to trade goods directly rather than through the medium of money

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17
Q

Wants

A

something that is desired

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18
Q

Needs

A

anything a human being needs for their survival

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19
Q

Divisions of Labour

A

dividing the production process into different stages enabling workers to specialise in specific tasks

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20
Q

Scarcity

A

demand of goods/services is greater than the availability of good/services

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21
Q

Specialistion

A

process where a company or individual decides to focus their labour on a specific type of production

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22
Q

Standard of living

A

Quantity and quality of material goods/services available to a given population

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23
Q

Opportunity Cost

A

the best forgone alternative when a decision is made - sacrificing one choice for another

24
Q

What are the Factors of Production

A

LAND
LABOUR
CAPITAL
ENTERPRISE

25
Q

Factors of Production: LAND (physical resources)

A

Includes ‘territory’ and all the Earth’s natural resources:
- non-renewable resources such as natural gas, oil and coal
- renewable resources like wind or tidal power
- materials extracted by mining (diamond)
- water
- animals found in an area

26
Q

Exceptions of LAND resources

A

Air
- not considered a scarce resource as there is enough for everyone to have
- doesn’t mean all air is equally good - can be polluted
- environment is considered a scarce resource to some people

27
Q

Free Goods

A

Things that are impossible to sell but everyone can have - e.g. AIR

28
Q

Economic Goods

A

Things that are scarce and which can therefore be traded

29
Q

Factors of Production: LABOUR (workers)

A
  • work done by people who contribute to the production process
  • usually a number of people capable of working and old enough , but some are unemployed
  • some people who aren’t in paid employment but still provide things people need or want
  • people have different level of education, experience or training = makes them more valuable = greater amount of human capital
30
Q

Labour force

A

the population who are available to do work

31
Q

Factors of Production: CAPITAL (machinery)

A
  • equipment, factories and schools that help to produce goods or services
  • different from land as capital has to be made first
  • much of an economy’s capital is paid for by the government
32
Q

Factors of Production: ENTERPRISE (ideas and innovation)

A
  • refers to entrepreneurs who take risks and create things from other factors of production

business falls = loss of money
business succeeds = reward for risk-taking is profit

33
Q

Why is decision making under scarcity a problem

A

common problem as we usually have limited resources available to meet our objectives

34
Q

What does Scarcity require

A

careful allocation of resources

35
Q

What does Economic Activity involve

A

combining the factors of production to create outputs that people can consume

36
Q

What is the purpose of Economic Activity

A

increase people’s economic welfare by creating outputs that satisfy their various needs and wants

37
Q

Forms of Economic Activity

A
  • making goods
  • provision of services
  • consumption
38
Q

GOODS

A

‘Physical’ products that are tangible (can touch)
e.g. washing machines, books, a new factory

39
Q

SERVICES

A

Things that are intangible (can’t touch)
e.g. medical check-ups, teachings or train journeys

40
Q

CONSUMPTION

A

E.g. buying or using
When consuming something, you’re trying to satisfy a need or a want - can consume both goods and services

41
Q

3 Fundamental questions when deciding what to be produced and consumed

A

WHAT to produce?
HOW to produce it?
WHO to produce it for?

42
Q

What are the 3 Economic Agents

A

Produces
Consumers
Governments

43
Q

Economic Agents: PRODUCERS

A

firms or people that make goods or provide services

44
Q

Economic Agents: CONSUMERS

A

people or firms who buy the goods and services

45
Q

Economic Agents: GOVERNMENT

A

sets the rules that people in the economy have to follow, but also produces and consumes goods and services

46
Q

What decisions do PRODUCERS need to make?

A

decide what to make and how much they’re willing to SELL it for

47
Q

What decisions do CONSUMERS need to make?

A

what they want to buy and how much they are willing to PAY for it

48
Q

What decisions do GOVERNMENTS need to make?

A

how much to intervene in the way producers and consumers act

49
Q

How do Economic Agents act in a market economy?

A
  • assumed to be rational - make decisions that are best for themselves, based on economic incentives (profit or paying as little as possible for a product)
50
Q

Answer to Fundamental Question: What to produce?

A

Goods that firms can make a profit from

51
Q

Answer to Fundamental Question: How to produce it?

A

firms want to produce the goods in the most efficient way they can in order to maximize profit

52
Q

Answer to Fundamental Question: Who to produce it for?

A

Firms will produce goods for consumers who are willing to pay for those goods

53
Q

Production Possibility Frontiers (PPF)

A

shows the maximum amount of two goods/services an economy can produce

54
Q

Difference between Capital good and Consumer goods

A

Capital goods are used in the production of other goods

Consumer goods are bought directly by consumers`

55
Q
A

MICRO-Economics (1 decks)

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