Theme 1 - Introduction to Markets and Market Failure (1.1 - The Nature of Economics) Flashcards
Describe what is meant by the “Ceteris Paribus” theory. [1]
(Ref - 1.1.1 - Economics as a Social Science)
The assumption that, while effects of a change in one variable is measured, all other variables are constant. [1]
Define a normative statement [1]
(Ref - 1.1.1 - Economics as a Social Science)
A statement which is a value judgement, so cannot be supported or opposed. [1]
Define a positive statement [1]
(Ref - 1.1.1 - Economics as a Social Science)
A statement which can be supported or opposed with evidence. [1]
What is the main theory of the Basic Economic Problem? [2]
(Ref - 1.1.3 - The Economic Problem)
Wants are infinite, but resources are scarce. [1]
Therefore, resources must be allocated between competing uses. [1]
Define and give an example of opportunity cost [2]
(Ref - 1.1.3 - The Economic Problem)
Opportunity cost is the lost benefits of the next best alternative [1]
e.g. The opportunity cost of buying a house is 2 cars. [1]
State the 4 resources which are commonly known as the factors of production. [4]
(Ref - 1.1.3 - The Economic Problem)
- Land
- Labour
- Capital
- Entrepreneurship
Describe the 2 types of capital and their properties [4]
(Ref - 1.1.3 - The Economic Problem)
Working capital [1] - Stocks of raw materials and manufactured goods waiting to be sold. [1]
Fixed capital [1] - Stocks of offices, factories, machinery etc. [1]
Describe the role of entrepreneurs in an economy/business. [4]
(Ref - 1.1.3 - The Economic Problem)
Organising production [1] - Organising the production of goods/services from land, labour and capital [1]
Taking risks [1] - Buying more factors of production with the hopes of more profit. [1]
Describe 2 rewards to the factor of production [2]
(Ref - 1.1.3 - The Economic Problem)
Owners of fixed capital can earn profits from renting equipment [1]
Entrepreneurs can earn considerable profit from risking financial capital [1]
What does the Production Possibility Frontier (PPF) show? [1]
The maximum potential output of goods of an economy. [1]
If an economy decides to produce more capital goods at the production possibility, what would most likely occur? [1]
(Ref - 1.1.4 - Production Possibility Frontiers)
The amount of consumer goods produced decreases. [1]
Describe how the Production Possibility Frontier represents opportunity cost [2]
(Ref - 1.1.4 - Production Possibility Frontiers)
Generally, if an economy is working in line with the production possibility, [1] the more capital or consumer good produced [1], the less of the other good is produced [1].
How does the shape of the PPF affect the opportunity cost? [2]
(Ref - 1.1.4 - Production Possibility Frontiers)
A straight line PPF shows a constant opportunity cost [1].
A curved line PPF will cause variation in opportunity cost along the PPF. [1]
Define Specialisation [2]
(Ref - 1.1.5 - Specialisation and the Division of Labour)
Production of a limited range of goods by an individual/firm [1] in co-operation with others to produce a complete range of goods. [1]
Define Division of Labour [1]
(Ref - 1.1.5 - Specialisation and the Division of Labour)
When production is broken down into many separate tasks, as individuals undergo constant repetition. [1]