Theme 1 - The nature of economics Flashcards
What does it mean by economics is a social science?
Economics studies the behaviour of human, It investigates how scarce resources are allocated to provide for unlimited human wants (Basic econ problem) .
What is the basic economics problem
There are unlimited wants but limited scarce resources
What is the Ceteris Paribus assumption?
‘All other things being equal’
What is a positive statement
Based on facts which can be tested and is not a value judgement
What is a normative statement
Based on value judgement
What is scarcity
Finite resources. Refers back to the basic economic problem
What is opportunity cost
The value of the next best alternative forgone
What are the factors of production
C - capital
E - entrepreneurship
L - Land
L - Labour
What is renewable resource
Give example
Resources whose stock level can be replenished naturally or over a period of time
E.g. Wind power, solar energy, fish, trees
What is non-renewable resources
Give example
Resources whose stock level cannot be naturally replenished and decreases overtime as it is consumed
E.g. Coal, oil, gas (fossil fuels)
What does the production possibility frontier shows
Shows the maximum potential level of output of two goods or services that an economy can achieve when all resources are fully and efficiently employed, given the level of technology available
What is consumer good
Give example
Goods bought that directly provides utility to consumers
E.g. Chocolate, fizzy drinks
What is capital good
Give example
Goods produced in order to aid production of consumer goods
E.g. Machinery, services
What can causes a shift in the PPF curve
Give example
Economic growth
E.g. Increase in quantity & quality of resources, increase in investment and the development of new technology
What concept is shown in the movement of the PPF curve
Opportunity cost
What is specialisation
When an individual, firm, country concentrates on the production of a limited range of goods & services
What is division of labour
The specialsation of workers on individual tasks in the production process to increase efficiency
What are the advantages of division of labour
+ Higher output and potentially higher quality, since production focuses on what people and businesses are best at.
+ There could be a greater variety of goods and services produced
There are more opportunities for economies of scale, so the size of the market increases.
+ There is more competition and this gives an incentive for firms to lower their costs, which helps to keep prices down.
What are the disadvantages of division of labour
- Work becomes repetitive, which could lower the motivation of workers, potentially affecting quality and productivity. Workers could become dissatisfied.
- There could be more structural unemployment, since skills might not be transferable, especially because workers have focused on one task for so long.
- By producing a lot of one type of good through specialisation, variety could in fact decrease for consumers.
- There could be higher worker turnover for firms, which means employees become dissatisfied with their jobs and leave regularly.
What is the function of money
+ A medium of exchange
+ Unit of account
+ A store of value
+ A method of deferred payment
What is a free market economy
Give example
Where all resources are privately owned and allocated via the price mechanism. There is minimal government intervention
E.g. Hongkong, Taiwan
What is a mixed economy
Give example
Where some resources are owned and allocated by the private sector and some by the public sector
E.g. UK, USA, France, Germany, etc
What is a command economy
Give example
Where there is public ownership of resources and these are allocated by the government
E.g. North Korea, Former Soviet Union
