Theme 1 - The Nature Of Economics (Autumn term 1 - yr 12) Flashcards
What is economics?
Economic studies the choices people take under the conditions of scarcity and uncertainty.
Why is economics a social science?
Economists can never be sure of the way in which people and businesses will respond to the changing circumstances around them.
What is the tradition economic theory?
It argues that all parties are out for themselves.
What is the behavioural economic theory? + examples
It challenges the assumption of the rationality in our choices.
Examples: ethics - buying products that have not been tested on animals or are vegan. Or buying because you are used to it.
What is microeconomics?
The study if economies at the level of an individual firm, industry or consume/household.
Data is collected by studying how prices and wages are determined in markets; how consumers decide what to buy; how businesses determine what is produced and how it is supplied.
It also involves analysing the effects of government regulations, subsidies, taxes and maximum and minimum prices and quantities of goods and supplies.
Define ceteris paribus.
It is a Latin phrase meaning ‘all other things being equal’. It is used in economics when we focus on changes in one variable while holding other influences constant.
What is a positive statement?
They are objective statements that can be tested, amended or rejected by referring to available evidence.
False statements can still be positive.
Example: the falling price of crude oil on world market will lead to a fall in demand for fuel efficient cars.
What is a normative statement?
They are subjective statements, i.e. they carry value judgement about what ought to be.
Most economic decisions are influence by value judgments, which vary from person to person, resulting in fierce debate between political parties.
Example: an increase in house prices is good for the economy.
What is the fundamental economic problem?
Scarcity and that there are only finite resources so business need to make decisions on what to spend their money on, leading to opportunities costs.
What are opportunity costs? + example
They measure the value of an option/ choice you make when you forgo the other option (next-best alternative). In other words they measure the cost of a choice that you could have made, especially when the original choice you made wasn’t the best.
Example: the opportunity cost of the government spending £10 billion on the NHS, when that £10 billion could have been spent on other parts of the economy like education.
What are economics agents, who are they and what are their rationale?
Economic agents: are the decision makers on how much to spend that effects the economies of households, firms and the government.
Households/consumers: want to buy the best product for the cheapest price.
Firms/producers: want to maximise profits by producing at lowest costs and selling at high prices
Governments: they wish to improve the economics and social welfare of citizens. Therefore, all are run as efficiently as possible.
What are the factors of production?
Land: natural resources available for production
Labour: the human input - workforce and their skills that can be used in the production process
Enterprise: the ideas from entrepreneurs. They organise the factors of production and take risks
Capital: the money invested into the production.
Explain the differences between renewable and non-renewable resource.
Renewable: materials that come from a reliable, sustainable source that can be reproduced or never run out like timber or sunlight
Non-renewable: materials that come from finite resources that cannot be replenished. Also if there is a higher demand than supply, like fuel.
What does a PPF (Production Possibility frontier) show?
A PPF shows the alternative combinations of two goods or services attainable when all resources are fully and efficiently employed.
It should be able to show the opportunity costs.
Normally it is between consumer and capital goods.
Why would the PPF curve shift inwards?
Unemployment - recession
Finite resources
War/civil war
Damaging effects of a natural disaster like a tsunami
Why would a PPF curve move outwards?
Skills uplift
Higher productivity through increased output or input
Increase in stock capital and labour
Innovation and invention of new products - improved production = boost in efficiency.
Discovery/extraction of natural resources.
What causes the PPF curve to shift both ways?
International trade (e.g. one country is better at making cars bonnets than another) Migration (brain drain)
What is a market?
A set of arrangements that allows transactions to take place, it does not have to be a physical place, as long as it brings potential buyers and sellers together.
What is a coordination problem?
Because if the different organisations (economic agents) are all taking decisions, the way it fits together it hard.
What are capital goods?
Goods that are used to make consumer goods + services.
Capital inputs include fixed plant and machinery, hardware, software, new factories and other buildings.
What are consumer goods + services?
Good and services that satisfy our needs and wants directly.
There are sub-divisions.
What are consumer durables?
Products that provide a steady flow of satisfaction/utility over their working life or over 1 year, e.g phones.
What are consumer non-durables?
Products that are used up in the act of consumption e.g. deink8ng coffee or using electricity.
What are consumer services?
Using a service e.g. going to the dry cleaners or having a hair cut.
