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Economics - Theme 1 > Theme 1, The Nature of Economics CC1 > Flashcards

Theme 1, The Nature of Economics CC1 Flashcards

1
Q

scarcity

A

wants and needs are infinite, resources finite and insufficient to make all the products that consumers want

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2
Q

three questions of the basic economic problem

A

what to produce, when to produce, how to produce

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3
Q

economic resources

A

scarce, involves opportunity cost
goods - physical items
services - activities that others do for you

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4
Q

renewable and non-renewable resources

A

renewable - replenished by natural processes

non-renewable - not replaced naturally

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5
Q

opportunity cost

A

measures the value of the next best alternative use of resources foregone

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6
Q

free goods

A

not scarce, unlimited supply

has no opportunity cost to society

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7
Q

factors of production

A

land - all that nature provides, reward is rent
labour - reward is wages
capital - all man-made goods which help to produce goods/services, reward is interest
enterprise - entreprenuers, reward is profit

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8
Q

PPF shows

A

maximum possible output of two goods/services that can be produced in most efficient way possible
productive capacity

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9
Q

PPF shifts

A

outwards:
- improvements in productivity
- better management of existing resources
- more factors of production available (larger workforce)
- discovery of new natural resources
inwards:
- opposite of ‘outwards’

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10
Q

consumer goods

A

satisfy wants and needs

future productive capacity limited

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11
Q

capital goods

A

offices, factories, machinery

increase future productive capacity

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12
Q

specialisation

A

when individuals/firms/regions concentrate on a particular task/product

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13
Q

division of labour

A

specialisation by workers where the production of a good is broken up into many separate tasks each performed by one person

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14
Q

productivity

A

productivity - output per unit of input employed over a given time period
labour productivity - output per worker per time period
capital labour - output per unit of capital employed per time period

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15
Q

cost per unit

A

unit cost = total cost/units of output

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16
Q

factors affecting productivity of a workforce

A
  • extent and quality of fixed assets
  • skills, ability and motivation of workers
  • methods
  • external factors (eg reliability of supplies)
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17
Q

advantages of specialisation/division of labour

A 
firm:
- reduced unit costs and improved quality
- better use of scarce resources
trade:
- increased global market
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18
Q

disadvantages of specialisation/division of labour

A

firm:
- boredom -> higher labour turnover
- lack of transferable skills
trade:
- environmental impact (eg transporting goods)
- structural unemployment if industry dies

19
Q

four functions of money

A
  • medium of exchange
  • measure of value
  • store of value (storing wealth)
  • method of deferred payment (eg credit)
20
Q

economic system def

A

complex network of individuals, organisations and institutions and their social and legal interrealtionships

21
Q

the main economic actors/agents

A

consumers: maximise own welfare or utility
factory owners: maximise returns
producers (firms): maximise profit
government: maximise social welfare, most likely have their own political agenda

22
Q

command/planned economy

A

the government allocates resources in a society
rationing:
- workers given jobs by state
- state decides what is produced, how and for whom
- market prices play little or no part

23
Q

free market economy

A

resources allocated by price mechanism
Adam Smith’s ‘invisible hand’:
- private ownership
- price mechanism, competition within producers, choice for consumers
- motivated by pure self interest
- free enterprise -> few government limits

24
Q

advantages of a command economy

A
  • greater equality
  • full employment
  • key services (eg defence) provided
  • prevents consumer exploitation by firms
  • basic necessities (eg food, water) provided
25
Q

advantages of a free market economy

A
  • greater choice
  • consumer sovereignty (consumer’s desires and needs dictate output)
  • risk taking
  • innovation
26
Q

mixed economy

A

the inevitable ‘real world’ compromise

resources allocated partly by price mechanism and partly by government/state

27
Q

private sector of a mixed economy

A

private ownership of factors of production, competition, consumers/producers motivated by self-interest

28
Q

public sector of a mixed economy

A

state owned/run, planning process. raising revenue through taxes and redistributing income in benefits or provision of services (eg healthcare)

29
Q

Adam Smith

A

Laissez-Faire attitude
Invisible Hand
free market economist
but aware of problems such as exploitation

30
Q

Freidrich Hayek

A

Laissez-Faire attitude
wrote ‘Road to Serfdom’ warning of dictatorship
believes it guarantees individual liberty

31
Q

Karl Marx

A

believed profit is exploitation
believes producing too much causes economic crisis
command/planned economy
said capitalist ideas teach to be competitive, anxious and conformist

32
Q

why is economics regarded as a social science

A

study of human behaviour

33
Q

why is it argued that economics cant be a science

A

cannot be tested under lab conditions

34
Q

what research methods can economists use

A

mathematical and statistical tools

35
Q

what is meant by an economic ‘model’

A

model = simplification of reality

36
Q

ceteris paribus

A

all other things remain constant/being equal

37
Q

positive statement

A

fact

can be proved or refuted

38
Q

normative statement

A

a statement which cannot be proved or tested using evidence

39
Q

sustainable resource

A

managing resources so they don’t deplete

40
Q

economic agents

A

consumers
producers (firms)
government

41
Q

PPF gradient

A

opportunity cost

steeper = greater sacrifice

42
Q

PPF pivots

A

change in productivity in only one good or service

43
Q

PPF imperfect factor substitution

A

better suited making one item over another

Economics - Theme 1 (8 decks)

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