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Economics > THEME 1 - Topic 1 - The Nature of Economics > Flashcards

THEME 1 - Topic 1 - The Nature of Economics Flashcards

1
Q

Define a model

A

It’s a simplified representation of reality used to provide insight into economic decisions and events and are all based on assumptions.

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2
Q

Why is a model helpful?

A

It simplifies situations so they’re more manageable for analysis.

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3
Q

Define ceteris paribus

A

A latin phrase meaning “other things being equal”. It’s used in economics when we focus on changes on one variable whilst maintaining others constant.

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4
Q

Define a positive statement

A

An objective statement about what is (facts and figures) and is testable.

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5
Q

Define a normative statement

A

A subjective statement that involves a value judgement about what ought to be.

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6
Q

Define scarcity

A

A situation that arises when people have unlimited wants in the face of limited resources (Fundamental economic problem).

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7
Q

Why does the Economic problem exist?

A

Although the needs and wants of people are unlimited, the resources available to satisfy these needs and wants are finite, so choices have to be made by producers.

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8
Q

Define opportunity cost

A

In decision-making, the value of the next best alternative forgone.

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9
Q

Define the 3 economics agents

A

Households
Firms
Governments

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10
Q

What do households do?

A

Demand goods/services.

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11
Q

What do firms do?

A

Produce output of goods/services.

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12
Q

What do governments do?

A

Undertake expenditure, taxation and regulations of goods/services.

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13
Q

What are the 4 factors of production?

A

Land
Labour
Capital
Enterprise

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14
Q

What do entrepreneurs/enterprise do?

A

Take risks and organize production.

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15
Q

What is land?

A

All the natural resources below the earth and the land itself.

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16
Q

What is labour?

A

It is the human resource available within a country.

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17
Q

Define capital

A

Man-made aid to production, including factories, machinery and infrastructure.

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18
Q

Define renewable resources

A

Natural resources that can be replenished such as forests or solar.

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19
Q

Define non-renewable resources

A

Natural resources that once used up can’t be replenished.

20
Q

Define what the factors of production are used for

A

Resources used in the production process; inputs into production.

21
Q

Define the production possibility frontier (PPF)

A

A curve showing the different maximum possible combinations of producing 2 economics goods in a given period if all resources in an economy are fully and efficiently employed.

22
Q

What do the points along the PPF curve represent?

A

A combination of producing 2 economic goods at productive efficiency.

23
Q

What does a point inside the PPF curve represent?

A

A combination of producing 2 economic goods at productive inefficiency.

24
Q

What does a point outside the PPF curve represent?

A

A combination of producing 2 economic goods that is unobtainable with the current factors of production.

25
Q

What are capital goods?

A

Man-made aid to production purchased by firms and invested in. They can increase production of an economy in the future.

26
Q

Name 4factors that can affect potential economic growth

A

Training
Increase in birth rate
Increase in retirement age
Discovering natural resources

27
Q

What are consumer goods?

A

The needs/wants that households require in the present.

28
Q

How can economy expand its productive capacity?

A

An increase in the quantity and/or quality of the factors of production.

29
Q

How is an expansion in the productive capacity of an economy indicated on a PPF diagram?

A

A shift to the right of the PPF.

30
Q

How is a decrease in the productive capacity of an economy indicated on a PPF diagram?

A

A shift to the left of the PPF.

31
Q

What is total output?

A

The amount of final products produced by an economy.

32
Q

Define specialisation

A

A situation where individuals, firms or governments concentrate on a particular task, or upon producing some goods/services and not others. This can lead to experts.

33
Q

Name 2 positives and negatives of specialisation

A

+ Productivity of workers increases leading to a lower cost per unit
+ More total output
- Low motivation levels can lead to high staff turnovers
- Low worker pride leading to a possible reduction in production quality

34
Q

Define the division of labour

A

Occurs where production is broken down into many separate tasks via specialisation of workers, increasing the output per worker.

35
Q

Who is Adam Smith?

A

An author who wrote “The Wealth of Nations”, believing that all countries would get richer via specialisation and the division of labour.

36
Q

Define a Market

A

A set of arrangements that brings together buyers and sellers, that allows attractions to take place.

37
Q

Define GDP (Gross Domestic Product)

A

The value of all goods and services produced by the factors of production based within a country, within 1 year.

38
Q

What are the 4 functions of money?

A

Medium of exchange
Store of value
Measure of value
Standard of deferred payment

39
Q

What choices did Paul Samuelson say that producers needed to make?

A

What to produce
How to produce it
For whom to produce for

40
Q

Define a market economy

A

An economy in which market forces are allowed to guide the allocation of scarce resources.

41
Q

Which economist determined the flaws of a market economy?

A

Karl Marx because it would lead to large wealth inequality.

42
Q

Define a command economy

A

An economy in which the decisions of scarce resource allocation are fully guided by the head of state.

43
Q

Define a mixed economy

A

An economy in which scarce resources are partly allocated through price signals and partly on the basis of intervention by the state.

44
Q

Define microeconomics

A

Is the study of economic decisions taken by individual economic agents, including households and firms.

45
Q

Define macroeconomics

A

Is the study of the interrelationships between variables at an aggregate level.

Economics (3 decks)

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