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Economics > Theme 1 Unit 1 - Introduction > Flashcards

Theme 1 Unit 1 - Introduction Flashcards

1
Q

Why do we use models

A
  • Help illustrate theories

- Simplify analysis

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2
Q

What is ceteris paribus

A

“all other things remaining constant”

- allows us to examine effect of one variable

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3
Q

Main purposes of economic activity

A
  • Allocation of scarce resources

- What to produce, how to produce it, and who gets it

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4
Q

What is the cost-benefit principle

A
  • Rational agents will choose what gives them the largest marginal benefit
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5
Q

How do consumer welfare and rationality interact

A
  • Rational agents will use their salary to maximise utility

- In reality, decisions are on incomplete information, causing welfare loss.

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6
Q

What’s behavioural economics

A
  • Challenges rationality

- Uses psychology to explain decisions i.e. eating too much

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7
Q

What is opportunity cost

A

The next best alternative foregone

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8
Q

Opportunity cost examples

A
  • Work vs leisure
  • Government spending
  • Investment into capital goods vs consumer goods now
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9
Q

Why do we have market systems and what are the 3 types

A
  • The institutions and frameworks a society uses to allocate resources
  • Free, mixed and command economy
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10
Q

Features of a free market economy

A
  • Markets allocate via the price mechanism

- Little government, ideally property, law and currency only

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11
Q

Features of a mixed economy

A
  • Resources are mix of public and privately owned

- Government supplies public + merit goods and corrects market failure

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12
Q

Features of a command economy

A
  • The state owns all resources

- The state allocates and sets quotas independent of market prices

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13
Q

What is rationing and how can we ration

A
  • Way of allocating scare resources
  • Most often done via the price mechanism
  • Need for product i.e. NHS
  • All require some form of discrimination
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14
Q

What are the factors of production

A
  • Land
  • Labour
  • Capital
  • Entrepreneurship
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15
Q

Explain land as a resource

A
  • All natural resources

- Could be land, climate or solar power

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16
Q

Explain labour as a resource

A
  • Human input into production

- Vital to growth

17
Q

Explain capital as a resource

A
  • Capital goods are used to produce other products

- Can be fixed (factories) or working (semi-conductors)

18
Q

Renewable vs non-renewable resources

A
  • Self-replenishing, as long as extracted sensibly

- Finite resources, no way to replenish

19
Q

Free goods

A
  • Don’t use up any inputs i.e. air, sunlight

- No opportunity cost

20
Q

What is a PPF

A
  • Shows maximum output of goods in a 2-factor economy

- Curve due to increasing opportunity costs

21
Q

Diagram of PPF

A
  • Capital vs consumer goods
  • Inside curve = not all utilised
  • On curve = fully utilised
  • Outside curve = unattainable
22
Q

How to shift PPF out

A
  • Increase in factors of production, productivity, or technology
  • Trading allows us to reach beyond it
  • Doesn’t always increase both axes equally
23
Q

How to shift PPF in

A
  • Natural disaster
  • War or conflict
  • Net migration or fall in productivity
24
Q

What is resource depreciation and depletion

A
  • Depreciation is the loss of quality of capital i.e. skills atrophy, infrastructure
  • Depletion is the actual reduction of resources i.e. migration
25
Q

Positive vs normative statements

A
  • Positive is objective, they can be tested and proven

- Normative is subjective, they carry value judgments

26
Q

What is specialisation and how is it beneficial

A
  • The focus on a specific task, it happens everywhere: from families to businesses to regions
  • Can lead to higher output of better quality goods, as well as more variety
27
Q

What is the division labour and why is it used

A
  • Breaking down production into many parts

- Repetition leads to higher productivity and lower costs

28
Q

Drawbacks of the division of labour

A
  • Repetitive work lowers motivation. Lower quality, productivity and punctuality
  • Can lead to structural unemployment
  • Lack of variety for consumers

Economics (5 decks)

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