Unit 1 Flashcards
In the process of Developing Models, what do economists need to do?
Make Assumptions
What is Ceteris Paribus?
A key assumption that is made is assuming that events occur with ceteris paribus.
This assumption is that other things are being held equal or constant, so nothing else changes.
Why do Economists use Models?
Economists cannot conduct scientific experiments, like in the natural sciences, so models are devised.
Economists then use real-life scenarios to build these models upon, and assumptions are made with the models.
What are Positive Statements?
Statements based on quantitative/reliable data, which isn’t influenced by opinion (objective)
What are Normative Statements?
Subjective judgements based on opinion rather than factual evidence
What is the role of Value Judgements in influencing economic decision + policy?
Normative statements are based on ‘value judgments’
Value judgements can influence economic decision making + policy
Different economists can make different judgements from the same statistic
(e.g. the inflation rate can lead to different conclusions)
What is the Basic Economic Problem?
Our wants and needs is unlimited, but resources are finite (scarce)
What are Non-Renewable Resources?
Non-renewable resources cannot be renewed.
The stock levels decreases over time as it is consumed.
e.g. things produced from fossil fuels; such s coal, oil and natural gas, are non-renewable.
Methods like recycling and finding substitutes (e.g. wind farms) can reduce the decline of the resource.
What are Renewable Resources?
Renewable resources can be replenished; so their stock level can be maintained over a long time period.
e.g. Oxygen, fish + solar power are renewable; assuming the rate of consumption < rate of replenishment
How can Renewable resources be Managed?
They can be managed by limiting/preventing deforestation, imposing fishing quotas, etc.
What is our Current Consumption of renewable goods?
We currently consume more renewable goods at a faster rate than replenishment.
The Worldwide Fund for Nature claims that 2 planets will be needed to meet global demand by 2050.
What does Opportunity Cost mean?
Giving up one thing for the next best alternative.
The loss of other alternatives when one alternative is chosen.
What are the Factors of Production?
Land
Labour
Capital
Enterprise
What are Capital Goods?
Goods used to produce consumer goods (eg machinery)
What are Consumer Goods?
Produced goods that can be sold to consumers.
What does the PPF usually show?
- How much of two goods you can make with the given resources.
- The opportunity cost for if you give up one of more than the other
Why is the PPF diagram usually curved?
There usually isn’t a constant opportunity cost for if you use more of one than the other
What may cause the PPF Curve to Shift to the Right?
Economic Growth
What is the Importance of Opportunity Costs to the economic agents?
Consumers: choosing between 2 products
Producers: (e.g.) choosing between hiring extra staff, or investing in new machinery
Governments: (e.g.) choosing between spending more on NHS, or education
They can’t do both due to finite resources, so a choice has to be made for where the resources are best spent
What is Specialisation?
Workers become skilled in their certain field as they work on that small part so much.
Therefore they work much more efficiently and effectively.
For example, when making a doll, workers can manufacture certain parts of the doll.
What is Division of Labour?
When you divide the process of production into smaller parts, where workers take up each part.
Therefore multiple workers are involved in the process of production.
What is the Relationship between Division of Labour and Specialisation?
When division of labour occurs, work has become specialised in their field of production; and the whole production process happens much more efficiently.
What are the Advantages of Division of Labour?
- What has become specialised, and work more efficiently + quickly
- More choice for what you can work in
- Work is evenly distributed, so everyone works the same amount
What are the Disadvantages of Division of Labour?
- Work becomes boring and monotonous
- Cost money to train workers
- Interdependence: Workers depend on others for the whole production process to work
– If someone is ill and doesn’t go to work, production becomes difficult
– if someone becomes bored/tired and stops working to as high of a standard, production becomes less efficient/becomes a lower standard