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Economics Theme 1 > Unit 1: Nature of Economics > Flashcards

Unit 1: Nature of Economics Flashcards

1
Q

Ceteris paribus

A

Assuming all other things are constant

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2
Q

What is meant by a model in economics?

A

A simplified representation of reality to provide insight into economic decisions and events

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3
Q

How could the ceteris paribus assumption be used when talking about price and demand?

A

Ceteris paribus, if the price of an item falls, demand will increase.

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4
Q

Why do economists use models, assumptions, and ceteris paribus?

A

To simplify situations in order to better study and understand them

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5
Q

How does economics differ from a science like physics?

A

It is a social science, so it studies people, not matter like a hard science such as physics.

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6
Q

Define positive economics

A

A branch of economics that uses statements about ‘what is’ i.e that can be proven

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7
Q

Define normative economics

A

A branch of economics that uses statements that contain a value judgement (think should, ought, unfair etc. , more opinion based)

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8
Q

How does value judgment affect policy making?

A

Different economists can make different conclusions, judgements, and predictions from the same statistic

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9
Q

What is the purpose of economic activity?

A

Satisfying needs and wants through the production of goods and services.

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10
Q

What is the fundamental economic problem?

A

There are limited resources, however people have unlimited wants and needs.

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11
Q

What are the four categories of economic resources?

A

Capital, Enterprise, Land, Labour

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12
Q

Define capital

A

The stock of goods used to make other goods and to provide services, such as machines.

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13
Q

Define land (economics wise)

A

Goods like minerals, land itself, and all the resources we take from the earth e.g raw materials

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14
Q

Define labour (economics wise)

A

The workforce, and their skills, abilities and intelligence

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15
Q

Define Enterprise

A

Risk takers that are prepared to organise businesses to make goods and services (e.g someone like Alan Sugar)

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16
Q

What is the difference between renewable and non-renewable resources?

A

Renewable - can be remade

Non-renewable - finite, limited supply

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17
Q

Why is choice a necessary element in the economic problem?

A

Resources are scarce, therefore a decision must be made about what to have

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18
Q

Define opportunity cost

A

The next best alternative forgone when an economic decision is made

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19
Q

Examples of opportunity costs consumers face

A 
Buying products (choosing what to buy)
Keeping items or selling them
Paying someone to do something for you (as opposed to doing it yourself)
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20
Q

What are the 4 main economic groups?

A

Consumers, producers, firms, government

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21
Q

Examples of opportunity cost that producers face

A

What materials to use
What equipment to buy
Spending on rent and utilities

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22
Q

Examples of opportunity cost that the government faces

A

Funding new buildings (e.g choosing between a university and a hospital)
Spending on different sectors (e.g healthcare vs education)

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23
Q

What is specialisation?

A

*** When you don’t produce everything you need to survive, and instead become an expert in a specific skill then trade the surplus.

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24
Q

What are 3 benefits of specialisation?

A

Increased productivity
REDUCED COST OF TRAINING
REDUCED COST OF CAPITAL (more specialised to each task)

25
Q

What is meant by productivity and how can you measure it?

A

Productivity is how much output of a good is created PER UNIT OF INPUT.

It can be measure by dividing output by input, e.g GDP per hour worked.

26
Q

Why is a system of exchange an essential part of specialisation?

A

It means the surplus of goods can be efficiently traded without having to barter (trying to find a double co-incidence of wants).

27
Q

What is the division of labour?

A

Division of labour is splitting a task into subtasks and allocating labour to these subtasks.

28
Q

How does the division of labour increase productivity?

A

Workers become more skilled in a specific area, meaning they are more efficient.

29
Q

What are 3 disadvantages of specialisation?

A

May become boring to keep doing the same tasks.
BOTTLENECKS (hold-ups) may occur in the production line.
REDUCE IN QUALITY due to mass productions

30
Q

What are the 4 functions of money?

A

Medium of exchange
Store of value
MEASURE OF VALUE
METHOD OF DEFERRED PAYMENT

31
Q

Define an economic agent

A

Individuals, firms and organisations who are involved in economic activity

32
Q

Define economic welfare

A

A consumer’s utility or satisfaction received from the allocation of resources

33
Q

Define a free market economy

A

An economy where there is very little government involvement in providing goods and services

34
Q

Define a mixed economy

A

An economy where both the free market mechanism and the government control the allocation of resources

35
Q

Define a command/planned economy

A

An economy where the government, through a planning process, allocates resources

36
Q

Define economic needs

A

The things a consumer needs to survive e.g water

37
Q

Define economic wants

A

The things consumers want but do not need e.g branded clothes

38
Q

Define scarcity

A

A situation that arises when people have unlimited wants in the face of limited resources

39
Q

Define economic goods

A

Goods which are scarce and therefore command a price

40
Q

Define free goods

A

Goods without opportunity cost and therefore do not command a price

41
Q

Define factors of production

A

The resources in an economy that are combined to produce goods and services

42
Q

Define sustainable resources

A

Renewable resources which are economically exploited in a way so that they don’t run out

43
Q

Define production possibility frontier

A

Shows all the different combinations of two goods that can be produced by an economy when all factor of production are fully and efficiently used

44
Q

Define allocative efficiency

A

Achieved when society is producing an appropriate amount of goods relative to consumer preference

45
Q

Define productive efficiency

A

When output is produced at lowest cost per unit

46
Q

Define marginal analysis

A

An approach to economic decision making based on considering the additional benefits and costs of a change in behaviour

47
Q

Define potential economic growth

A

An expansion in the productive capacity of an economy

48
Q

Define GDP

A

A measure of the economic activity carried out in an economy over a period of time

49
Q

Define productivity

A

Measures output per unit of input

50
Q

Define a market

A

A set of arrangements that allows transactions to take place

51
Q

Define microeconomics

A

The study of economic decisions taken by individual economic agents e.g households

52
Q

Define macroeconomics

A

The study of the relationships between economic variables at an aggregate level

53
Q

Name 2 advantages of a free market economy

A

More choice for consumers

Motive for profit so more income

Responds to changing consumer wants and needs

54
Q

Name 2 advantages of a mixedd economy

A

Safety net to alleviate poverty

Gov can stabilise economy and stop market failure

Prevents monopolys

55
Q

Name 2 advantages of a command economy

A

Removes inequality

Theoretically no unemployment

56
Q

Name 2 disadvantages of free marke pt economy

A

inequality

No safety net

unstable

monopoly abuse

57
Q

Name a disadvantages of a mixed economy

A

Gov intervention may cause even bigger problems

58
Q

Name 2 disadvantages of a command economy

A

no incentive to work

cannot respond to market forces - limitwd choice and low output

59
Q

define barter

A

swapping one good for another without using money

Economics Theme 1 (4 decks)

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