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Economics Micro > Yr1 Economic Methodology and the Economic Problem > Flashcards

Yr1 Economic Methodology and the Economic Problem Flashcards

1
Q

PART 1

A

ECONOMIC METHODOLOGY

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2
Q

What is a positive statement?

A

A hypothesis that can be justified using statistical information

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3
Q

What is a normative statement?

A

An opinion based statement

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4
Q

Definition of economic welfare?

A

Financial well-being of an individual/group

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5
Q

What does productive efficiency mean?

A

Optimal method of producing goods (low costs > 100% efficient)

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6
Q

What does allocative efficiency mean?

A

Optimal distribution of goods and services

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7
Q

PART 2

A

THE NATURE AND PURPOSE OF ECONOMIC ACTIVITY

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8
Q

What’s the economic problem?

A

Scarcity > unlimited wants + finite resources

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9
Q

PART 3

A

ECONOMIC RESOURCES

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10
Q

What are the 4 factors of production?

A
  • capital
  • enterprise / entrepreneurship
  • land
  • labour
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11
Q

What is gained by the 4 factors of production?

A

Capital > interest
Enterprise > profit
Labour > wages
Land > rent

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12
Q

PART 4

A

SCARCITY, CHOICE AND THE ALLOCATION OF RESOURCES

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13
Q

What are the characteristics of a free market + give 3 examples?

A
  • market allocated resources
  • driven by profit motive
  • limited role of state government (gov intervention)
  • private sector economies

SINGAPORE, SWITZERLAND, IRELAND

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14
Q

What are the characteristics of a mixed economy + give 4 examples?

A
  • gov intervention in markets
  • mix of state and private ownership
  • mix will vary country to country

USA, UK, GERMANY, CHINA

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15
Q

What are the characteristics of a command economy + give 2 examples?

A
  • most resources are state owned
  • planning allocated resources
  • little role for market prices

CUBA, NORTH KOREA (communism)

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16
Q

Pros of a mixed economy? (4)

A
  1. Competition drives innovation and intervention
  2. Profit motive stimulates capital investment
  3. Competitive prices for consumers and suppliers
  4. An efficient allocation of resources
17
Q

Cons of a mixed economy? (4)

A
  1. Some firms grow so large they gain significant monopoly power
  2. Firms tempted to cut costs and so exploit labour
  3. Goods that are bad for use may be overproduced
  4. Some members of society are unable to work
18
Q

Pros of command economy?(4)

A
  1. Lower levels of inequality
  2. Mass unemployment unlikely
  3. Resources allocated for common good
  4. Faster to get large scale infrastructure projects built
19
Q

Cons of command economy? (4)

A
  1. Low productivity
  2. State can suffer from information failures and corruption
  3. Absence of incentives for workers and businesses
  4. Problems in choosing prices of goods and services
20
Q

Definition of opportunity cost?

A

The next best alternative foregone

21
Q

PART 5

A

PRODUCTION POSSIBILITY DIAGRAMS

22
Q

What is meant by production possibility?

A
  • how different combinations of goods and services can be produced
  • demonstrate economic growth and opportunity cost
23
Q

What causes a shift in the PPC/PPF? (5)

A
  1. Higher productivity/ efficiency in the factor of inputs
  2. Better management of FofP
  3. Incr supply of capital/labour
  4. Innovation and wanting of new products/resources
  5. Discovery/extraction of new natural resources
24
Q

What does it mean if the point is inside the PPF?

A

The firm is inefficient and underutilising resources

25
Q
  1. What does it mean if the point on a PPF is on the curve
  2. What does it mean if the point moves along the curve
A
  1. Efficient use of resources > maximising all resources
  2. Reallocation of resources
26
Q

What is the definition for diminishing returns?

A

Each additional unit of the variable factor employed adds less than the previous unit to the total output

27
Q

PPF definition?

A

Illustrates the different combinations of two goods, or sets of goods, that can be produced with a fixed quantity of resources (all available fully utilised) also known as PPC

Economics Micro (8 decks)

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