1.1 Flashcards
Nature of economics (36 cards)
What does social science mean?
The scientific study of human society and social relationships
What are the three basic assumptions that economics employs?
-People have rational preferences among outcomes that can be identified and associated with a value
-Individuals maximise utility and firms maximise profit
-People act independently on the basis of full and relevant information
Why do economists feel that you can’t have low unemployment and low inflation?
Because when inflation rises, demand increase so there are more jobs. If the economy is growing fast, more jobs will come available which causes less unemployment.
What curved graph helps explain the relationship between employment and inflation?
The Phillips Curve
What does Ceteris Paribus mean?
-‘Holding other things constant’
OR
-‘All other things being equal’
What are some examples of economic models?
-Supply and Demand
-PPF Curve
-Game Theory
-Market Structure/Behaviour Models
-Wage Rate
-Exchange Rate
What is the basic economic problem?
People’s wants are unlimited, but resources to satisfy these wants are limited. Therefore, everyone has to make choices or decisions on how best to use their limited resources.
What is the definition of sustainability?
Means to use a resource in such a way that today’s needs are satisfied without compromising the needs or future generations.
Definition of needs and wants?
-Needs are those good essentials for survival in the society in which you live in.
-Wants tend to be those goods that people desire.
Why can’t people satisfy all their needs and wants?
-They may not have enough money
-There may not be enough that resource to go around - it is scarce.
What are economic goods?
They are rationed by the price charged to own or use that product and they are scarce.
What are positive statements?
Are objective statements, that can be tested and proven by referring to available evidence.
What are normative statements?
Are subjective statements (carry value judgements) rather than a fact.
What is the Production Possibility Frontier?
Shows the productive potential of an economy that is producing two goods and shows the opportunity costs of producing more of one good. The PPF curve itself assumes all resources within the economy are fully employed.
What is marginal analysis?
Refers to what happens at a point of change.
What does an outward shift in the PPF curve suggest? E.g AA to BB
Indicates an increase in potential GDP for multiple reasons:
-Rise in population
-Increase in net migration
(more people to produce for)
-Investment in more factories (more efficient/labour inputs)
-Improvements in technology (machinery to reduce labour and increase efficiency)
What does an inward shrink on the PPF curve suggest? E.g BB to AA
Would mean a decline in the productive potential of the economy which could be caused due to:
-War
-Natural disasters
-Manmade disasters
What does GDP stand for and mean?
Gross Domestic Product, value of all goods and services produced in an economy.
What is the definition of an opportunity cost?
The foregone benefit that would have derived from an option other than the one that was chosen.
What is the definition of specialisation?
If you can produce what your country is best at, then you can sell it and buy the things that you are not good at. This means you are using your country’s resources efficiently and not wasting them on producing goods you can’t make very well.
What are some advantages of trade and specialisation?
Choice and competition - Free trade means buyers have access to a much wider choice of goods which increases competition and therefore encourages producers to improve quality, reduce costs and innovate to remain competitive.
Economies Of Scale - Trade and specialisation results in the growth of fewer, bigger producers.
Higher Global GDP - If countries concentrate on the production of goods where they have comparative advantage, global output will be higher, resulting in increased living standards.
What is the definition of Economies of Scale?
How average unit costs fall as output increases.
What are some disadvantages of trade and specialisation?
Risk of structural unemployment - Unrestricted imports may result in unemployment if resources cannot easily be transferred to other industries.
Increased inequality - Increased world trade have increased inequality within countries. Unskilled workers in rich countries now face competition from lower paid workers in emerging economies, widening the gap between high and low paid workers. Also, the benefits of trade are not equally shared between countries.
Risks - Specialisation creates dependence on the countries, who may cut of supplies if there is conflict.
There are economic as well as political risks. Trade exposes a country to risks from economic events over which it has no control.
What is Division Of Labour?
An economic concept which states that dividing the production process into different stages enables workers to focus on specific tasks.
If workers can concentrate on one small aspect of production, this increases overall efficiency - so long as there is sufficient volume and quantity produced.
