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2-Economics- Micro > 1.1- Economic Methodology And The Economic Problem > Flashcards

1.1- Economic Methodology And The Economic Problem Flashcards

1
Q

Basic economic problem

A

There are infinite wants but only limited resources

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2
Q

What are the 4 questions form the basic economic problem

A

-what to produce
-how
-how much
-for whom

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3
Q

Factor rewards

A

Incomes that flow to each of the main factors of production when bought into production use

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4
Q

Factor inputs

A

Land
Labour
Capital
Enterprise

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5
Q

Land as a factor input

A

Natural resources eg. Forests

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6
Q

Factor reward for land

A

Gain rent

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7
Q

Labour as a factor input

A

Human input into production process

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8
Q

Labour as factor reward

A

Gain wages and saleries

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9
Q

Capital as a factor input

A

Things used when making other goods and services
Eg. Machinery

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10
Q

Capital factor reward

A

Gain interest from savings and dividens from shars

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11
Q

Enterprise as factor input

A

Entrepreneurship
innovation

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12
Q

Enterprise factor reward

A

Gain profits

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13
Q

Opportunity cost

A

Benefit lost from the next forgone alternative

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14
Q

Positive statements

A

-objective statements
-can be tested/ammended by lookig at available evidence

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15
Q

Normative statements

A

-subjective statements
-carry value judgements about what ought to be
‘should’ rather than justification
-must economic decisions influenced by value judgements
-vary between diff people

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16
Q

Objective agnts

A

What we assume (when studying economics)

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17
Q

What are the objective agents

A

-rational consumers
-producers/firms
-government

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18
Q

Rational consumers

A

We assume that consumers wish to maximise satisfaction/utility by choosing how to spend their limited money

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19
Q

Producers/firms- objective agents

A

Maximise profits through producing at lower cost

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20
Q

Government objective agents

A

Improve economic/social welfare of citizens

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21
Q

Capital goods

A

-used to make consumer goods and services
-eg. Machinery

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22
Q

Free goods

A

-dont use up any factor inputs when supplied eg. Air
-zero oportunity cost

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23
Q

Consumer goods and services

A

Satisfy our needs and wants directly

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24
Q

Consumer durables

A

Products that provide steady flow of satisfaction

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25
Q

Consumer non-durables

A

Products used up in act of consumption

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26
Q

Consumer services

A

Eg. Hair cut/ tickets to a show

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27
Q

What do ppfs show

A

Combination of goods that can be made with a given amount of resources

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28
Q

As move along ppf curve

A

Opportunity cost increases

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29
Q

Straight ppf curve

A

Constant opportunity cost

30
Q

Point under ppf curve

A

Unemployed resources

31
Q

Point over ppf curve

A

Unattainable- not enough resources

32
Q

Causes of ppf curve shift in

A

Ppf less
-pandemic
-war
-natural disaster

33
Q

Causes of ppf curve shift out

A

-improvements in quantity/quality resources
-more resources available- eg. Untapped
-net migration- from abroad
-net investment from abroad- low tax
-advancements in technology
-improvements in human capital
-education and training

34
Q

Economic growth

A

Increase in the pottential level of real output the economy can produce over a period of time
Lras

35
Q

Productive efficiency

A

For econ as whole- 0occurs when its impossible to produce more of one good without producing less of another
For a firm- occurs when av total cost of production is minimised

36
Q

Allocative efficiency

A

Occurs when the available economic resources are used to produce the combination of g&s that best matches peoples tastes and preferences
Doesnt necessarily = optimum society welfare- depends on distribution of income and wealth and value judgements relating to fairness and justice

37
Q

Inter-temporal choice

A

Choice over time
Eg. Whether to leave school get a job or go to uni

38
Q

Scarcity

A

Results from the fact that people have unlimited wants but resources limited

39
Q

Functions of pricee

A

Signalling
Rationing
Incentivising

40
Q

Signallying

A

Prices send a signal about market conditions- eg house prices increase, prices provide info to businesses and consumers

41
Q

Rationing function of price

A

Pricies will increase ration scarce resources
Eg energy

42
Q

Incentivisng fucntion of price

A

Prices create incentives to change behavoir
High prices will incentivise produceers to increase supply due to higher profits
Low prices will incentivise consumers- eg saes0- whilst hgh prices deincentivise

43
Q

Allocative function of prices

A

Changing relatiive praces allocates scarce resources away from markets exhibiting excess supply and into markets where excess demand

44
Q

Missing market

A

A situation in which there is no market because the functions of prices have broken down

45
Q

Subsidy

A

A payment made by gov or other authorty0- usually to producers for each unit of the subsidised good they produce
Consumers. May be subsidised eg. Bus passes given to children to enable them to travel on buses free or at a reduced price

46
Q

Indivrect tax

A

Tax on expendaiture
Vat and excise duty- main types in uk
Supply shifts left

47
Q

Vat

A

Value added tax
200% currently
Based on price of product0 advalorem tax
Price higher, higher vat paid
Causes supply curve to diverge- more paid at higher prices

48
Q

Excise duty

A

Specific unit tax
Fixed amount
Increase with volume purchase
Eg. 2pounds/bottle of wine, reardless of price of wine
Levied on petrol, tobacco, alcohol in uk
Parallel shift of supply cruve

49
Q

Tax/unit on diagram

A

Verticle distance two supply curves at same quantity
Divide into consumer and producer burden

50
Q

Consumer burden

A

Amount of tax consumer payys
Diff between two equilibrium points on price-
Paid before- paid after

51
Q

Producer burden

A

Amount tax producer pays
Tax/unit - consumer burden

52
Q

Total amount of tax received by gov

A

Tax/unit x new quantity

53
Q

change in producer revenue

A

Origional revenue- new revenue

54
Q

Incidence of tax

A

Varied on elasticity

55
Q

Inelastic tax burden

A

Consumer burden greater
Tax revenue more
Less impact for demerit ggoods but greater tax rev
Can be hypothicated- used for helping to educate dangers of smoking

56
Q

Elastic incidence of tax

A

Consumer burden when elastic
Less tax erevenue
More ffective for demerit goods

57
Q

When ped= 0 incidence of tax

A

Perfectly inelastic
Consuemr pass burden
Demand x price
Upwards line from bottom/demand curve

58
Q

Ped= infinity incidence of tax

A

Perfectly elastic
Producer pays all
Dmeand constant
Line horizontal

59
Q

Pes= infinity

A

Perfectly elastic
Consumer pay all tax
Horizontal line

60
Q

Pes=0 incidence of tax

A

Perfectly inelastic
Supplyl cant change, producer must absorb all taz to stay equilibrium

61
Q

Tehnical progress

A

New and better ways of making goods and new techniques for producing more output from scarce resources

62
Q

Econ growth

A

The incrrease in the potential level of real outout the econ can produce over a period of tien

63
Q

Sr growth

A

Makes use of spare capacity in econ
Inside ppf to on ppf

64
Q

Productive efficiency

A

For the economy- when it is impossible to produce more of one good without producing less of another
Firm- av total cost of production is minimised

65
Q

An economic good is

A

One which has an opp cost

66
Q

What can a ppf not illustrate

A

Consumer demand

67
Q

The basic econ problem is thaat

A

Resources have to be allocated between competing uses

68
Q

The objective of econ activity

A

Satisfy consumer wants

69
Q

Rising unemployment is a price worth paying to get inflation down- an example of

A

A value judgement

70
Q

The main methodological diff between econ and natural sciences is that economists

A

Cannot test hyptheses in lab conditions

71
Q

Value judgements inflluence econ decision making and policy because value judgenents

A

Are eval processess based on individ standards or priorities

2-Economics- Micro (14 decks)

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