1.1 Nature of Economics Flashcards
(85 cards)
1
Q
Economy
A
All the goods & services produced in an area
2
Q
Difference between a good & service
A
Good = tangible (can be touched) Service = intangible (can’t be touched)
3
Q
Order of economies from largest to smallest
A
US
China
Japan
Germany
UK
4
Q
Factors of production definition
A
Resources used to produce goods & services
5
Q
Factors of production:
A
- capital (things used to make goods/services)
- enterprise (willingness of people in business(entrepenuaers) to take risks to make profit, seeking out profitable opportunities)
- land (natural resources- oil/forest)
- labour (all work done by humans in production)
6
Q
List the 2 types of land & definition
A
- renewable resources (capable of being regenerated)
- non-renewable resources (not capable of being regenerated)
7
Q
What is capital split into
A
- machinery (printers, computers)
- tools (hammers, spades)
8
Q
Why are factors of production scarce
A
- not enough skills/space
- not well educated ppl
- not enough workers
9
Q
Scarce
A
Not sufficient in quantity or amount
10
Q
The economic problem
A
How to use the available scarce resources to satisfy people’s infinite needs & wants as effectively as possible
11
Q
3 key questions to answer the economic problem
A
What to produce? = ‘the consumption decision’
How to produce it? = ‘the production decision’
Who to produce it for? = ‘the distribution decision’
12
Q
Economic agents definition
A
Groups that participate in the economy
13
Q
Economics agents:
A
- producers (create goods/services)
- consumers (buy goods/services made by firms(businesses))
- government (sets rules other economic agents follow, produces some goods/services eg. Roads/health care)
14
Q
Why do economists develop models
A
To explain & predict economic phenomena / the impact of economic change
15
Q
Why is it difficult for economists to conduct experiments
A
Too many variables/factors that impact economic activity constantly changing, can’t be controlled
16
Q
Theoretical models (definition/purpose)
A
= based on theory
- explain economic phenomena
- simplifying complex economic phenomena
17
Q
Empirical models (definition/purpose)
A
= based on economic data
- predict economic phenomena
18
Q
What do economists rely on to make models
A
- data
- assumptions
19
Q
‘Ceteris Paribus’ assumption
A
= all other things being equal
= assuming other variables remain constant
20
Q
Why is the ceteris paribus assumption necessary for economic analysis
A
It overcomes the problem of the many changing factors that can impact economic activity
21
Q
Why is economics a social science
A
= studies society & the people in it
22
Q
Opportunity cost of a decision =
A
= the value of the next best alternative forgone as a result of the choice made
23
Q
Forgo
A
= to give up or do without
24
Q
Uses of opportunity cost
A
- consumers: to decide what to spend incomes on
- producers: to decide what & how to produce goods & services
- governments: to decide what policies to choose
25
PPF (production possibility frontier)
= shows the maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully & efficiently used, given the current level of technology
26
(Negative)Economic growth
= an increase(a decrease) in the production of goods & services in an economy
27
Causes of economic growth
- an increase in quantity of the factors of production
- an improvement in quality of the factors of production
- combination of both
28
What represents economic growth on a PPF
An outward shift in the PPF
29
What represents negative economic growth on a PPF
An inward shift in the PPF
30
Consumer goods:
= goods which do not produce other goods, used to by people to satisfy their needs & wants
31
Capital goods
= goods which are used to produce other goods & services
32
Why might an economy be below its PPF curve
- an inefficient use of resources
- underutilisation of resources
33
What causes an economy to be on the PPF curve
- efficient allocation of resources
- as none are wasted/under-utilised
34
What will an increase in capital goods result in
= a long term increase in the productive potential of an economy (as it produces other goods/services)
35
Objective
= based on real fasts & not influenced by personal beliefs/feelings
36
Subjective
= influenced by or based on personal beliefs or feelings
37
Positive economic statements:
= can be proven true/false
= objective statements
38
Normative economic statements
= express opinions & can’t be proven true/false
= subjective statements
39
Duty:
= a tax paid on goods that are bought or imported
40
Words that indicate a normative economic statement:
- fair
- unfair
- should
- ought
- better
- worse
41
What do governments do in decision making:
- make value judgements on economic issues
- use positive analysis to help them make decisions
42
Specialisation:
= when an individual, firm, region or countries concentrates on the production of a limited range of goods & services
43
Why does specialisation allows individuals to become more skilled
They repeat the same tasks regularly so develop more knowledge and therefore become more efficient/productive
44
The division of labour
= the specialisation of workers on specific tasks in the production process
45
Why do firms benefit from the division of labour
= more efficient/productive, improves quality and faster work
46
Productivity:
= the measure/effectiveness of productive effort
Measured in terms of the rate of output per unit of input
Productivity = output produced / total inputs used
47
Increased productivity leads to:
- higher output & higher quality
- higher living standards
- more efficient use of resources
48
Advantages of division of labour for firms
- workers become more skilled through repetition of tasks
- productivity of workers rises = output increases
- time saved by workers focusing on narrow range of tasks
- workers easier & cheaper to train
49
Advantages of division of labour for workers
- higher skill levels as trained more
- potentially higher wages
50
Disadvantages of division or labour
- repetition of tasks can lead to boredom = quality & morale drops
- simplified job roles can reduce pride workers feel in their jobs
51
Advantages of specialisation:
- better quality & higher quantity of products
- more efficient use of scarce resources
- higher trade with other countries
- higher economic growth -\> higher living standards
52
Disadvantages of specialisation
- over-reliance on a few industries is risky
- increased interdependence reduces self-sufficiency
53
What can cause problems with inter-dependence and relying on other countries
- political turmoil = trade wards = stop imports/exports
- natural disasters = unable to produce/export/import goods
54
2 methods of trading:
- barter (exchange of 1 good for another)
- money (for transaction/purchase, represents value)
55
Functions of money:
- medium of exchange
- measure of value
- store of value
- method of deferred payment
56
Medium of exchange
= something commonly accepted in exchange for goods & services
57
Measure of value:
= price of goods reveals its value
58
Store of value
= value is maintained & can be kept for a long time
| (saving money, savings account)
59
Method of deffered payment
= allows debt to be created
| (mortgage, credit card)
60
unit costs
= average cost to produce a unit of output
Unit cost = total production costs in period / total output in period
61
What does lower unit costs lead to
= higher profit…
- higher investment
- greater chance of new & improved products emerging
- higher wages
- lower prices
62
Ways to allocate resources
- planning
- price(market) mechanism
63
Planning
= process by which government allocates resources, funded through taxation
64
Price mechanism
= process by which the market allocate resources
65
Market
= anywhere buyers & sellers exchange goods & services (physical or digital)
66
Command economy
= an economy in which resources are allocated solely by the state(planning)
67
Mixed economy
= an economy in which resources are allocated by the state(planning) & the price mechanism
68
Free market economy
= an economy in which resources are allocated solely by the price mechanism
69
Public sector:
= part of an economy controlled or owned by the government
70
Private sector
= part of the economy not controlled or owned by government
71
Where are profit motives present & why
Firms have a profit motive in
- free market economies
- mixed economies
72
Why do profit motives lead to wider choice
It incentivises:
- firms to develop new products
- firms to meet consumer demand
73
Why is the profit motive absent in command economies
Firms are told what to produce
= limited choice for consumers
74
What limits choice in free market economies & mixed economics
- concentrated markets
- monopolies
75
Concentrated markets:
= a few large suppliers (smartphones)
76
Monopolies
A sole supplier of a product/service
Sell 25%
(Microsoft, google)
77
What does competition and profit motive presence in an economy lead to
- higher quality
- higher innovation
(consumers can switch between competitors, so always have an incentive to produce the best & cheapest good/service)
78
Efficiency
= optimal production & distribution of scarce resources
79
Why are mixed economies & free market economies more efficient than command economies
= command economies lack competition & a profit motive
| (as all controlled by state, no incentive)
80
Why is there a less equitable distribution of wealth & income in free market / mixed economies than command economies?
owners of capital & land accumulate wealth over time & pass privilege on to children through
- property
- private education
- social networks
81
Why might command economies still lack equitability and what for?
- higher incomes / power have access to best education & health care
- opportunity & access to public services
82
What is the state made up of?
- territory
- citizens (population)
- government
Government rules over a state
83
Difference between government & state
- state is permanent, government is not permanent
- state made up of all citizens, government not
84
Roles of state in mixed economy
- allocates resources through planning
- redistributes incomes through welfare spending
- regulates consumers & firms
85
