1.1 Nature of economics Flashcards
1.1.1 - 1.1.6 (75 cards)
1
Q
What are the 3 key economic questions?
A
- What to produce
- How to produce
- For whom to produce for
2
Q
What is the economic problem?
A
We have unlimited wants but finite resources
3
Q
What is a normative statement?
A
Statements that carry value judgements
4
Q
What is a positive statement?
A
Statements that carry true fact
5
Q
How is economics a social science?
A
- As it cannot be tested
- Not based on facts
- Based off of value judgement and human behaviour
- Contains theories and models
6
Q
What are consumer goods?
A
Goods and services that satisfy our needs and wants
7
Q
What are capital goods?
A
Used to produce consumer goods and services
8
Q
What are the 4 factors of production
A
- Land
- Labour
- Enterprise
- Capital
9
Q
What are the factor rewards for land?
A
Rental income to whoever owns the property
10
Q
What are the factor rewards for labour?
A
Workers are paid wages and saleries
11
Q
What are the factor rewards for enterprise?
A
Businesses and firms earn profit
12
Q
What are the factor rewards for capital?
A
Interest and Dividends
13
Q
What is opportunity cost?
A
Cost of the next best alternative forgone
14
Q
What are the 3 economic agents?
A
- Consumers
- Producers
- Government
15
Q
What is the aim of consumers?
A
To maximise satisfaction
16
Q
What is the aim of producers?
A
To maximise profits
17
Q
What is the aim of the government?
A
To maximise economic and social welfare of citizens
18
Q
Why may consumers act irrationally?
A
- Imperfect infomation
- Peer pressure
- Habitual consumption
- Anchoring and framing
19
Q
What is a non-renewable source?
A
Cannot be readily replaced at the same rate that it is being consumed
20
Q
What is a renewable source
A
Can be readily replaced
21
Q
What is ceteris paribus
A
All factors are kept equal in order to make an assumption
(i.e - an increase in factor causes an increase in the latter)
22
Q
What is the difference between a want and a need?
A
Want = desire
Need = necessity
23
Q
What is social welfare?
A
Anything society benefits from
24
Q
What does PPF stand for?
A
Production possibility frontier
25
What are PPF's
shows the possible combinations of two goods you can produce
26
What does it mean when a point on a PPF graph falls outside the curve
Unattainable: not enough resources
27
What does it mean when a point on a PPF graph falls inside the curve
Inefficient use of resources/ Products are not being used
28
What is the law of diminishing marginal terms
If a factor of production is increased past optimal then it will become less productive at a diminishing rate
29
What does it mean if a PPF graph is a straight line?
constant opportunity cost:
30
What is productive efficiency
Maximum output of products with minimum cost
31
What is allocative efficiency
Resources are distrubuted in a way that maximuses overall satifaction in an economy
32
What does an outward shift on a PPF curve show?
The economy is growing and therefore can produce more of both choices
33
What does an inward shift on a PPF curve show?
The economy is shrinking due to a failure to allocate resources
34
What cause an outward shift
* Better management of factor inputs
* Increase in the stock of capital and labour supply
* Innovation and invention
* Advancements in technology
35
What is the primary sector?
Involves extracting raw materials
36
What is the secondary sector?
Involves the transformation of primary resources into goods and services
37
What is the tertiary sector?
Businesses that provide services i.e schools
38
What is the private sector?
Part of the economy owned by private individuals and companies
39
What is the public sector?
Part of the economy where production id organised by the government
40
What is specialisation?
Individuals/firms focus productive efforts on a particular task and therefore it becomes their expertise
41
What is division of Labour?
A specific task in the manufacturing process is allocated to a worker
42
Which economist stated that Division of Labour would help in the growth of a society?
Adam Smith
43
What are the advantages of specialisation?
* Higher Productivity & Efficiency
* Lower Costs
* More jobs opportunities
44
What are the disadvantages of specialisation
* Changes in fashions / trends
* Cost of training workers
* Depletion of non renewable resources
45
Advantages of division of labour
* Efficient use of resources
* Time efficient
* Lower prices for consumers as production increases
46
Disadvantages of division of labour
* Boredom due to monotony
* Workers demand higher wages
* Mistakes affect full production process
47
Benefits of specialisation for countries
* Allows for trade when surplus is made
* Better quality goods as countries focus on producing goods they are good at
* Economies of scale = More production = lower average costs.
48
Disadvantages of specialisation for countries
* Over-reliance on specific nations
* Risk of over-specializing and structural unemployment
* Negative externalities
49
What are the characteristics of money
* Difficult to forge
* Limited in supply
* Divisible
* Durable
* Portable
50
What are the 4 functions of money
1. A medium of exchange
2. A store of value
3. A measure of value
4. A means of deferred payment
51
What does deferred payment mean
Lets you buy things now and pay later, like using a loan or credit.
52
What does store of value mean
You can save money and use it in the future because it keeps its worth
53
What does measure of value mean
Compare the worth of different goods and services by giving them a price
54
What does means of exchange mean
Money makes buying and selling easy because everyone accepts it
55
Which economist criticised command economy and why?
Frederick Hayek: believes in the 'knowledge problem' no central authority could ever have the knowledge held by individuals and businesses across society and planning therefore was prone to failure as society has changing needs
56
What is a command economy?
Production, investment, prices and incomes are determined by the government
57
What is free-market economy?
Prices of goods and services are determined through market forces (invisible hand)
58
What are market forces?
Supply and demand that influences prices and production
59
What is a mixed economy?
Prices of goods and services are allocated by a mix of government intervention and market forces
60
Provide countries that uses command economy
North Korea and Cuba
61
Provide countries that uses free market economy
Ireland, Singapore, Switzerland, Taiwan
62
Provide countries that has a mixed economy
UK, USA, Japan
63
Positives of free market
* Incourages innovation - competitive
* Increase in quantity/ quality
* Wider range of products increasing choice
* Efficient use of resources
* Responsive to demand
64
Negatives of free markets
* Increase of inequalities
* Provision of demerit goods
* Externalities
65
Positives of command markets
* Social welfare is prioritised
* Provision of merit goods
* Equality through fair allocation
66
Negatives of command markets
* Opportunity costs
* Lower quality/ quanitity of goods
* Lack of incentives and innovation
* Poor use of resources
* =Infomation gaps
67
What are demerit goods
Goods deemed to be bad for society but are overconsumed
68
What are merit goods
Goods deemed to be good for society but are under consumed/provided
69
Which economist believes in free market and why?
Adam Smith: believes in the 'invisible hand' market forces are able to regulate themselves
70
Which economist believes in command economy and why?
Karl Marx: believes free market causes inequality and that owners/ firm profits increase at the expense of exploitation
71
What is an economy
Any system that tries to solve the economic problem
72
What is a resource
Anything used in the production process
73
What is land
Anything that comes naturally from earth
74
What is Labour
Human worker that aid with production
75
What is enterprise
Someone who combines and organises factors of production in order to produce a good
