1.1 Nature Of Economics Flashcards
(30 cards)
What is Ceteris Paribus
An assumption that other things are being held equal or constant, so nothing else changes
What is a Positive Statement
A statement that is objective. It can be tested with factual evidence, and can consequently be rejected or accepted.
What is a normative statement
A statement based on value judgement. These are subjective and based on opinion rather than factual evidence.
What is the basic economic problem
Scarcity
What is scarcity
Wants are unlimited and resources are finite.
What is opportunity cost
The opportunity cost of a choice is the next best alternative forgone
What are the four economic agents
Capital, Entrepreneurship, Land, Labour.
What are renewable resources
Resources that can be replenished, so the stock level of the resources can be maintained over a period of time.
What are non-renewable resources
Resources that cannot be replenished. The rate of consumption is more than the rate of replenishment
What does a PPF graph represent
The maximum productive potential of an economy (when resources are fully and efficiently employed)
What does the law of diminishing returns state
The opportunity cost of producing more of good A increases in terms of lost units of good B that could have been produced
How is economic growth shown on a PPF graph
By an outward shift of the PPF curve
What are capital goods
Goods which can be used to produce other goods, such as machinery
What are consumer goods
Goods which cannot be used to produce other goods, such as clothing
What is specialisation of labour
When each worker completes a specific task in a production process.
Advantages of specialisation
1) higher output and quality since production focussed on what businesses are best at
2) greater variety of goods and services produced.
3)more opportunities for economies of scale.
4)increased incentive due to more competition.
Disadvantages of specialisation
1)Work becomes repetitive, therefore lower motivation.
2)more structural unemployment, skills not transferable.
3)producing a lot of the same good or service reduces variety for consumers.
What are the four functions of money
1) A medium of exchange
2) A measure of value (unit of account)
3) A store of value
4) A method of deferred payment
What is a free market economy
Where the governments leave markets to their own devices.
Advantages of free market economies
1) firms are likely to be efficient
2) important government decisions can be avoided
3) more personal freedom
Disadvantages of free market economies
1) ignores inequality, benefits the wealthy
2)monopolies exploit the market by charging higher prices
3) overconsumption of demerit goods
4)public goods aren’t provided
What is a command economy
Where the government allocates all the scarce resources in an economy to where they think there is greater need.
Advantages of a command economy
1) easier to coordinate resources in times of crisis
2) the government can compensate for market failure
3) inequality can be reduced
4) abuse of monopoly power can be prevented
Disadvantages of a command economy
1)they may not necessarily meet consumer preferences
2)it limits democracy and personal freedom
