Chapter 1 - Introduction Flashcards

1
Q

What is economics?

A

Economics is the study of efficient use of scarce human and property resources for the purpose of obtaining the maximum satisfaction of our material wants.

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2
Q

What are the two fundamental facts of economics?

A
  • Society has unlimited wants

* Economic resources are scarce

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3
Q

What are the two key types of economic resources?

A
  • Property resources

* Human resources

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4
Q

What are the two types of property resources?

A
  • Land - all natural resources

* Capital - all investment goods

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5
Q

What are the two types of human resources?

A
  • Labour - human physical and mental talents used to produce G&S
  • Enterprise - one who innovates to combine land, capital and labour into the production of G&S
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6
Q

In exchange for supplying resources the owners receive what?

A
  • Rent for land
  • Interest for capital
  • Wages for labour
  • Profit for entrepreneurial ability
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7
Q

What are the five fundamental questions of economics?

A
  • How much total output is to be produced?
  • What combination of output is to be produced?
  • How are these outputs to be produced?
  • Who is to receive/consume the outputs?
  • How can change be accommodated?
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8
Q

The practice of economics combines what three elements?

A
  • Describing or gathering the facts
  • Developing principles or theories that make generalisations about economic behaviour
  • Applying the insights gained from economic statistics and analysis in the form of policy prescription
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9
Q

What are the two approaches taken by economists to develop economic theories?

A
  • Induction - reasoning that proceeds from facts to generalisations
  • Deduction - reasoning from assumptions to conclusions by a hypothesis
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10
Q

What is economic theory?

A

Facts must be arranged, interpreted and generalised to derive appropriate economic theory.
Theories or principles are the end result of economic analysis. Meaningful statements drawn from facts.

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11
Q

What is ‘ceteris paribus’? and what does it mean?

A

It is the ‘other things being equal’ assumption and is used:

  • In analysis to signify that all variables other than the one being considered are held constant
  • to focus attention on the relationship between chosen variables to minimise distracting influence of other variables
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12
Q

What is macroeconomics?

A

concerned with behaviour of aggregates (collection of specific economic units as if they were one unit) in the economy

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13
Q

What is microeconomics?

A

Concerned with the behaviour of specific units within the economy.

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14
Q

The production possibilities curve is bowed out from the origin because of what?

A

Because of increasing opportunity cost

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15
Q

Any point inside the production possibility frontier indicates what?

A

Resources are underemployed and more output could be produced with available resources.

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16
Q

The scarcity problem persists why?

A

Because material wants exceed available productive resources

17
Q

The production possibilities curve illustrates the basic principle that?

A

If all resources of an economy are employed, and productive efficiency is achieved, more of one good can be produced only if less of another good is produced.

18
Q

Productive efficiency refers to what?

A

The use of the least-cost method of production.

19
Q

An ‘increase in efficiency’ suggests that an economy is what?

A

Is able to get more goods and services from a given amount of resources.

20
Q

Ceteris Paribas, what would cause an economy’s production curve to move to the left?

A

A reduction of the workforce. A recession or decrease in economic growth is shown by a leftward shift of the curve

21
Q

What are ‘factors of production’ also known as?

A

Economic resources

22
Q

The concept of economic efficiency is primarily concerned with what?

A

Obtaining the maximum output from available resources.

23
Q

What is opportunity cost?

A

The cost is the highest valued alternative foregone in the pursuit of an activity.

24
Q

What is a normative statement?

A

A statement based on values and can be proved neither right or wrong. It seeks to prescribe the way it should be.

25
Q

What is a positive statement?

A

It is a statement that seeks to explain the way it is.

26
Q

What does it mean by the statement that individuals operate on the basis of rational self-interest?

A

That they make decisions that provide them with the greatest benefits given their limited resources.

27
Q

What is marginal analysis?

A

It is where the incremental benefits available from any change to the status quo are compared with the incremental costs of making the change, suggesting that only those choices where marginal benefit exceeds marginal cost should be accepted

28
Q

Does ‘capital’ refer to money?

A

No capital refers to produced goods. Money produces nothing so is not an economic resource.

29
Q

Our ability to engage in valid economic reasoning faces a number of potential impediments, what are these?

A
  • Bias & preconceptions we have
  • Fallacy of composition
  • Post-hoc fallacy
  • Confusing correlation of economic variables or events with economic causation.
30
Q

What is positive economics?

A

It is based upon facts without value judgements

31
Q

What is normative economics

A

It is based upon subjective beliefs ‘what ought to be’.

32
Q

What is full employment?

A

All available resources are employed

33
Q

What is full production? and what occurs if it is not achieved?

A

Maximum goods and services are produced from fully employed resources of an economy. If not achieved underemployment will result.

34
Q

What are the two types of efficiency?

A

Allocative efficiency

Productive efficiency

35
Q

What is allocative efficiency?

A

Resources dedicated to goods and services most wanted by society - cds over records

36
Q

What is productive efficiency?

A

occurs when goods and services are produced using the lowest cost production methods.

37
Q

What are the two major forms of specialisation that can enhance efficiency?

A
  • Division of labour - builds on existing differences in abilities and skills
  • Geographic specialisation - builds on locational resource allocation