LS1 - LS10 Flashcards
(122 cards)
1
Q
Economics
A
The study of the economy
2
Q
An economy is?
A
All the goods and services produced in an area
3
Q
Difference between a good and service
A
Goods are tangible and services are intangible
4
Q
Name the 4 factors of production?
A
Capital
Enterprise
Land
Labour
5
Q
What is capital?
A
used to make goods and services - such as machinery and automation
6
Q
What is enterprise?
A
The willingness of people in business to take risks to make a profit
7
Q
What is land?
A
Refers to the natural resources such as oil, forests, and the land itself
8
Q
What is labour?
A
All of the work done by humans in production
9
Q
What is the economic problem?
A
How to use the available scarce resources to satisfy people’s infinite needs and wants as effectively as possible
10
Q
Three key questions?
A
What to produce?
How to produce it?
Who to produce it for?
11
Q
What are economic agents?
A
Groups that participate in the economy
12
Q
What is a producer?
A
Who produces goods and services
13
Q
Another term for a business?
A
Firm
14
Q
Role of the government?
A
Sets rules that other economic agents must follow.
They also produce some goods and services such as roads, health care and education.
15
Q
Who are consumer?
A
They buy goods and services made by firms.
Individuals and firms can be consumers - such as supplier to firms
16
Q
How do economists explain how the economy works?
A
Via developing models
17
Q
How do economists explain and predict economic phenomena?
A
Using data and assumptions to make models
18
Q
What is ceteris paribus?
A
Meaning “all other things being equal” - showing the indication of the effect one economic variable has on another, provided that that all variables are constant
19
Q
What is the opportunity cost of a decision?
A
Is the value of the next best alternative forgone (as a result of the choice made)
20
Q
What are the uses of opportunity cost?
A
Consumers uses it to decide what to spend their incomes on
Producers use to decide what and how to produce goods and services
Governments use it to decide what policies to choose
21
Q
Empirical models?
A
Models based on economic data - using facts, statistics and numbers
22
Q
Theoretical data?
A
Models based off theoretical data such as theory/hypothesis
23
Q
Why do economists use the ceteris paribus assumption?
A
It is used to isolate the variable and make decisions and predictions.
24
Q
What is a PPF?
A
Production possibility frontier
It shows the maximum potential output of a combination of two goods or services an economy can achieve when all of its resources are fully and efficiently used/employed, given the current level of technology.
25
If a point on the PPF shifts outwards…?
It is undergoing economic growth, meaning quality and quantity of goods and services had increased due to efficient use of factors of production.
26
If a point on the PPF shifts inwards…?
It is undergoing a decline in economic growth as there is a decrease in quality of quantity of goods and services - due to inefficient use of factors of production
27
What is economic growth?
Increase in the production of goods and services in an economy
28
What is negative economic growth?
Decrease in the production of goods and services in an economy
29
List three economic agents?
Consumers, producers, the government
30
Point E on a PPF?
Under-utilisation or underemployment of allocation of resources - machinery and labour not being used, entrepreneurship not being encouraged - inefficient use of factors or production
31
The curve/arc of the PPF shows…
The maximum amount of output a economy can produce
32
Consumer goods?
Goods which do not produce other goods
33
What are consumer goods for?
Used by people to satisfy their wants and needs
34
Capital goods?
Goods which are used to produce other goods and services
35
If an economy is at any point on the PPF…
There is an efficient allocation of resources, since none are being under-utilised or wasted
36
What are positive statements?
Economic statements that can be proven true or false - they are objective
37
What are normative statements?
Economic statements express opinions and cannot be proven true or false - they are subjective
38
Words that indicate that an economic statement is normative….
Fair
Unfair
Should
Ought
Better/worse
39
In decision making, governments….
Make valued judgements on economic issues
Use positive analysis to help them make decisions
40
What is specialisation
Occurs when an individual, firm, region or countries concentrates on the production of a limited range of goods and services
41
What is division?
The specialisation of workers on specific tasks in the production process
42
What is productivity?
The effectiveness of productive effort - usually measured in terms of the rate of output per unit of input
43
Increased productivity leads to…
Higher output and higher quality
Higher standard of living
More efficient use of resources
44
Advantages of division of labour
Works become more skilled though repetition of tasks
Productivity rises so output rises
Time is saved by workers focussing on a narrow range of tasks
Workers are easier and cheaper to train
45
Overall benefit for firms as a result of increased productivity?
Greater quantity and higher quality of output
46
Overall benefit for workers as a result of increased productivity?
Higher skill levels and potentially higher wages
47
Repetition of tasks can lead to?
Boredom - leading to quality and morale to drop
48
Simplified job roles can reduce what in workers?
Pride in which workers feel in their jobs
49
Advantages of specialisation?
Better quality and higher quantity of products
More efficient use of scarce resources
Higher trade with other countries
Higher economic growth —> higher standards of living
50
Overall benefit for the economy as a result of specialisation?
Higher growth and standard of living
51
Disadvantages of specialisation?
Over reliance on a few industries is risky
Increased interdependence reduces self-sufficiency
52
2 methods of trading?
Bartering
Money
53
2 functions of money?
Medium of exchange
Measure of value
54
What is medium of exchange
Something commonly accepted in exchange for goods and services
55
What is measure of value?
The price of a food reveals its value
56
What is store of value?
Value is maintained and can be kept for a long time
57
Method of deferred payment
Allows debts to be created
58
What does planning refer to?
Refers to the process by which a government allocates resources - funded by taxation
59
What is a market?
Where buyers and sellers exchange goods and services - physical or digital
60
What is price mechanism?
The process by which the market allocates resources
61
Public sector =
Providing services for the welfare of society
62
Public sector is known as?
Command market
63
Private sector?
Individual groups of individuals such as sole proprietors, partnerships, franchises (that provide goods or services)
64
Private sector is known as?
Free market
65
A mix of both public and private is called?
Mixed economy
66
Examples of command market?
Government providing healthcare and roads
67
Command economy?
In which resources are allocated solely by the public state
68
Mixed economy?
In which resources are allocated by the state and the price mechanism (private sector)
69
Firms have a…
Profit motive in free market and mixed economies.
70
Firms having a profit motive leads to…
Wider choice because thus incentivises..
Firms to develop new products
Firms to meet consumer demands
71
Profit motives are absent in…
Command economies because firms are told what to produce
72
Firms in command economies who are told what to produce lead into…
Limited choice for consumers
73
What can limit choice in free market and mixed economies?
Concentrated markets and monopoly
74
What are concentrated markets?
Whole industry made up of a few supplies —> leading to more competition
75
What is monopoly?
Those that legally own more than 25% of the market - top firms that are currently dominating (Tesco’s etc)
76
Quality and innovation is higher in….
Mixed and free market economies
77
Why is quality and innovation higher in mixed/free market economies?
Both competition and profit motive are present in these types of economies
78
Competitions pushes businesses to…
To make more better and innovative ideas/products
79
Efficiency is linked with…
The optimal production and distribution of these scarce resources
80
Why are mixed/free market economies more efficient than command economies?
Command economies lack competition and profit motive.
81
Free market have a less _______ than command economies
Less equitable distribution of income and wealth
82
Why do free market/mixed economies have less equitable distribution of wealth and income compared to command economies?
Owners of capital and land accumulate wealth over time and pass privilege onto their children through: property, private education and social networks
83
Command economies can still lack _____?
Equitability in terms of opportunity and access to public services
Example: in communist countries, they have access to the best school and health care
84
A state is made up of?
Territory
Citizens - population
Government
85
What’s the role of a government
They rule over a state at a given time
86
Difference between state and government?
State is permanent/ gov is not
State is made up of all citizens/ gov is not
87
Role of state in mixed economies?
It allocates resources through planning
It redistributes incomes through welfare spending
It regulates consumers and firms
88
Two approaches from making assumptions
Induction - collecting evidence
Deduction - starting with a hypothesis
89
Decision makers are assumed to be?
Rational
90
How are consumers rational?
By buying products that maximise utility
91
What is utility?
The satisfaction or benefit derived from consuming a good
92
Utility for firms is taken to be…
Profit
93
How is profit maximised
By producing as efficiently as possible and making things that consumers both want and can afford
94
To make rational decisions, economic agents require?
Time
Information
Ability to process information
95
What is behavioural economics?
School of economic thought based on evidence and observations to develop assumptions of economic decision making
96
What does behavioural economics assume?
That individuals have bounded rationality - they wish to maximise utility but are not able to
97
Several aspects of human behaviour prevent rational decision making?
Habitual behaviour
Consumer inertia
Influenced by the behaviour of others
Consumer weakness at computation
98
What is demand?
Quantity of a good or service purchased at a given price over a given time period
99
How to explain changes in the prices of goods and services?
Develop a model that brings together the two fundamental economic agents that determine rhe price of a good - consumers and producers
100
Law of demand: as the price of a good increases…
Quantity demanded decreases
101
Law of demand: as the price of a good decreases…
quantity demanded increases
102
A decrease in price results in….
An extension/expansion in demand
103
Increase in price results in….
A contraction in demand
104
Quantity demanded?
Varies inversely with price
105
What are substitute goods?
Two alternative products that could be used for the same purpose
106
What are complement goods?
Products that are bought/used together
107
What can change/affect demand?
Change in the age structure
108
Changes in incomes…
Affect demand
109
Increase in income leads to….
Rise in demand
110
Change in consumer tastes/preference leads to…
Can also affect demand
111
What is revenue?
The income that a government or company receives
112
Total revenue =
Price x quantity
113
What is supply?
The quantity of goods and services that firms are Willian to sell at a given price over a given period of time.
114
Law of supply: as price of good increases….
Quantity supplied increases
115
Law of supply: as the price of a good decreases…
Quantity of supply decreases
116
An increase in price in law of supply results in…
An extension/expansion in supply
117
Law of supply: a decrease in price results in….
Contraction of supply
118
Supply diagram assumes?
Firms are motivated to produce by profit
The cost of producing an unit increases as output increases
119
What is excess demand
Price of good is lower than the equilibrium price - meaning more consumers will want to buy the goods than suppliers are willing to sell
120
What is excess supply?
Where the market support of a commodity is greater than the market demand for it, causing its market price to fall
121
What is the equilibrium price?
When supply of goods matches demand
122
Cons of bartering system?
Time and effort to find traders to barter with
