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Economics > Nature of Economics > Flashcards

Nature of Economics Flashcards

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1
Q

What is a positive statement

A

A statement that can be tested

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2
Q

What is a normative statement

A

A subjective value judgement

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3
Q

What does ‘ceteris paribus’ mean

A

All other factors remain equal

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4
Q

What is the economic problem

A

How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible

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5
Q

What is opportunity cost

A

The benefit of the next best alternative forgone

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6
Q

What is a PPF

A

A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed

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7
Q

What happens if someone is operating under the PPF

A

They aren’t using all their resources as efficiently as possible

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8
Q

What is the rule regarding PPFs

A

Their can never be a point outside the PPF because there isn’t enough resources

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9
Q

If someone is using their resources as efficiently as possible where would they be on a PPF

A

On the PPF curve

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10
Q

How do economics describe somone who is on the PPF line

A

Productively efficient

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11
Q

What is the opportunity cost of moving from point A to point Z

A

6-2 = 4
So the opportunity cost is 4 english flashcards

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12
Q

What is the opportunity cost to moving from point A to point B

A

3-1 = 2
So the opportunity cost is 2 english flashcards

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13
Q

If you want to find the opportunity cost of producing a third good what point on the PPF should you start at

A

The point where two goods are being produced

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14
Q

What is constant opportunity cost

A

When the opportunity cost of producing one more good is the same each time

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15
Q

What type of opportunity cost do straight line PPFs have

A

Constant opportunity cost

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16
Q

Why does increasing opportunity cost happen in real life

A

At first the opportunity cost of giving up a little bit of good A to produce a little bit of good B
But as you increase to the production of good B you have to divert more resources from A to B production

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17
Q

What causes a PPF to shrink inwards

A

A decrease in resources

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18
Q

What causes a shift to a point that is inwards of the PPF

A

A use of resources that is not productively efficient

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19
Q

What can long term unemployment do to a PPF

A

Will cause the PPF to shrink inwards because the workers will become less efficient because they have been unemployed for so long

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20
Q

What are consumer goods

A

Goods that are consumed

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21
Q

What are the four factors of production

A

Land
Labour
Capital
Enterprise

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22
Q

What are capital goods

A

Goods we use to produce consumer goods

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23
Q

What are the two types of goods

Study These Flashcards
A

Capital
Consumer

24
Q

On a macroeconomic PPF what are the axis

Study These Flashcards
A

Capital goods = y axis
Consumer goods = x axis

25
What is the division of labour
When a firm splits up its production processes into smaller separate tasks and assign workers to each task
26
What are the 4 pros of division of labour
Enables specialisation which increases output Workers are specialised so it improves quality As specialised workers become efficient unit costs decrease Can save on training costs - each worker needs to be trained in only one skill
27
What are the 5 cons of division of labour
Repetition may cause demotivation which may reduce productivity and may cause workers to care about the product Demotivation may increase absenteeism Workers may quit - if certain specialised workers quit then production process is broken down When workers leave you need to pay for recruitment and retraining costs - this could cause costs to increase Workers are specialised so may find it difficult to find another job
28
What is the specialisation of trade
When countries specialise one type of good or service
29
What are the functions of money
Medium of exchange Unit of account - can compare two products Store of value - can save for future purchases Deffered payment - can loan money if you don't have it yet
30
What are the 3 pros of specialisation in trade
Variety of goods and services More output - focusing on specific goods and services increases efficiency More trade because there is more output
31
What are the 3 cons of specialisation in trade
Overspecialisation - overspecialised workers will struggle to find work elsewhere if their job becomes obsolete Can make us vulnerable to strikes Natural resource depletion
32
What are the two assumptions made by neoclassical economists about consumers and firms
Consumers will try to maximize utility Firms will try to maximize profit
33
What is the formula for profit
Total Revenue - Total Cost
34
What is total revenue
The amount of money that a business gets from it sales
35
What are the 3 reasons why consumer may not act rationally
Herd behaviour - people will often follow social norms whether or not they are rational Habitual behavior - happens unconsciously so it's not rational Weakness at computation - bad at calculating probabilities (frequently over/underestimate the likelihood of things)
36
What does demand mean
When someone is both willing and able to buy something
37
What shape is the demand curve
It slopes downwards
38
What terms should you use when talking about increases and decreases in demand
Contraction Extension
39
What is price elasticity of demand
PED measures how much quantity demanded will respond to a change in price
40
What is the formula for PED
PED = % Change in Quantity Demanded / % Change in Price
41
Calculate the PED of this product
PED = % Change in Quantity Demanded / % Change in Price Work out % change in demand : - 1500 - 1200 = 300 - 300 (change) / 1200 (original amount) x 100 = 25% Work out % change in price: - 135 - 150 = -15 - (-15) / 150 (original amount) x 100 = -10% Use PED formula to find answer: - 25/-10 = -2.5
42
What type of value is PED without exception and why
It's always negative If price or demand increases the other will decrease Since there is always going to be a negative number involved than the PED will be negative
43
What is range of PED where the demand is elastic
From -1 to -∞
44
What does elastic PED tell you about the consumers of a product
That the demand for the product is very responsive to changes in price
45
What is range of PED where the demand is inelastic
Less than 0 but more than -1
46
What does inelastic PED tell you about the consumers of a product
They are unresponsive to a change in price
47
What is the PED where the demand is unitary elastic
When PED = -1
48
Explain how necessity as a factor influences PED
If something is necessary for survival the demand is going to be inelastic If something is a luxury then it is not necessary and any change in price will decrease the demand
49
What are the six specific factors which influence PED
Necessity Addiction and habit Availability of substitutes Brand loyalty Proportion of income Time period
50
Explain addiction and habit as a factor influences PED
If someone is addicted something they will no respond to a change in price because they need to satisfy their urges If someone forms a habit surrounding a product then to fulfill this habit they will accept an increase in price
51
Explain the availability of substitutes as a factor influences PED
If there is an acceptable substitute then they will be a bigger response in change in demand if the price goes up because the person can switch to the alternative option
52
Explain how brand loyalty as a factor influences PED
If someone has brand loyalty the product for that consumer will have inelastic demand
53
Explain how proportion of income as a factor influences PED
If a product takes a large proportion of your income then a percentage change in price will increase the price by a larger amount and will decrease the demand for the product by a larger amount
54
Explain how time as a factor influences PED
In the short run demand is inelastic because there is no time to search for substitutes In the long run demand is elastic because enough there is enough time to search for products
55
What is the formula for total revenue
56
What does the green rectangle represent
Total Revenue

Economics (14 decks)

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