Nature of Economics Flashcards
(35 cards)
what does Ceteris Paribus mean?
all things being equal; the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are kept constant.
why can we not make scientific experiments in economics?
It is difficult to set up experiments to test hypothesis. Economics measures behavior which is unpredictable.
what is a positive statement?
It is a statement which is objective and made without any obvious value judgements or emotions. They can be tested to be proven or disproven and they are often expressed in the form of a hypothesis that can be analyzed and evaluated.
what is a normative statement?
Normative statements are subjective statements; they carry value judgements about what ought to be (an opinion). they cannot be proven or disproven.
explain the role of value judgements in influencing economic decision making.
this is where economists use positive statements to back up normative statements. Different
economists may make different judgements from the same statistic, for example rising inflation could mean different things.
what is the problem of scarcity?
People have finite needs, but infinite wants. Although wants are infinite, resources are finite and limited.
how are economies trying to solve these problems?
Economies try to solve the basic economy problem by working out what to produce, how to produce it and for whom production should take place.
what is the distinction between renewable and non-renewable resources?
Nonrenewable energy resources, like coal, nuclear, oil, and natural gas, are available in limited supplies whereas renewable resources are replenished naturally and over relatively short periods of time. The five major renewable energy resources are solar, wind, water (hydro), biomass, and geothermal.
define opportunity costs.
opportunity cost measures the cost of any choice in terms of the next best alternative foregone.
evaluate the importance of opportunity costs to consumers.
Consumers will make choices on how to use their limited income based on what
gives them the greatest level of satisfaction
evaluate the importance of opportunity costs to producers.
Producers must choose what to do with
their limited resources and their decisions will be based on profit.
evaluate the importance of opportunity costs to the government.
The government
must make decisions on where they should spend their limited tax revenues based
on what will maximise social welfare
what are the 4 factors of production?
LAND is all the natural resources used in production.
LABOUR is all the productive human effort, physical, mental, paid or unpaid.
CAPITAL refers to all man-made resources used to produce goods and services in future.
ENTREPENURSHIP is the willingness and ability to the risk of combining the other FOP to make goods/services.
what is the Production Possibility Frontier (PPF)?
the PPF shows the maximum potential output of a combination of goods and services an economy can achieve at a given time when all its resources are being used efficiently.
what can shift the PPF curve outwards?
increased immigration (raising number of available workers), increase in uni graduates (provides a greater skilled labour force), increase investment in capital machinery, more factories built.
what is Specialisation?
Specialisation is the production of a limited range of goods by a company/individual/country which means that trade is essential as it is the only way they are able to access all that they need.
Adam Smith and specialistaion and division of labour?
Adam Smith stated the concept of specialisation and the division of labour and showed how it can increase labour productivity (output per worker), allowing firms
to increase efficiency and lower their costs of production.
what is the division of labour?
The division of labour is when labour becomes specialised in a particular part of the production process.
what are the advantages of specialisation and the division of labour?
division of labour enables labour productivity to be increased . Workers will be quicker, better and more efficient as they are concentrating on one thing and so can quickly develop their skills.
may also lead to a higher quality of goods and services, since workers are more skilled at their jobs
more cost effective to develop specialist tools, improving speed or quality
Workers only need to be trained to do one specific task , rather than many, saving
time and money.
what are the disadvantages of specialistaion and the division of labour?
Countries may become over-dependent on one particular export and if this fails their
economy may collapse.
it can make work very boring which will
lead to poor quality of work and people leaving the business.
The workforce do not have wide industrial training and could therefore suffer from
structural unemployment.
what are the 4 functions of money?
a medium of exchange
a measure of value
a store of value
a method for deferred payment
what is a free market?
In a free market economy, individuals are free to make their own choices and own the
factors of production without government interference.
how are resources allocated in the free market?
through the price mechanism
why are there no completely free markets in the world today?
the government has to intervene at least to an extent, for example by issuing money, protecting property rights and breaking up monopolies. Without this, the market mechanism could not work