Pack 1: The Nature of Economics Flashcards
(38 cards)
1
Q
What is scarcity?
A
Resources are limited in supply and so cannot fulfil all the unlimited human wants
2
Q
What are the classified world limited resources?
A
Land: includes resources underground/in sea and air
Labour: economy’s work force/skills/training they have
Capital: manufactured stock of tools, machines etc
Enterprise: skill entrepreneurs have, specifically in organizing other factors of production and taking risks by setting up business enterprises
3
Q
What are non-renewable resources?
A
Will never be replaced once they are used e.g. coal
4
Q
What are renewable resources?
A
Can be used and replaced, such as solar power
5
Q
What is opportunity cost?
A
Value of the next best alternative foregone
6
Q
What choices do governments have to make due to scarcity?
A
- UK government have scarce amount of tax revenue to spend on the economy
e.g spending on NHS means less to spend on schools
7
Q
What choices do businesses have to make due scarcity?
A
- scarce amount of finance to invest into their organizations
e.g spending on advertising means less to spend on wages
8
Q
What choices do consumers make due to scarcity?
A
- households have scarce amount of income to spend on goods and services
e.g spending on holidays means less to spend on a new car
9
Q
What is a social science?
A
- studies societies and the human interactions within those societies
10
Q
What do economic models do and why are they used?
A
- use assumptions to simplify reality in order to make insights into economics situation
- uses assumptions in order to account for complex human behaviour and constantly changing variables
11
Q
What is Ceteris Paribus?
A
- all other things are held equal
12
Q
Why is ceteris paribus used?
A
- allows economists to simplify and explain causes and effects
13
Q
What is a positive statement?
A
- concerned with objective statement
- based on evidence and tend to be statements of fact
- can be proven to be true of false
14
Q
What are Normative statements?
A
- value judgement
- subjective
built around opinions/beliefs
15
Q
What is the Production Possibility frontiers (PPF)?
A
- an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods/services
16
Q
What is a consumer good?
A
- goods/services that are used by people to saitisfy their need/wants
- e.g TV
17
Q
What is a capital good?
A
- goods used in production of other goods
- e.g machines, factories
18
Q
How can a PPF be used to show efficiency, inefficiency, attainable and unattainable production?
A
- Producing at any point on the curve represents productive efficiency
- Any point inside the curve represents inefficiency
- Using the current level of resources available, attainable production is any point on or inside the curve and any point outside the curve is unattainable
19
Q
How can economic growth be shown on a PPF curve?
A
- outward shift
- Economic growth occurs when there is an increase in the productive potential of an economy
- shift is caused by an increase in the quality or quantity of the available factors of production
20
Q
How can the quality of a factor of production be improved?
A
- the impact of training and education on labour.
- An educated workforce is a more productive workforce and the production possibilities increase
21
Q
What is an example of how the quantity of a factor of production can be increased?
A
- through a change in migration policies.
- If an economy allows more foreign workers to work productively in the economy, then the production possibilities increase
22
Q
What causes economic decline?
A
- when there is any impact on an economy that reduces the quantity or quality of the available factors of production
23
Q
What is the division of labour?
A
- when a task is broken up into several component tasks
- allows workers to specialise by focusing on one of the components that make up the production and thereby gain significant skill in doing it
- results in higher output per worker and so increases productivity
24
Q
What are the Pros of Division of Labour and Specialisation?
A
- Higher labour productivity lowers cost/unit for firms
- Lower costs can be passed on to consumers in the form of lower prices
-Lower costs can mean higher profits for the firms. This may lead to higher wagesfor workers - Increased productivity allows some firms to sell beyond their local market into international markets
- creates many low skilled jobs
25
What are the Cons of Division of Labour & Specialisation?
- Task repetition often leads to **boredom**
- decrease in motivation may lead to **less productivity and/or poorer manufacturing quality**
- may **increase worker turnover rates** as workers look to move on to a role that is more stimulating
- Mass produced products **often lack variety** and do not take different consumer preferences into account
- if workers lose their jobs, then it may be **hard for them to find work** as they are only trained in one skill
26
What four functions must money fulfil?
- **medium of exchange** :*to avoid double coincidence of wants*
- **measure of value**:*allow buyers/sellers to arrange an agreeable exhange*
- **store of value**:*allows money to be save*
- **method of deferred payment**:*allows people to pay for things later*
27
What are the pros of Division of Labour & Specialisation in Trade?
- Higher labour productivity lowers cost / unit for firms, which makes their **goods more competitive internationally** (exports)
- Increased exports can result in **economic growth** for the nation
- Economic growth usually leads to **higher income and a better standard of living**
- Income gained from exports can be used to purchase other goods from around the world (imports). This increases the **variety of goods available in a country**
28
What are the cons of the Division of Labour & Specialisation in Trade?
- International trade is beneficial for the firms that can compete globally. However, some industries will be **unable to compete** and will **go out of business**
- Many firms in an entire industry may close leading to **structural unemployment**
- Specialisation may create **over-dependency on other countries' resources**. This may cause problems if conflict arises.
- Specialisation using a country's own resources will lead to **resource depletion over time**.
29
What is structural unemployment?
- caused by a mismatch between workers skills and the available jobs in the economy
30
What did Adam Smith believe?
- advocate for free markets
- competition between firms essential
- see some role for the state in certain areas of the economy
31
What did Karl Marx believe?
- criticism of free market capitalism
- capitalism would be replaced by communism
32
What did Frederik Hayek believe?
- supporter of the free market
- deeply critical of socialism/communism
33
What is a free market economy?
- where scarce resources are allocated entirely by price mechanism
34
What is a command economy?
- where scarce resources are allocated entirely by the government
35
What are Adv of free markets?
1. Consumer choice
2. Competition and efficiency
3. Incentives/Economic growth (as less income tax)
36
What are the Dis of free markets?
1. Inequality: not state provision
2. Market failure:
- some goods over-provided e.g cigarettes
- some goods under-provided e.g healthcare
37
What are the adv of command economy?
1. Guaranteed standard of living
2. Solving market failure:
gov intervention:
- e.g providing public services
38
What are the dis of command economies?
1. lack of choice and freedom
2. lower efficiency and economic growth : no profit motive
3. Failure of large scale government: corruption
