Theme 1: Nature of Economics Flashcards

1
Q

Positive statement

A

Statements that are objective and can be tested with factual evidence.

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2
Q

Normative statements

A

Based on value judgements that are subjective and based on opinion rather than factual evidence.

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3
Q

Basic economic problem

A

Wants are unlimited and resources are finite, so choices have to be made.

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4
Q

opportunity cost

A

The opportunity cost of a choice is the value of the next best alternative forgone.

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5
Q

Capital description

A

goods, machines and buildings

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6
Q

Capital reward/incentive

A

Interest from the investment

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7
Q

Entrepreneur description

A

Someone who takes risks, innovates and uses FOP.

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8
Q

Land description

A

Natural resources

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9
Q

Labour description

A

Workforce

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10
Q

Entrepreneurship reward/incentive

A

Profit

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11
Q

Land reward/incentive

A

Rent

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12
Q

Labour reward/incentive

A

wages

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13
Q

What can PPFs show?

A

The maximum potential of an economy and the opportunity cost of using scarce resources.

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14
Q

The law of diminishing returns

A

When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.

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15
Q

Capital goods

A

Goods which can be used to produce other goods eg machinery.

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16
Q

Consumer goods

A

Goods which cannot be used to produce other goods, eg clothing

17
Q

Who came up with the idea of specialisation?

A

Adam smith

18
Q

Who can achieve specialisation?

A

Individuals, businesses, regions of countries or countries themself

19
Q

What are 3 advantages of specialisation?

A

The advantages of specialisation and division of labour include increased output, less wastage, and lower unit costs.

20
Q

What are 4 disadvantages of specialisation?

A

The disadvantages of specialisation and division of labour include increased boredom, overreliance, finite resources, and changing tastes.

21
Q

What are the 4 functions of money?

A

medium of exchange, measure of value, store of value, method of deferred payment

22
Q

Who are 2 free market economists?

A

Adam Smith and Friedrich Hayek.

23
Q

What is a free market economy?

A

Where governments leave markets to their own devices, so the market forces of supply and demand allocate scarce resources. No government intervention.

24
Q

Why is Adam smith a free market economist?

A

He believes in the invisible hand theory. That prices are determined by the spending votes of consumers and businesses.

25
Q

Why is Friedrich Hayek a free market economist?

A

He believes that government intervention makes markets worse.

26
Q

Advantages of free markets

A

Resources are efficiently allocated. …
A free market encourages competition. …
There is innovation and economic growth. …
Consumers are provided with many alternatives because the government does not restrict markets, allowing businesses from different countries to enter.

27
Q

Disadvantages of free markets

A

-Ignores inequality and benefits those who have the most money. -Monopolies could exploit the market. -Over consumption of demerit goods. -Public goods aren’t provided and merit goods are underprovided.

28
Q

What is a command economy?

A

Where governments allocates all of the scarce resources in an economy to where they think there is a greater need.

29
Q

What did Karl Marx believe?

A

The free market is unstable. Profits created come from the exploitation of labour.

30
Q

Advantages of command economy?

A

low or non-existent unemployment, speed in decision-making, equality amongst citizens, and a focus on the worker as opposed to profits.

31
Q

Disadvantages of a command economy?

A

lack of competition, which can lead to lack of innovation, and lack of efficiency.

32
Q

What is a mixed economy?

A

A balance between command and free market economies.