Economics

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  • Created by: Wenzdefb
  • Created on: 18-10-16 21:13
What is the scientific method?
1. Postulate a theory about something you think could be real 2. Gather evidence to either support or refute it ( test if the theory is right or wrong) 3. Accept, modify or refute the theory. 4. If the evidence= the theory, then the model is used
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what is universal acceptance
When the theory becomes a law ( gravity)
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how do we calculate the law of demand?
p=560-0.8Q
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what happens as price increases
demand will decrease
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what are the issues with social sciences
there are no laboratories/ test environments, no control groups, difficult to set experiments and human behavior is hard to predict.
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what is ceteris paribus?
"all other things being equal" or "all other things remain the same"
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what are some conditions of ceteris paribus?
the resources available, competition, population, income level
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what is a positive statement?
statements about economics which can be proven to be true or false and can be supported or refuted by evidence
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what is a normative statement?
statements which cannot be supported or refuted. they are opinions about economics and how markets should work.
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what is the economic assumption?
people have limited needs but unlimited wants
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what is the aim of economic activity?
to satisfy the wants and needs of society
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what are some basic needs
water, shelter, food, healthcare, education, electricity
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are needs finite or infinite?
needs are finite. you can reach a point where you need no more
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is money a want or need?
it is neither. it is what we do with money that gets us what we want
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are wants finite or infinite?
wants are infinite. they will never reach a point of satisfaction.
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explain the economic problem
there are not enough resources available to satisfy all of these needs and wants. this creates the economic problem of scarcity. the economic problem occurs when there are finite resources available to supply infinite or unlimited wants.
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what are renewable resources
resources that cane replenished (wood)
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what are non renewable resources?
resources that are in finite supply and therefore will run out
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what is a production possibilit frontier (PPF) used to show?
different combinations of output for 2 products
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what is the relationship between the 2 products on a PPF
as the output of x increases, good y decreases
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what problem is illustrated in the PPF
choosing how to use scarce resources when producing goods
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what is shown by the ppf curve
all the possibilities for production which will all give same profit and use all the resources efficiently
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what does a point which exceeds the ppf curve show?
There is not enough resources
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what does a point within the ppf curve show?
the resources are not being efficiently allocated and so there will be waste
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what is an opportunity cost?
(the thing you give up). The benefit lost of the next best alternative when making a choice
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is economic growth a shift outwards or inwards?
outwards ( to the right)
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what is economic growth caused by?
an increase in the factors of production available
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is economic shrinkage a shift outwards or inwards?
inwards (to the left)
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why does economic shrinkage occur?
when there is a reduction in an economies production capacity (natural disasters, ageing population, immigration)
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what is specialisation
production of a limited range of goods by individual,firm or country
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what is the division of labour
the specialisation of individuals
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why is specialisation good?
it is likely to lead to increased output per worker as the workforce have a better understanding of their job role.
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which economic key person noticed the division of labour can ncrease productivity
adam smith
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what are some advantages of specialisation
increase production, increase capital, decreased cost due to increase in demand
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what are some disadvantages of specialisation
the company will have to emply more people (pay out more) employees are limited in what they can offer.
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what are some advantages of the division of labour
its organised and effective use of skills
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what are some disadvantages of the division of labour
its monotonous (boring) can lead to mental health problems, limited flexibility within job and limited opportunities to progress.
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the function of money: medium of exchange
an intermediary between 2 parties when buying or selling
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the function of money: a store of value
it can be kept for future uses
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the function of money: a unit of account
allows us to measure the value of goods and services in units
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the function of money: a standard of deferred payment
it allows us to pay now for goods and services and use them later or buy them now and pay later
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what is a free market
little government interference
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in a free market the basic economic problem of whom,how and what to produce is solved by what
market forces
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what are some characteristics of a free market
private sector ownership, free enterprise, limited government intervention, firms compete for market share, people compete for employment and salaries and the allocation of resources is determined by market forces
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which economic person came up with the invisible hand
adam smith
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what is the invisible hand?
behaviour from stakeholders acts as an invisible hand to determine the market and so there needs to be no government intervention.
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advantages of a free market
competition leads to economic growth, its self regulated, greater quality and choice, increased productivity, encourages innovation
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disadvantages of a free market
no regulations lead to health problems, private sector ownership means that people at the top receive all the money, increased inequality, public goods not payed for
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what is a command economy
the state decides whom,what and how to produce
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who allocates resources in a command economy
the government
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advantages of a command economy
reduced inequality, lower unemployment , public goods will be supplied, better efficiency of resources, easier to not sell demerit goods
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disadvantages of a command economy
not competitive as companies dont have to make good quality goods, no incentive to work hard as the gap in the wage is small, limited choice, rationing is likely, black market
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what is a mixed economy
resources are allocated by a combination of both the market mechanism and the government
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what is the role of the government in a mixed economy
reduce negative externalities (obesity) by taxing, fines and rationing, provide public goods, control demerit goods, make goods illegal,
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advantages of mixed economy
better redistribution of income (inequality control) and reduce externalities
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disadvantages of mixed economy
higher tax rates, discourage competition, fewer choices
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what did Karl Marx teach?
Marx noticed the inequality between workers and the owners of production and stated that inequality will continue to get worse. capital is unstable and it is inevitable that the workers will rise up in a revolution and violently seize control
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what did Friedrich Hayek teach?
Hayek argued that state controlled economy leads to totalitarianism (dictatorship) and loss of freedom. he stated that a command economy leads to a small minority imposing their will on the whole of society.
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what is the role of the state in a mixed economy?
provide public goods, provide merit goods, control inflation(by rising or dropping interest rate) reduce externalities, encourage trade and competition
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what is rational decision making?
Ranking outcomes in terms of their net benefit. Given a choice they will chose the option that maxamises their net benefit
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Other cards in this set

Card 2

Front

what is universal acceptance

Back

When the theory becomes a law ( gravity)

Card 3

Front

how do we calculate the law of demand?

Back

Preview of the front of card 3

Card 4

Front

what happens as price increases

Back

Preview of the front of card 4

Card 5

Front

what are the issues with social sciences

Back

Preview of the front of card 5
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