nature of economics

What is economics

Economics is a social science that studies societies and human interaction within those societies

Define the term model in economics

A model is a simplified version of reality

What does ceteris paribus mean

All other variables remain constant?

What kind of experiments can economics conduct

Social scientific methods, as there is an inability to make scientific experiments

What is empirical research

Research collected through observation, surveys, and opinion polls

How do economists build models?

They build models by identifying variables to study, making assumptions, and simplifying complex interactions

What is the purpose of economic models

Economic models are used to better understand certain interactions with society

Define the social scientific method

A variation of the scientific method used in social sciences due to inability to make scientific experiments

All economic models make assumptions, true or false

True, all economic models make assumptions

What is the role of assumptions in economic models

They are necessary to account for complex human behaviour and constantly changing variables

How do economists deal with the complexity of human interactions

Economists deal with the complexity of human interactions by building simplified models such as cetirus paribus

What is a positive economic statement

Objective statements of how a market or economy works

Define normative statements

Normative economic statement to focus on value judgements about what the best economic policies or solutions may be

Can positive economic statements be proven true or false

True, they can be proven true or false

What are value judgements in economics?

Opinions, viewpoints, or beliefs about what the best economic policies or solutions may be, and they cannot be proved or disproved

How do positive and normative statements differ?

Positive statements are based on facts and can be tested, while normative statements are based on value judgement that cannot be tested

True or false

Do normative statements often include the word should?

Not always. but sometimes

How do you value judgements influence economic decisions

The influence economic decisions by affecting choices made by individuals, businesses, and governments

What type of statement is prices in the UK have risen dramatically

Positive economic statement

What judgement is normative statements based on

Value judgement

How do positive statements contribute to economic analysis

They provide factual information that can be tested and verified

What is the basic economic problem?

Resources are finite and human wants are infinite

Define scarcity in economics

It refers to the finite resources available in relation to the infinite wants and needs that humans have

What are factors of production

Land labour capital and enterprise

What is economics the study of?

The study of scarcity and its implications for resource allocation in society

What is opportunity cost

The next best alternative forgone when making a decision

How does scarcity affect prices in a free market

Scarcity affects prices in a free market by generally causing scarcer resources to have higher prices.

What is the difference between renewable and non-renewableresources?

Renewable resources can be used repeatedly, are naturally replenished and have no opportunity cost with consumption, while non-renewable resources cannot be naturally replenishedat a pace that keeps up with consumptions so do have an opportunity cost.

True or False?

Opportunity cost only applies to consumer decisions.

False.

Opportunity cost applies to decisions made by consumers, producers, and governments.

What causes the economic problem of scarcity?

The economic problem of scarcity is caused by limited or finite resources and unlimited or infinite human wants.

How does scarcity affect economic decision-making?

Scarcity affects economic decision-making by forcing choicesto be made about the best use of limited resources.

What is an example of opportunity cost for a government?

An example of opportunity cost for a government is the loss of funding for rural libraries when deciding to provide free school meals.

True or False?

All non-renewable resources are scarce in economics.

True.

All non-renewable resources are scarce in economics.

What is a Production Possibility Frontier (PPF)?

A Production Possibility Frontier is an economic model that shows the maximum possible production combinations of two economic goods/services that an economy can produce using all of its factors of production fully and efficiently.

What do the axes on a PPF typically represent?

The axes on a PPF typically represent two different goods or services, often capital goods and consumer goods

True or False?

Points inside the PPF curve represent efficient production

False.

Points inside the PPF curve represent inefficient production.

What does a point on the PPF curve represent?

A point on the PPF curve represents full and efficient use of an economy's resources/factors of production.

How is opportunity cost shown on a PPF?

Opportunity cost is shown on a PPF by the amount of one economic good that must be given up/foregone to produce more of another economic good.

What causes an outward shift of the PPF?

• 
  An outward shift of the PPF is caused by economic growth,which increases the productive potential of an economy through an increase in the quantity and/or quality of resources/factors of production.

• 
  

True or False?

An inward shift of the PPF represents economic growth.

False.

An inward shift of the PPF represents economic decline.

What are capital goods?

Capital goods are assets that help a firm or nation to produce output, such as machinery, technology or equipment.

How does education affect the PPF?

Education can cause an outward shift of the PPF by improving the quality of labour, a factor of production.

What does a point outside the PPF curve represent?

A point outside the PPF curve represents unattainable production given the current resources/factors of production.

True or False?

A movement along the PPF curve represents a change in resource allocation.

True.

A movement along the PPF curve represents a change in resource allocation

What are consumer goods?

Consumer goods are end products that have no future productive use, such as food or clothing.

Who is considered the 'Father of Economics'?

Adam Smith is considered the 'Father of Economics'.

What is the division of labour?

The division of labour is when a job is broken up into several component tasks.

Define specialisation in economics.

Specialisation in economics is when workers focus on one or a few component tasks in the production process.

What is an advantage of the division of labour?

An advantage of the division of labour is higher labour productivity which lowers the cost per unit for firms.

What is a disadvantage of specialisation in production?

A disadvantage of specialisation in production is that task repetition often leads to boredom and a decrease in worker motivation.

How does specialisation affect international trade?

Specialisation in international trade can lead to increased exports and economic growth for nations.

True or False?

Specialisation only occurs at the individual level.

False.

Specialisation occurs at individual, business, regional, and global levels.

What are the four functions of money?

The four functions of money are:

• a medium of exchange

• a measure of value

• a store of value

• a method of deferred payment

How does money solve the double coincidence of wants problem?

• 
  Money solves the double coincidence of wants problem by acting as a universally accepted medium of exchange.

• 
  

What is the 'double coincidence of wants'?

The 'double coincidence of wants' is the situation in barter where two people must each want what the other has for an exchange to occur.

True or False?

Money always holds its value over time.

False.

Money does not always hold its value over time due to factors like inflation.

What is a free-market economy?

A free-market economy is an economy that allocates resources and distributes goods/services through the price mechanism in the private sector with no government intervention.

Define a command economy.

command economy is an economy in which all of the resources are owned by the state/government in the public sector to control and allocate the distribution of goods/services.

What is a mixed economy?

A mixed economy is a combination of the free market and command economy characteristics where individuals and firms in the private sector and the government in the public sectorown and allocate the factors of production to distribute goods/services.

True or False?

Adam Smith advocated for heavy government intervention in the economy.

False.

Adam Smith advocated for free markets with little or no government intervention.

What are the three fundamental economic questions?

The three fundamental economic questions are:

• What to produce?

• Who to produce for?

• How to produce it?

What is an advantage of a free market economy?

An advantage of a free market economy is that the profit incentive motivates people to work or develop entrepreneurial/innovative ideas.

What is a disadvantage of a command economy?

• 
  A disadvantage of a command economy is that receiving the same wage for different skilled work disincentivises people from gaining higher skills.

• 
  

True or False?

In a command economy, all workers receive the same wage regardless of their role.

True.

In a command economy, all workers receive the same wageregardless of their role.

How does the government intervene in a mixed economy?

The government intervenes in a mixed economy mainly through taxation, spending, and regulation to redistribute income and provide essential goods/services whilst also discouraging the production and consumption of less desirable goods and services.

What did Karl Marx believe about free markets?

Karl Marx believed that free markets lead to capitalism, in which the owners of the factors of production would exploit the workers.

True or False?

Friedrich Hayek supported command economies.

False.

Friedrich Hayek believed that command economies were flawed and inefficient.

What is the role of competition in a free market economy?

In a free market economy, competition leads to better quality of goods/services, lower prices, and encourages innovation.