1. Economic Methodology & the Economic Problem (AQA A Level Economics): Flashcards
Exam code: 7136
1/570Still learning
Know0
- FrontEconomic Methodology
Define a positive statement.
Was this flashcard helpful?
Cards in this collection (57)
Define a positive statement.
A positive statement is an objective statement about how a market or economy works that is based on evidence and can be tested as true or false.
Define a normative statement.
A normative statement is a subjective statement based on value judgements about what ought to be, and cannot be proven true or false.
True or False?
'The government should provide free healthcare for all citizens' is a positive statement.
False.
It is a normative statement because it contains a value judgement, signalled by the word 'should'.
Define ceteris paribus.
Ceteris paribus means 'all other variables remain constant', allowing economists to isolate the effect of one variable at a time.
Why is economics classified as a social science?
Economics is a social science because it studies societies and the complex human interactions within them, which are influenced by many variables.
Define an economic model.
An economic model is a simplified version of reality that makes assumptions in order to explain the relationships between variables.
How is a rational consumer assumed to behave?
A rational consumer weighs the net benefits of their choices and selects the option that maximises their utility.
In classical theory, producers are assumed to act rationally by selling goods and services in a way that maximises their .
In classical theory, producers are assumed to act rationally by selling goods and services in a way that maximises their profits.
Define refutation.
Refutation is the act of a statement or theory being proved wrong by empirical evidence.
What is the difference between equity and equality?
Equity is concerned with fairness, whereas equality is concerned with everyone being equal and having equal recognition.
True or False?
A correlation between two variables always proves that one causes the other.
False.
Correlation does not prove causation; for example, ice cream sales and car thefts rise together without one causing the other.
What role do value judgements play in economic policy?
Value judgements influence which economic policies a government adopts and spends money on, because decisions rest on beliefs about what is a favourable outcome.
What is the central purpose of economic activity?
The central purpose of economic activity is the production of goods and services to satisfy people's needs and wants.
Define a need.
A need is a good or service that is essential for survival, such as food or shelter.
Define a want.
A want is a non-essential desire for a good or service, such as electronics.
True or False?
Human wants are infinite while the resources to satisfy them are finite.
True.
The demand for needs and wants is infinite, while the supply of resources to produce them is finite.
What are the three fundamental economic questions?
Every economy must decide what to produce, how to produce it, and who to produce it for.
The three main economic systems are the free market system, the planned economy, and the economy.
The three main economic systems are the free market system, the planned economy, and the mixed economy.
In a market system, who decides what is produced?
In a market system, what is produced is decided by demand and supply through the price mechanism.
In a planned system, who answers the three economic questions?
In a planned system, the government decides what to produce, how to produce it, and for whom.
Define adding value.
Adding value is increasing the worth of a product through features such as better design or quality, creating a competitive advantage.
True or False?
In a pure market system, goods and services are produced for those who can afford them.
True.
In a market system, output is allocated to those who can afford it via the price mechanism.
Define the factors of production.
The factors of production are the resources used to produce goods and services: land, labour, capital and enterprise.
Define capital as a factor of production.
Capital is any man-made resource used to produce goods and services, such as tools, machines and computers.
Define enterprise.
Enterprise involves taking risks to set up and run a firm, combining the other factors of production to make a profit.
Define goods.
Goods are tangible physical objects that can be touched, such as a mobile phone.
What is the factor income earned by land?
The factor income earned by land is rent.
What is the factor income earned by labour?
The factor income earned by labour is wages.
The factor income earned by capital is .
The factor income earned by capital is interest.
What is the factor income earned by enterprise?
The factor income earned by enterprise is profit.
True or False?
Land as a factor of production refers only to soil and farmland.
False.
Land refers to all non-man-made natural resources available for production, such as oil, water and minerals.
Define sustainability.
Sustainability means meeting the needs of the current generation without compromising the ability of future generations to meet their own needs.
Why is the environment considered a scarce resource?
Increased economic activity causes the degradation of environmental resources, so overconsumption by current generations makes them scarce for the future.
True or False?
Non-renewable resources such as coal and oil are limited in supply.
True.
Non-renewable resources are already limited in supply and will eventually run out.
Define the basic economic problem.
The basic economic problem is that resources are scarce — finite resources must satisfy the infinite wants and needs of humans.
Define scarcity.
Scarcity is the existence of finite resources relative to the infinite wants and needs of humans.
Why must choices be made in an economy?
Because resources are scarce, consumers, producers, workers and governments must make choices about their most efficient use.
Define opportunity cost.
Opportunity cost is the loss of the next best alternative when a decision is made.
True or False?
Opportunity cost is always measured as a monetary amount.
False.
Opportunity cost is the loss of the next best alternative, which need not be money even though money may be a factor.
Opportunity cost is the loss of the next best when a choice is made.
Opportunity cost is the loss of the next best alternative when a choice is made.
A consumer buys a new phone instead of new jeans. What is the opportunity cost?
The opportunity cost is the jeans — the next best alternative that was given up.
How can considering opportunity cost change a decision?
Factoring in opportunity cost reveals the true cost of a choice, which can lead to a different decision and a different allocation of resources.
True or False?
Scarcity affects consumers, producers, workers and governments.
True.
All economic agents face the basic economic problem of scarcity.
How is economics defined in terms of scarcity?
Economics is the study of scarcity and its implications for the allocation of resources in society.
How does scarcity influence prices in a free market?
In a free market, the scarcer a resource or product is, the higher the price consumers will pay for it.
Define a Production Possibility Curve (PPC).
A PPC shows the maximum possible output an economy can produce of two goods when all its factors of production are used fully and efficiently.
Define capital goods.
Capital goods are assets that help a firm or nation produce output, such as a robotic arm in a car factory.
Define consumer goods.
Consumer goods are end products with no future productive use, such as a watch.
What does a point inside the PPC represent?
A point inside the PPC represents an inefficient use of resources, where not all factors of production are being used.
Define productive efficiency on a PPC.
Productive efficiency occurs at any point on the PPC, where maximum output is produced with no wastage of scarce resources.
Define allocative efficiency.
Allocative efficiency occurs when resources are used to produce the combination of goods and services that is optimal for society.
True or False?
Any point on the PPC represents productive efficiency.
True.
Producing on the PPC uses all factors of production to their maximum, so there is no wastage of resources.
An outward shift of the entire PPC represents economic .
An outward shift of the entire PPC represents economic growth.
What causes an outward shift of the PPC?
An outward shift is caused by an increase in the quantity or quality of the available factors of production.
What does an inward shift of the PPC represent?
An inward shift represents economic decline, caused by a fall in the quantity or quality of factors of production.
True or False?
Moving along the PPC from one point to another has no opportunity cost.
False.
Moving along the PPC means producing more of one good only by giving up some of the other, which is the opportunity cost.
How can improving the quality of labour shift the PPC?
Training and education make labour more productive, raising productive potential and shifting the PPC outward.
Sign up to unlock flashcards
or