economics-theme 1

• What is the significance of the term 'Ceteris Paribus' in economics?


  'Ceteris Paribus' means 'other things remaining equal' and allows simplification of economic problems.
• Why is it difficult to conduct experiments in economics?

  It is difficult because economics gathers data from the everyday world where variables are constantly changing.so Economists tend to come up with varied conclusions on a particular set of data
• Economists develop models to explain how the economy works.
• Theories can often be expressed in words whilst models are expressed in mathematical terms
• • Purpose of theories and models
  • to explain why something is as it
  • simplified to make them more useful
• Too many variable which can change within an economic model and assumptions must be made
• Theories or models which gain universal acceptance are called laws
• Economics is a social service so it’s difficult to set up experiments to test hypothesis
• Some people argue economics is not a social service bc it studies human behaviour which cannot be reduced to scientific law. however economics deals with groups not individuals.
• A positive statement which is objective and made with out any judgement

  this can be tested to be proven
• A normative statement is one which is based on judgements so cannot be proven
• Economists tend to use positive statement to back up normative statements
• Value judgements can influence economic decision making
• What is demand in economic terms?

  Demand is the quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time.
• What does the demand curve represent?

  The demand curve shows the quantity that is demanded at a given price.
• What does the demand curve show regarding effective demand?

  The demand curve shows effective demand, indicating how much we would be willing to buy at a given price, not how much we would buy if we had unlimited resources.
• What is a shift in the demand curve caused by?

  A shift in the demand curve is caused by a change in any other variable affecting demand, aside from a change in price.
• What factors affect the demand for a good?

  1. Price of the good
  2. Price of other goods
  3. Change in population
  4. Changes in fashion
  5. Advertising
  6. Changes in legislation
• What happens to the demand for normal goods when demand rises?

  Demand for normal goods rises.
• What happens to the demand for inferior goods when demand rises?

  Demand for inferior goods falls.
• What is the relationship between demand and price?

  As demand increases, price rises.
• There is an extension of demand when the quantity demanded rises
• There is a contraction of demand when the quantity demanded falls
• Demand curve

  
• How does the marginal utility affect consumer willingness to pay?

  Consumers are willing to pay a higher price if the marginal utility is high
• What are the two types of changes in the demand curve?

  • Movement: Change in quantity demanded due to price variation
  • Shift: Change in demand caused by non-price factors
• What is indicated by a steep slope in a small segment of the demand curve?

  It indicates that the quantity demanded changes significantly with price changes
• What happens when there are few goods available for purchase?

  Consumers are prepared to pay a higher price if the marginal utility is high
• The value attached to consuming the last product brought falls as more unity are consumed over a given period of time
• Paradox of value

  consumers paid a high price for goods which were unnecessary to human existence whilst the price of necessities were very low
• What is the basic problem of economics?

  The basic problem of economics is scarcity.
• Why is scarcity considered a relative concept?

  Because resources are scarce in relation to the demands placed upon them.
• What are the three fundamental questions economies try to answer regarding production?

  What to produce, how to produce, and for whom production should take place.
• What is a renewable resource?

  • Can be replenished for consumers
  • Replaced on a 1:1 equal to consumption
• What is a non-renewable resource?

  • cannot be readily replaced by natural means on a level equal to consumption
• What is an opportunity cost?

  The loss incurred in terms of the next-best option that has been given up
• What are the four factors of production?

  1. Land - all natural resources used in production
  2. Labour - all productive human effort
  3. Capital - man-made resources used to produce goods or services
  4. Entrepreneurship - the skill of combining the other three factors to make a product/service
• Consumer’s opportunity cost 


  What’s given up when spending on an item
• Produces opportunity cost

  Buying a matching might be wages of 4 workers for a yr
• Government opportunity cost

  Pay of a fighter price might be building of a few new schools