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Intro To Economics > 1.1: What is economics > Flashcards

1.1: What is economics Flashcards

1
Q

Define Scarcity

A

Scarcity is a fundamental economic condition where the resources available for producing goods and services are limited, while human wants and needs are virtually unlimited.

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2
Q

What is the importance of Scarcity?

A

Scarcity necessitates choices, as there are not enough resources to fulfill all desires.

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3
Q

Define Factors of Production

A

Factors of Production are the essential inputs used in the production process, categorized into four main groups: Land, Labour, Capital, Enterprise

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4
Q

Define opportunity cost

A

Opportunity cost is the value of the next best alternative forgone when a decision is made.

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5
Q

Why is opportunity cost important?

A

It is crucial in decision-making, as it prompts individuals and businesses to assess the trade-offs involved in various choices.

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6
Q

Define the PPC

A

The PPC illustrates the maximum combinations of two different goods or services that an economy can produce, given its existing technology and resource constraints.

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7
Q

Assumptions of the PPC?

A

The PPC assumes fixed resources, full resource employment, unchanging technology, zero resource wastage, a two-good economy, and no possibility of increasing the factors of production.

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8
Q

Why is the PPC important?

A

The PPC demonstrates the concept of opportunity cost and the trade-offs that societies face in allocating resources.

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9
Q

Define capital goods

A

Capital goods are physical assets used for production, such as machinery, equipment, and infrastructure.

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10
Q

What are capital goods used for?

A
  • Capital goods are any man-made gods used to produce other goods
  • Capital goods enhance the productivity of labor and contribute to economic growth by enabling the production of consumer goods and services.
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11
Q

Define consumer goods

A

Consumer goods are products designed for direct consumption, providing satisfaction to individuals.

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12
Q

Examples of consumer goods?

A

These encompass everyday items like food, clothing, and housing, which cater to individual needs and desires.

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13
Q

What is the economic problem?

A

The economic problem arises because of the fundamental disconnect between unlimited human wants and limited resources.

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14
Q

What is the root cause of the economic problem?

A

Scarcity is at the heart of the economic problem, driving the need to make choices

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15
Q

What are the 9 key concepts in economics

A

Economics encompasses key concepts such as Efficiency, Scarcity, Choice, Interdependence, Change, Intervention, Economic Well-Being, Equity, and Sustainability.

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16
Q

Define Efficiency being one of the key concepts in economics

A

Efficiency measures how well resources are utilized to produce desired outputs. Allocative efficiency focuses on producing the optimal mix of goods for societal benefit.

Efficient resource allocation miminizes waste and maximizes overall societal welfare

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17
Q

Define Equity being one of the key concepts in economics

A

Equity concerns the fairness and justice in the distribution of economic resources, income, and opportunities.

Equity is not synonymous with equality; it acknowledges that different individuals may have different needs.

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18
Q

Define Sustainability being one of the key concepts in economics

A

Sustainability involves meeting present needs without compromising the ability of future generations to meet their own needs.

Sustainable practices aim to reduce environmental harm and resource depletion in current economic activities.

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19
Q

Define Interdependence being one of the key concepts in economics

A

Interdependence highlights the interconnectedness of economic actors, such as households, firms, governments, and nations, as they pursue their economic goals.

Understanding interdependence is vital for analyzing economic consequences and making informed decisions.

20
Q

Define Choice being one of the key concepts in economics

A

Economics recognizes the constant and transformative changes in the economic world, focusing on how variables evolve from one situation to another.

Adapting to change is essential for economic growth and stability.

21
Q

Define Intervention being one of the key concepts in economics

A

Intervention refers to government involvement in markets to correct market failures or achieve specific societal goals.

Economists and policymakers often debate the extent and necessity of government intervention.

22
Q

What is the labour supply influenced by?

A

Labor supply is influenced by population size, age demographics, retirement age, school leaving age, and societal attitudes towards women in the workforce.

23
Q

Why does the quality of labour supply matter?

A

Enhancing the skills and productivity of labor can lead to increased economic output

24
Q

Define enterprise and entrepreneurship

A

Entrepreneurs organize factors of production, make key business decisions, and bear the risks associated with business ventures.

25
Q

How does the supply of capital increase over time?

A

The supply of capital tends to increase as new capital goods replace old or outdated ones.

26
Q

Gross vs Net investment of supply of capital?

A

Gross investment includes replacements, while net investment represents the value of additional capital goods.

27
Q

Is there only limited change to the supply of land?

A

The physical land supply remains relatively constant, but other natural resources may change rapidly.

28
Q

What types of renewable and non-renewable resources are there for the supply of land? What are the benefits/risks of these?

A

Renewable resources, like wind power, can be replenished by nature, while non-renewable resources face the risk of depletion through overexploitation.

29
Q

Define PPC

A

The PPC is a graphical representation that illustrates the various combinations of two different goods or services that an economy can produce efficiently, given its existing technology, available resources, and constraints

30
Q

What are the assumptions of the PPC?

A

Fixed Resources: The PPC assumes that the quantity and quality of productive resources, such as land, labor, and capital, remain constant.

Full Resource Employment: All available resources are fully utilized and not wasted.

Fixed Technology: Technology and production methods do not change during the analysis.

Zero Resource Waste: Resources are used efficiently, with no waste.

Two-Good Economy: The PPC simplifies the analysis by considering only two goods or services.

No Third Good: There is no possibility of producing a third good with the available resources.

No Factor Increase: Factors of production cannot be increased during the analysis.

31
Q

Causes of an outward shift of the PPC?

A

Discovering new natural resources
Inward migration (influx of labour)
technological advancements
Increased capital stock
Improved employee training

32
Q

What does an outward shift signify?

A

An outward shift indicates an economy’s ability to produce more goods and services.

33
Q

Causes of an inward shift of the PPC?

A

Depletion of resources
Outward migration resulting in reduced labour supply
Wear and tear of capital equipment
Deterioration of infrastructure
Declining employee education and training

34
Q

What does an inward shift on the PPC signify?

A

An inward shift signifies a decline in an economy’s production capacity.

35
Q

What is the circular flow of income?

A

The circular flow of income is an economic model that illustrates the flow of money in an economy, showing how income and expenditure circulate between households and firms.

36
Q

What is the role of households in the circular flow of income?

A

Households own the factors of production (land, labor, capital, and enterprise) and play a pivotal role in the economy.

They supply these factors to firms and receive income in return, which they use to purchase goods and services from firms.

37
Q

What is the role of firms in the circular flow of income?

A

They purchase factors of production from households, using them to create products, and then sell these products to households, generating sales revenue.

38
Q

Define leakages (withdrawals) in the circular flow of income

A

Leakages remove money from the circular flow, reducing its size

39
Q

What are the types of leakages (withdrawals)?

A

STM

Common leakages include increased savings by households (S), increased government tax revenue (T), and increased spending on imports (M).

40
Q

Define injections int he circular flow of income

A

Injections add money into the circular flow, increasing its size and representing new income in the economy.

41
Q

What are the types of injections?

A

GIX

Common injections include increased government spending (G), increased investment (I), and increased exports (X).

42
Q

What are the impact of leakages and injections on the economy

A

REE

Relative Size: The relative size of leakages and injections affects the overall health of the economy.

Economic Growth (I>L): When injections exceed withdrawals, it leads to economic growth, as the circular flow expands.

Economic Contraction(I<L): When withdrawals exceed injections, it results in a decrease in real GDP and potential economic contraction.

43
Q

What are the factors influencing leakages and injections? Give an example

A

Changes in government spending, investment, consumption, and net exports can influence the relative size of leakages and injections

For example, an increase in interest rates can lead to higher savings (withdrawals) and reduced consumption and investment, impacting the circular flow.

44
Q

What are the links between the 3 types of flows demonstrated in the circular flow of income model?

A

Income flow=household expenditure flow=value of output flow

Household expenditure on goods and services is equal to the value of output (prices of goods and services) hence, the money spent goes to firms in the form of income

45
Q

How is it that firms and households are both buyers and sellers simultaneously?

A

Households sell labour & wages, firms buy FOP
- These transactions occur in the factor market where workers get paid wages as they provide FOP

46
Q

What are the 2 types of markets demonstrated in the circular flow of income model?

A
  1. Resource / Factor Market: where firms buy FOP and pay workers wages
  2. Product Market: where goods and services are bought and sold simultaneously

Intro To Economics (3 decks)

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