CH1: Intro to Economics Flashcards
(9 cards)
What are the four factors of production and their rewards?
The four factors are land (earns rent), labour (wages), capital (interest), and entrepreneurship (profit). Entrepreneurs take risks to innovate and drive economic activity.
What are wants, needs, and trade-offs in economics?
Needs are essential for survival (e.g., food, shelter), while wants are non-essential desires. Because of scarcity, choosing one thing means giving up another — this is the concept of trade-offs. Opportunity cost always exists.
What is economics and why is scarcity central to it?
Economics is the study of how individuals, businesses, and governments make choices to allocate limited resources to satisfy unlimited wants.
Scarcity is central because resources (like time, money, labor, and raw materials) are finite, forcing people to make choices and face opportunity costs.
Without scarcity, there would be no need for economic decision-making.
What is opportunity cost and how does it influence decisions?
Opportunity cost is the value of the next best alternative foregone when a choice is made. It influences decisions by forcing individuals or businesses to consider what they are giving up when selecting one option over another.
What is the Production Possibilities Curve (PPC) and what does it show?
The PPC shows the maximum possible combinations of two goods or services that an economy can produce using all available resources efficiently.
Points on the curve = efficient use of resources
Points inside = inefficiency (due to unemployment, underused resources, or misallocation)
Points outside = currently unattainable
The curve is bowed outward due to increasing opportunity costs
Movement along the curve shows reallocation between goods
Outward shifts = economic growth (more resources or better technology)
Inward shifts = economic decline (loss of resources or capacity)
What is the circular flow model and how does it work?
The circular flow model shows how money, goods, and services move between households and firms in an economy.
Households provide factors of production (land, labor, capital) to firms through the factor market and receive income (wages, rent, profits).
They then use this income to buy goods and services from firms in the product market.
This creates a continuous loop of production, income, and spending.
Governments and the foreign sector can be added in expanded versions.
what are goods, services, consumer goods, and capital goods in economics?
Goods: Tangible items that satisfy wants (e.g., food, cars).
Services: Intangible activities that satisfy wants (e.g., teaching, healthcare).
Capital Goods: Used to produce other goods; not consumed (e.g., machines, tools).
Consumer Goods: Final goods for personal use (e.g., clothes, phones).
what is the difference between microeconomics and macroeconomics?
Microeconomics:
Focuses on individual units (e.g., consumers, firms).
Analyzes supply & demand, pricing, production, and market structures.
Example: How a specific company decides its pricing strategy.
Macroeconomics:
Looks at the economy as a whole.
Analyzes national indicators like GDP, unemployment, inflation, and monetary/fiscal policy.
Example: How interest rate changes affect national economic growth.
what role do incentives play in economic behaviour?
Incentives motivate people to act. Positive incentives encourage behavior (e.g., rewards), while negative ones discourage it (e.g., fines).
