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econ theme 1 Flashcards

(61 cards)

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1
Q

Economic Problem

A

Choices to be made due to scarcity
What to Produce and in What Quantity?How to Produce? For Whom to Produce?

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2
Q

Factors of production

A

Land - natural resources (oil)
Labour - human input
Capital - man-made items used in production process (machines)
Enterprise - organises fop and take risks

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3
Q

FOP rewards

A

Land - rental income
Labour - wages
Capital - Interest from savings
Enterprise - profits

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4
Q

Opportunity costs

A

The next best alternative forgone when making a decision

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5
Q

Free goods

A

Goods so abundant that its availability is not a constraint on economic activity (sunlight)

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6
Q

Positive statements

A

Objective statements that can be tested

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7
Q

Normative statements

A

Subjective statements carry value judgements and cannot be tested

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8
Q

Economic agents

A

Firms -make goods/services
gov. - provides rules under which consumers interact
consumers - buy goods/services

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9
Q

Production Possibility Frontier

A

Alternative combinations of two goods/services attainable when all economic resources are fully and efficiently employed

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10
Q

Factors causing outward shift in PPF

A

-discovery of new natural resources
-advancement in tech
-increase in size of workforce

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11
Q

Factors causing inward shift in PPF

A

-war
-recession
-reduction in workforce size

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12
Q

Ceteris Peribus

A

“all other things equal”
-all other variables stay constant

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13
Q

Division of labour

A

production is broken down into separate tasks, to raise output per person

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14
Q

advantages of division of labour

A

+ workers speacilised in tasks so increase output
+worker trained in 1 task so lowers training costs
+less time moving from each task

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15
Q

disadvantges of division of labour

A
  • boredom in workers decrease productivity
  • workers have limited skills so if fired hard to find new job
    -if 1 group of workers strike it brings entire production to standstill
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16
Q

Specialisation

A

The process wherein a company decides to focus their labor on a specific type of production.

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17
Q

advantages of specialisation

A

+uses resources more efficiently
+ increases growth and standard of living

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18
Q

disadvantages of specialisation

A

-if demand for a good a country specialises in decreases unemployment increases
-over-reliance on certain production means a reduction in it can stunt economic growth

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19
Q

Demand

A

Quantity purchasers are willing/able to buy at a given price in a given period of time

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20
Q

Factors shifting demand graph

A

PASIFIC
Population
Advertising
Substitutes
Income
Fashion
Interest rates
Complements

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21
Q

Command Economy

A

Economy where all descisions are made by GOV.

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22
Q

Command Economy (+)

A

+More certainity in terms of economic descisions
+More equal society and provides public goods

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23
Q

Command Economy (-)

A

-State-owned firms do not aim for profit maximisation so poorer quality goods
-consumers cannot decide what is to be produced

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24
Q

Free market

A

market free from Gov. intervention

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25
Free Market (+)
-Firms objective is profit so leads to faster growth = more profits for workers -competition between firms ensure lower price -more choices for consumer
26
Free Market (-)
- Certain public goods not provided - creates unequal society, rich get richer at expense of poor (exploiting workers)
27
Functions of money
Medium of exchange store of value measure of value deferred payment
28
Utility
Measure of satisfaction we get from purchasing and consuming a good/service
29
Marginal utility
Change in total satisfaction from consuming an extra unit of a good/service
30
Composite demand
goods have more than one use - an increase in demand for one product leads to fall in supply of the other
31
Derived Demand
the demand for a good or service that arises from the demand for another related good or service
32
Supply
quantity of a good/service that a producer is willing/able to supply on the market at a given price in a given time period
33
Externalities
-Cost and benefits to 3rd parties that are not part of transaction -They are not take into account by the price mechanism so are a form of market failure
34
Private costs
Cost paid directly by producer and consumer in transaction
35
Social costs
-The sum of private costs and external costs - Social cost = private costs + external costs
36
why economists use models
to develop theories of behaviours model are based on assumptions to allows deductions to be made
37
scarcity
resources are finite but wants are infinite, creating scarcity where choices must be made
38
capital goods
those required to produce other goods
39
consumer goods
those that give satisfaction to consumers e.g. smartphones
40
potential growth economy
the rate of expansion an economy can sustain at full capacity and employment
41
actual growth
a percentage that shows the rate of change in a country's GDP, typically from one year to the next
42
consumers (rational beings)
seek to maximise satisfaction + utility (most affordable+highest satisfaction)
43
irrational behaviour
when people make choices and decisions that go against the assumption of rational utility-maximising behaviour.
44
why may agents behave irrationally
- influence of other peoples behaviour - importance of habitual behaviour - information overload
45
bounded rationality
humans cannot be fully rational because of limits - information failure - amount of time to make decision - limit of human brain to process every piece of info
46
shortage
- qd of g/s > qs
47
resolving shortages
- firms have an incentive to increase price to increase profits - as prices rise there is a contraction in demand - and there is an incentive for suppliers to increase supply
48
surplus
- qs > qd
49
resolving surplus
- producers may decrease the price of g/s - this will cause an extension in demand - and will mean suppliers have less incentive to supply
50
consumer surplus
- happens when the price that consumers pay for a g/s is less than the price theyre willing to pay
51
PED (formula)
% change in QD % change in Price
52
PED
How much QD will respond to change in price
53
PES (formula)
% change in QS % change in price
54
Factors influencing PED
-Necessity -Addiction & habit -Availability of substitutes -Brand Loyalty -Proportion of income -Time period
55
PED type
Elastic = > 1 Inelastic = < 1 Unitary = 1 Perfectly elastic = ∞ Perfectly inelastic = 0
56
Factors influencing PES
- Spare capacity - Availability of FOP - State of economy - Stockpiles and perishability - Time period
57
PES type
Elastic = > 1 Inelastic = < 1 Unitary = 1 Perfectly inelastic = 0 Perfectly elastic = ∞
58
YED formula
% change in QD % change in income
59
XED formula
% change in QD of good A % change in price of good B
60
YED types
Inferior goods = < 0 necessities = > 0 luxury = > 1
61
XED types
unrelated goods = 0 complementary = < 0 Substitutes = > 0

Economics (16 decks)

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