Economic Activity Flashcards
(26 cards)
What is a need and want?
Need: something you must have to survive, it is essential
Want: something you desire but it is not essential
What is the basic economic problem?
There are infinite wants and needs but finite resources
What are the four factors of production?
- Capital
- Enterprise
- Land
- Labour
What is the difference between a positive and normative statement?
A positive statement is based off of facts and is without any value judgement whereas a normative statement is based off of an opinion where the statement is subjective.
Define opportunity cost.
The value of the next best alternative foregone when a choice is made.
What does PPF stand for?
Production Possibility Frontier
What does a PPF show?
The maximum possible output combinations of two good and services can achieve when resources are fully and efficiently employed.
What is the law of diminishing returns?
The marginal output of consumers goods diminishes as more factor resources are allocated to it.
What causes an outward and inward shift in the PPF?
Outward: increase in quantity or quality of CELL/ advance in technology
Inward: decrease in quantity or quality of CELL
What is rational consumer behaviour?
The decision-making progress that is based on choices that maximise utility.
What is total and marginal utility?
Total - total satisfaction the consumer gets from purchasing units of a good.
Marginal - change in total utility from consuming an extra unit of a product.
Define information failure.
When people have inaccurate, incomplete or uncertain data to make a fully-informed decision.
State three policies to improve information.
- Compulsory labelling on products
- Campaign to raise awareness on drinking, drugs, smoking, vaping
- Improved nutritional information of food/ drinks
- Hard hitting anti-speeding campaign adverts
- Campaigns on dangers of gambling addicition
- Consumer protection laws
What is symmetric and asymmetric information?
Symmetric: for markets to work, buyers and sellers need to have the same perfect information
Asymmetric: buyers and sellers have different amounts of information
Allocative efficiency
When economic resources are utilised to produce ther combinatoin of goods and services that maximises economic welfare.
Allocative price function
Prices allocate resources away from markets with excess supply to markets with excess demand
Choice
Selecting one of multiple alternatives when deciding how to allocate scarce resources
Consumer good
Goods consumed by households and individuals, used to satisfy needs and wants
Economic welfare
The satisfaction/ wellbeing of individuals/ households/ groups in an economy
Imperfect information
When individuals lack the information to make the best decision
Incentive price function
Prices create incentives for people to adjust their economic transactions
Pareto efficiency
State of resource allocation, where in order to make an economic agent better off, another agent is worse off
Rationing price function
Prices rise to ration demand for goods
Scarcity
Resulting from the concept of infinite wants and needs, yet limited resources
