Economics Flashcards
What is economics?
It is the science of production, distribution and consumption of wealth
Study of how societies make choices when dealing with the problem of scarcity
What is scarcity?
It means that we have limited resources to produce all the goods and services we desire
What is the key economic issue?
It is how to allocate these limited resources to produce goods and services in the most efficient way.
What are resources or factors of production?
Land: all natural resources
Labor: work force of the economy
Capital: machineries, factories, tools
Enterprise; risk takers and organizers of production
What is the importance of economics for a business?
Economics defines how a business creates, distributes and consumes wealth.
It helps to decide best ways to allocate factors
It helps to forecast demand and decide how much to supply
It helps to decide costs and revenues of production
It helps in pricing decisions and ways to maximize profits
How do we deal with scarcity?
3 basic Trade-offs
1.What goods and services to produce?
2. How to produce them?
3. For whom to produce them?
How can we decide what, how and for whom to produce?
Measure the costs, benefits of producing a product
and choose products of which its benefits outweighs the cost of producing
What are incentives?
They are rewards and penalties affecting individuals which can be monetary or non monetary
What do we mean by rational?
It is using all available information to achieve goals.
Rational consumers and firms weigh the benefits and costs of each action and try to make the best decision possible
What is marginal analysis?
Comparing marginal costs to marginal benefits
What is comparative advantage?
A country is said to have comparative advantage if they have a low opportunity cost in the production of a good
What is absolute advantage?
A country is said to have absolute advantage if they are more efficient in the production compared to other countries
What is PPF?
Production Possibility Frontier
What does the Production Possibility Frontier show?
The different combinations of economic goods which an economy is able to produce if all resources are fully and efficiently utilized
Generally it shows production and trade offs between two goods
It does not show the consumption of goods
What are markets?
It is a place where buyers and sellers trade goods and services
