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Flashcards in economics Deck (54):
1

economics

the study of how we make the best of life. there is a limited amount of everything worth having

2

opportunity cost

the real cost of the next best alternative foregone

3

scarcity

the result of unlimited wants but limited resources

4

money or time

- 4000 surveyed 64% preferred money, those who. layer time were happier
- old,married, parents valued time
- scarce time is spoken about like a bad thing, scarcity is what makes us treat things as precious

5

PPF (production possibility frontier)

illustrates economic problem and opportunity cost (goods and services )
- two goods not a price and a good

6

cars vs iron

for every 5 cars produced they must sacrifice 20 iron ore

7

incentives

something that motivates an individual
- if you pay a child to read a book

8

perverse incentives

- incentives that backfire
- the government said that only cars with certain number plates can drive on the roads each day, but families went out to by more cars so they could drive everyday

9

capitalism

- the government doesn’t exist
- decisions are made by individuals (do whatever you want)
- survival of the fittest, large amount of competition

10

communism

- the government makes decisions (set prices, rules)
- consumers have litter power or influence
- overall goal - completely equal society

11

positives and negatives of capitalism

positives: competition = lower prices and more choice
- improve quality of goods over time
- improved living standards (reduction in poverty)
negatives : increased inequality
- environmental issues (extingsion)
- exploitation of workers

12

demand

the amount a consumer is willing and able to pay at a particular price and time

13

non-price factors effecting demand

- the price of a substitute good
- the price of a complementary good
- advertising and media

14

economic problem

- not enough resources to satisfy our wants
- leads to decision making
- every choice involves sacrifice (opportunity cost)

15

australia - a mixed market economy

- government interference is limited
- resources can be privately owned
- competition ensures that resources are used efficiently not wasted

16

supply

the amount a producer is willing and able to supply at a particular time and price

17

non-price factors effecting supply

- seasonal
- prices of resources
- technology ( new production method)

18

quantity demanded changes

- expand or contracts
- change in price
- line doesn’t change

19

demand changes

- line moves
- increases or decreases

20

price changes

expand or contract

21

demand changes - supply

- non-price factor
- increase or decrease

22

demand line

top left to bottom right

23

supply line

bottom left to top right

24

four economic questions

- what to produce
- how to produce
- how much to produce
- for whom to produce

25

law of demand

inverse relationship between price and quantity
buyers are willing and able to buy more goods at a lower price

26

law of supply

higher price to maximise their profit.
As price rises supply expands
price falls supply contracts.
positive relationship between price and quantity

27

equilibrium

refers to a state of balance in the economy where there is no tendency to change. supply = demand
- both buyers and sellers are happy to exchange goods
- when a surplus occurs price falls
- when shortage occurs prices rises

28

surplus

supply is greater then demand

29

shortage

demand is greater then supply

30

surplus

top of diagram

31

shortage

bottom of diagram

32

what is economic growth

- the measure of a countries success
- the increasing ability to satisfy the wants of its people
- indicates the level of production and spending
-

33

sustainable economic development

- economy grows at a pace which enables people to satisfy wants
- increase their non-material well being
- while not compromising the living standards of the future generations

34

how to calculate nominal gdp

price x quantity

35

how to calculate gdp growth rate

gdp y2 - gdp y1 divided by gdp y1 x 100

36

how to calculate gdp per capita

nominal gdp divided by population

37

how to calculate economic growth

gross domestic product

38

if we grew but 2.1% does that mean we will be 2.1 % better off as a result.

no, nominal gdp doesn’t take into account inflation
- to discover if we are better off we need to know how much prices have risen by (inflation) which is real gdp
- we should also take into account gdp per capita

39

year 1 - 2%
year 2 - 4%
why would the people in the economy be better off in year 2

- more goods produced
- more wants satisfied
- more jobs created

40

in year 3 the economy is 6% how might this threaten people’s non-material well being and negatively impact on the living standards of future generations

- creating a lot of resources = depletion fo natural resources
- more cars on the road = pollution
- more cars on the road = greater congestion on the road, takes longer to get to work, less leisure time
- more people eating chocolate = increased obesity, more preventable illnesses, more money spent on health care

41

what is real gdp

macroeconomic measure of the value of economic output adjusted for price changes
(inflation and deflation)

42

how does the rate of economic growth affect the government

- highly influence the decisions made by business, customers and the government
- aims to achieve between 3-4%

43

why is less then 3% bad

- not high enough to generate jobs
- unemployment will rise due to the lack of overall demand

44

why is over 4% bad

- results in inflationary pressure
- high demand for goods and services
- workers will put pressure on prices
- causes environmental problems such as depletion and pollution

45

why will low economic growth causes higher unemployment

- people aren’t spending as much
- companies aren’t making much
- have to cut down on employees

46

what is inflation

the rate of which the price of goods and services increase

47

why do you think prices will rise when the economy is growing strongly

people are willing and able to spend more

48

why will high economic growth contribute to environmental problems

- demand is high
- companies want to satisfy these wants by making more goods
- results in pollution and depletion

49

effective measure

- increase the value of things being produced
- more people being employed
- workers receive a higher income
- consume more goods
- as people satisfy more wants they can attain a higher standard of living

50

benefits of economic progress

- economy is able to to increase its gdp
- time spent working will fall
- more time to do things that increase our wellbeing
- in 1890 a pair of stockings cost 25c took 1 hour 40 min of work to afford them
- these days just 7 minutes to afford them
- wages have risen by a lot more then the price of goods
- takes into account well being of the community

51

benefits of economic growth

- growing richer makes us better because we can do and have more of what we enjoy
- the higher a nations real gdp per capita the easier it is to provide better quality education and health services

52

limitations of gdp - smoking rates increase and production of cigarettes rise. are we better off? does gdp go up or down

- both benefitted and hindered
- benefit as it causes an increase in economic growth
- a cost to our wellbeing
- gdp goes up as people are spending more on cigarettes and the extra costs of hospital and doctor visits trying to keep healthy

53

what does gdp not take into account

- economic activity that is not paid for eg work done at home
- damage to the environment eg clearing forests for paper
- leisure time
- value judgements eg building prisons, cleaning up after natural disasters
- how income is distributed eg rich become richer, poor become poorer

54

america should limit gun sales

costs
- gdp with decrease
- lower economic growth
- unemployment
- impacts on small business
benefits
- less deaths
- safer society
- higher happiness levels
- more money for education