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economics > intro to economics > Flashcards

intro to economics Flashcards

1
Q

what is meant by economics?

A

study of how to allocate scarce resources in the most efficient way

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2
Q

what is the difference between micro and macroeconomics?

A

microeconomics - examines behaviour of individual decision making units such as households or firms
macroeconomics - examines the economy as a whole to obtain an overall picture of the economy, with aggregate groups of decision makers

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3
Q

what are economic agents?

A

individuals, groups, or entities that participate in economic activities

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4
Q

what is “ceteris paribus”?

A

all other things kept constant

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5
Q

what is the difference between stock and income?

A

stock - wealth
income - flow of money

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6
Q

what are the social sciences?

A

study of human society and social relationships

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7
Q

what is scarcity?

A

idea that there are insufficient resources to meet the unlimited human wants and needs

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8
Q

what is choice?

A

decisions on what will be produced and foregone to meet human needs and wants since resources are scarce

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9
Q

what is change?

A

when an external factor alters, economic agents have to react to this, initiating consequences that cause new outcomes for other economic agents

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10
Q

what is efficiency?

A

making the best use of scarce resources to avoid waste; higher efficiency means more output per unit

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11
Q

what is equity?

A

being fair and just

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12
Q

what is economic well-being?

A

prosperity, economic satisfaction and standards of living amongst members of a society to ensure human wants and needs are met

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13
Q

what is interdependence?

A

economic decision makers interact with and depend on each other; no-one is self sufficient and we are rely on each other

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14
Q

what is sustainability?

A

being able to meet the human needs and wants of the present without limiting future generation’s ability to use resources

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15
Q

what is intervention?

A

when the government steps in and is included in the decision making of firms to correct deficiencies and usually make changes

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16
Q

what are the factors of production?

A
  • land
  • labour
  • capitol
  • entrepreneurship
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17
Q

what are the types of capital?

A

physical capitol - man-made inputs that make more goods and services (machines)
human capitol - skills, knowledge and abilities acquired by people
natural capitol - land and natural resources

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18
Q

what is the difference between a free and economic good?

A

free good - a good that is not scarce and has no opportunity cost (air)
economic good - goods that are scarce and have an opportunity costs (oil)

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19
Q

what is an opportunity cost?

A

value of the next best alternative that must be sacrificed to obtain something else

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20
Q

what is a free market economy?

A
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21
Q

what is resource allocation?

A

assigning available resources or FoP’s to specific uses chosen against possible alternatives

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22
Q

what is redistribution of income?

A

when distribution of outcome changes so that social groups receive more or less income than they previously did

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23
Q

what are the 3 basic economic questions?

A
  • what/how much to produce?
  • how to produce?
  • for whom to produce?
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24
Q

what does government allocation do?

A

changes allocation of resources from what markets would have achieved when working on their own

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25
Q

what is the difference between market and government intervention?

A

in market intervention, usually consumers or firms make own private decisions within a specific market, however in government intervention, the government makes decisions in all markets in the economy

26
Q

what is a free market economy?

A

when prices are determined by supply and demand and the government doesn’t intervene with the decisions of firms and instead uses price rationing

27
Q

what is a planned economy?

A

interventionist approach where decisions are made by the government as a central authority - distribution of resources and decision making is made publicly and uses non-price rationing

28
Q

what is a mixed economy?

A

a mix between both free market and planned economy - most prevalent form of economy in today’s world - resource ownership and decision making can be made both publicly and privately and uses both price and non-price rationing

29
Q

what is rationing?

A

controlled distribution of scarce resources or goods among consumers when demand exceeds supply

30
Q

what is the difference between price and non-price rationing?

A

price rationing - prices can adjust to allocate goods
non-price rationing - other methods than price allocate goods such as first come first serve

31
Q

what is the production possibilities curve model and what does it tell us?

A

represents all combinations of two goods or services that can be produced in an economy, given that resources and technology and all factors of production are being used efficiently

32
Q

what is IP?

A

intellectual property; protection rights convert some free goods to scarce or economic goods

33
Q

what is factor endowment?

A

collection of resources of the factors of production (stock)

34
Q

what is a model?

A

simplified representation of something in the real world used to aid understanding of real world situations

35
Q

what is the difference between scarcity and shortage?

A

scarcity - long term absence
shortage - temporarily unavailable

36
Q

what conditions must be met to produce the greatest output?

A
  1. all resources must be fully employed - using all resources with no waste and no unemployment
  2. all resources must be used efficiently - minimizing waste and producing at the lowest possible cost
    - however, all economies have a real PPC inside of the graph as an economy is never fully efficient
37
Q

how does the model illustrate scarcity?

A

due to scarcity of resources, an economy cannot produce outside of it’s PPC as there are not enough resources

38
Q

what are strengths and weaknesses of the PPC model?

A

pros - illustrates the idea of scarcity very well and shows all possible combinations

cons - doesn’t include transportation costs, is a static model and an oversimplification as it only contains 2 factors

39
Q

how does the model illustrate choice?

A

the economy must make a choice on which combinations of goods will be produced

40
Q

how does the model illustrate opportunity cost?

A

due to scarcity, choices involve opportunity costs as to produce one good, you may need to sacrifice the resources needed to make another good

41
Q

what does the shape of the PPC mean?

A

curved line - increasing/decreasing opportunity cost
straight line - constant opportunity cost

42
Q

what is economic growth?

A

increase in the quantity of output produced or real GDP in an economy over a given period of time

43
Q

what factors lead to outwards shifts of the PPC?

A
  • increase in quantity of resources
  • improvements in the quality of resources
  • technological improvements
44
Q

what do points on the PPC show?

A

all production possibilities

45
Q

what is the difference between actual growth and growth in production?

A

actual growth - reduction in unemployment and increase in efficiency in production

growth in production possibilities - increase in quality, quantity of resources and technological advancements

46
Q

what is specialization?

A

situation in which individuals, firms or whole economies focus production on goods or services in which they have an advantage - lower opportunity cost shown by less steep gradient on graph

47
Q

what is meant by pareto optimum?

A

when no further improvements can be made to societies well-being through a reallocation of resources that make one person better off than another person

48
Q

what are the advantages and disadvantages of specialization?

A

pros - workers gain skill in a narrow range of tasks, skills become highly sophisticated, saves time when switching tasks

cons - monotonous work makes workers bored, demotivated due to no progress and limits creativity and innovation

49
Q

how does specialization encourage trade?

A

if one country is more productive in one good than another (lower opportunity cost and cost per unit), it will specialize in the production of that product and open up for trade, resulting in:

  • higher output - increase amounts of goods and services with higher quality
  • variety for customers
  • bigger market - offers economies of scale
  • competition and lower prices - maintains low inflation as competition acts as an incentive to lower prices
50
Q

what is the circular flow of income model?

A

a model that illustrates economic concepts and relationships that help us to understand the overall economy by showing us a closed economy that is closed to international trade with no government, banks or financial markets; it is just between firms ( businesses) and households (consumers)

  • households are the owners of the factors of production - give the firms profit, wage, interest and rent
  • firms buy the factors of production to make goods and services which are sold to the households - give households land, labour, capitol and entrepreneurship
51
Q

what are leakages and injections?

A

leaks and injections are paired together so that what leaks out of the flow can come back in an injection - leakage is money that isn’t spent on goods and services and injections are investments

52
Q

how does the model link to: saving and investments, taxes, imports and exports?

A

saving and investment - saving represents a leakage as it is money that is not spent to buy goods and services and they place this money in financial markets which are used by firms, so funds flow back into the expenditure as injections of investments

taxes and government spending - households pay tax to the government (leakage) which is used to fund public services (injections)

imports and exports - imports are leakage as they are leaking payments to other countries and exports are injections as they bring back money to domestic firms

53
Q

how does the size of flow relate to size of leakage and injections?

A

leakages and injections aren’t equal in a real world economy;

  • leakage > injections - smaller size of circular flow - part of savings doesn’t flow back into the government, meaning fewer goods and services are purchased, so firms decrease output, unemployment increases and smaller house income.
  • leakage < injection - larger size of circular flow - expenditure flow into government increases, demand increases so more resources are purchased, unemployment falls and household income increases.
54
Q

what is positive economics?

A

based on positive statements which are based on facts or hypotheses that are proven using statistics - thinking about the economic world in order to try to describe economic events

55
Q

what is normative economics?

A

based on normative statements which are based on people’s opinions and judgements (cannot be shown to be false)

56
Q

what are the roles of positive economics?

A
  • use of logic - means using reason and involves making a series of statements of which is true of the previous statements are true
  • use of hypotheses - educated guess indicating cause and effect relationship about an event
  • ceteris paribus assumption - an assumption is a statement that is supposed to be true for the purposed of building a hypothesis - by placing ceteris paribus, we can investigate the impact of one variable without other variables affecting it
  • empirical evidence - real world information, observations and data that we get from our sense and experience
  • theory - general explanation of events based on several hypotheses that have been successful in order to organize complex events and present them in a coherent and systematic way to explain why they happen and make guesses
  • use of laws - statement that describes an event in a concise way and are based on theories as well as being valid
  • use of models - built on well established theories or laws to illustrate the important features
  • use of refutation - to contradict or show that something is false; like a theory of law
57
Q

what are the roles of normative economics?

A
  • value judgements in policy making - identify important economic problems that should be addressed and recommend policies to solve them - government actions e.g) lowering unemployment based on the opinion that high unemployment is a bad thing
  • equity and equality - equity in income distribution may lead to inequality as people aren’t given the same amount
  • equity - being fair
  • equality - being the same
58
Q

what is the circular supply model?

A

replace scarce resources with renewable and bio-degradable resources or raw materials

59
Q

what is the resource recovery model?

A

to recover resource output and reprocess waste into new resources

  • Walt Disney resort used food waste to turn into bio gas which is a source of renewable energy
60
Q

what is the product life extension model?

A

extend the life cycle of a product to reduce the need of producing more products

  • google is working on modular phones so less phones are thrown away and re-used for a longer period of time instead
61
Q

what are the sharing models?

A

businesses encourage consumers to share instead of buying for single customer use - airbnb and city bikes

economics (14 decks)

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