Introduction to economics Flashcards
(36 cards)
Scarcity
The basic economic problem – unlimited wants in face of limited resources
Economic goods
Goods that are scarce
Free goods
Goods that are not scarce e.g. the atmosphere
poverty
A situation in which people lack the basic necessities of life
rationality
Economic agents acting in their own best intrests
Factors of production
Resources used in the production process – Land, Labour, Capital and Enterprise
Oppertunity cost
The value of the next-best alternative
PPC
Production possibility curve - Used to show the maximum combinations of goods or services that can be produced in a set time
Capital goods
Goods used as part of the production process
Consumer goods
Goods produced for consumption
Resource allocation
The way in which a societies productive assets are deployed
Market economy
Where market forces are responsible for resource allocation
Centrally planned economy
Where the government is responsible for resource allocation
Mixed economy
A combination of market forces and government intervention are used to allocate resources
Capitalism
A system of production in which productive resources are privately owned
Invisible hand
A term used to describe market forces within an economy
GDP
The value of all goods and services produced in an economy in a year
What is the role of prices in a market economy
They act as incentives for economic agents
How do consumers express their preference in a market economy
By either buying or not buying
Advantages of a market economy
Households and firms can use all of their income to achieve their objectives
Invisible hand guides decision-making therefore there is efficient allocation of resources
Advantages of a centrally planned economy
The government can ensure that important areas get the resources that they need
Advantages of a mixed economy
Has the advantages of both centrally planned and market economies
Limited the issues that are caused by market economies over providing demerit goods
Disadvantages of a market economy
Overprovides demerit goods and underprovides merit goods
Disadvantages of a centrally planned economy
Due to the complexity of modern economies means that it is not logistically possible to have the government be responsible for resource allocation
