LECTURE 1 - Introduction to Economics and the PPF Flashcards
(21 cards)
Define economics
The study of how society manages its scarce resources
To get something we like we usually have to give up something that we also like
Define scarcity
The limited nature of society’s resources
due to this society therefore cannot produce all the goods and services people wish to have
give an example of a trade-off
- effceincy and equality
- policies aimed at equalising the distribution of econmic well-being aim to help those in need
- however usually means reducing the reward for those who work harder
- due to the reduced reward, people decide to work less and produce fewer goods and services
define opportunity cost
whatever must be given up in order to obtain an item
when making any decision, decision makers should be aware of the opportunity costs that accompany each possible action
what is the production possiblity frontier
a graph that shows the combination of output that the economy can possibly produce given the available factors of production and the available production techonolgy
what does the PPF usually look like
[insert grpah]
RE: quantity of computers produced and quantity of cars produced
what does point c on the graph below indicate
[insert graph]
outcome is not concievable
the tech available, and other factors of production deem it not possible
point a,b,e,f are said to be what, and why?
[insert graph]
these outcomes are said to be efficient as the econmy is getting all it can from the scarce resources available.
these are usually points on the PPF line (dark blue line)
what does point a indicate
[insert graph]
the economy is producing at such a point that there is no way to produce more of one good without producing less of another
what does point d refer to
[insert graph]
represents an inefficient outcome
reason could be due to widespread unemployment etc.
if the source of effciency is elimanted point d can move to point a
what does point f indicate
[insert graph]
many computers are being produced with very few cars being produced
what does point E indicate
[insert graph]
many cars are being produced while few computers are being produced
what is microeconomics
the study of how households and firms make decisions and how they interact in markets.
a microeconomist might study the effects of rent control on housing in a specific area
what is macroeconomics
the study of economy-wide phenomena, including inflation, unemployment etc.
a macroeconomist might study the effects of borrowing by the governemnt, changes over time in the economy’s rate of unemployemnt etc.
what are the different types of economic systems
- planned
- free market
- mixed
what does a free market economy mean
resources are allocated through supply and demand. Individuals own, control and distribute all economic resources
represents capitalism
what is a planned economy
government owns and distributes resources. profits and entreprenuership are non-existent.
at its purest form represents communism
what is a mixed economic system
combines both planned and free market economy. combines elements of socialism and capitalism.
main attribute is an otherwise free market but to which the government intervenes depending on the situation
what is positive economics
this involves the presentation and analysis on facts in order to predict the future outcomes.
it tells us what happened and what is likely to happen
what is normative economics
gives an opinion on what should happen.
based on ideological judgement and cannot be verified or tested
