Flashcards in Macroeconomics Deck (94):
What is economics?
Economics is the study of how individuals, businesses , government and other organisations choose to use scare resources to satisfy their numerous needs and wants in a manner that is efficient and equitable
Why are we forced to make choices all the time?
Resources are scarce but our needs and wants are unlimited
What is equity described as?
A human rights issue that implies that choices we make should not be to the detriment of others, and vice versa
What is land?
Land includes all free gifts of nature, such as soil, water, plants, fish, game, minerals, weather and atmosphere
What are the characteristics of land?
Supply is fixed
-if we use all our resources completely, we cannot restore them
-it is possible to use technology to improve productivity of some resources, though it is expensive
They are gifts of nature
-they are provided free by nature and have to be extracted
They have to be transformed
-cannot satisfy wants on their own
-producers have to transform them into goods
They are exhaustible and destructible
-non-renewable resources are exhausted and renewable resources are destroyed
What is the importance of land?
Natural resources sustain economic activity
Natural resources enrich our lives
How do natural resources sustain economic activity?
-the soil and water provide raw materials for the production of economic goods
-the land and skies provide minerals and room for buildings and plants
-atmosphere provides a highway for air transport and communications
-all human activity involves some element of natural resources
What are intermediate goods?
The portion of the output of primary industries that is not consumed and is used as raw materials by secondary industries
How do natural resources enrich our lives?
-land gives us minerals and food, provides space for walking and enjoyment
-water is a source of recreation and relaxation
-when we exploit natural resources for economic reasons, we destroy things that enrich our lives
-But if we don't we find it impossible to survive and improve our standard of living, a balance is needed
What is rent?
Monthly, yearly or regular payment that is made for the use of an asset
What is commercial rent?
rent payed for land, buildings, houses and flats, and for durable consumer goods
What is economic rent?
the remuneration or payment made for the use of a factor of production which is limited or fixed in supply
What is a supply price?
when a minimum price must be payed so that natural resources can be used as input in the production processes
What happens if a resource receives more than the supply price?
It is considered economic rent
What is the level of rent influenced by?
The demand and supply for a variety of purposes and changes in productivity
What is labour?
Mental and physical effort undertaken for a reward, compensation or remuneration
What are wages and salaries considered as?
What are the characteristics of labour?
Labour cannot be separated from the worker
Labour cannot be stored or hoarded
Labour varies in quantities
Why can't labour be separated from the worker?
-labour is provided by people and cannot be separated from their humanity
-the quality of work is affected by people's feelings
Why can't labour be stored or hoarded?
-labour ability disappears with time
-labour lost cannot be regained
Why does labour vary in quantity?
-the quality of work done by identically trained/ the same people may differ
-the more comprehensive and complicated a task, the greater the difference in quality will be, and the simpler and shorter the task the less different it will be
-labour specialization is necessary
Why is labour the most important factor of production?
workers receive most of the total income earned in south africa
How is labour measured?
In workforce numbers
What is human capital formation?
The investment in people, such as through education and training
What is the economically active population (EAP)?
The workforce, includes people between the ages of 15 and 64 who can work, who want to work and who are actively looking for work.
What is growth of the workforce dependent on?
the population growth rate and the labour force participation rate
How is labour complementary to other factors of production?
The quantity of labour employed depends on the the quantities of other factors of production
What is the main reason for south africa's high unemployment levels?
Lack of capital
How are unemployment levels calculated?
through the quarterly labour force surveys (QLFS)
Who are the unemployed?
Those within the economically active population who did not work during the 7 days prior to interview, wanted to work and were available to start work within a week of the interview, and had taken active steps to look for work or to start some form of self employment in the 4 weeks prior to interview
What does the quality of the workforce depend on?
Why does the quality of workforce depend on school education?
-the first step to becoming employable is to become literate
-globalization requires a highly skilled workforce
Why does the quality of workforce depend on work-related training?
-training means to be taught a particular job or skill and is usually a post school experience
-the skills development act of 1998 aims to improve the quality of the working life of workers and to encourage employers to make their workplace active learning environments
Why does the quality of workforce depend on health?
-quality of labour is impaired by poor health
-occupational health and safety act requires that healthy working conditions prevail to prevent damages to health of workers
What is the greatest threat to workers' health in South Africa?
What is the remuneration earned by labour?
What are wages?
the reward that workers receive as payment for their labour services and include all incomes from employment, self employment, consultations, commissions and fees
What are wages in kind?
food, accommodation, firewood, uniforms, transport etc. that form part of wages
What are responsible for wage drifts?
significant additional income such as overtime, bonuses and incentive payments
What is capital?
a people-made resource, it includes all the goods needed to satisfy future wants
What are the characteristics of capital?
Capital is possessed
Capital is consumed
Capital formation requires a sacrifice
Capital increases production efficiency
How is capital possessed?
It belongs to someone such as enterprises, consumers, producers or the state
How is capital consumed?
It happens in the production process where some capital such as intermediary goods are consumed in one process
Others are consumed over many years
Why does capital formation require a sacrifice?
finances for producing or buying capital goods are obtained from saving
savings are current incomes that require sacrifice
How does capital increase productive efficiency?
Capital goods make specialization possible
Modern production processes consisting of elements of human labour and machine labour are more efficient than labour of humans alone
What is efficiency?
The condition of production taking place with the least cost, and with wastage at a minimum
What is the importance of capital?
What is Capital widening?
The existing labour-capital ratio must be maintained as the number of workers increase
What is Capital deepening?
Occurs when the labour-capital ratio increases
What is labour-capital ratio?
the amount of capital per worker
What is interest?
Income earned when money is lent
Why is money borrowed sometimes called money capital?
Most of borrowings are used to finance capital goods acquisitions
How do banks obtain funds to lend?
savings from households and enterprises
What is an entrepreneur?
A person who takes the initiative to start a business enterprise, to organise its production and to carry the risk
What are entrapreneurs?
Paid managers who take the initiative to start a business enterprise and to organise production, but the risk is carried by the shareholders
What are the characteristics of an entrepreneur?
they are gifted, though it is possible to train some entrepreneurs
they take the initiative
they organise production
they carry risks
How do entrepreneurs organise production?
they bring together resources such as capital, labour and land for production to take place
How do entrepreneurs carry risk?
They buy resources to produce goods that will only be sold in the future to unknown consumers
What us the importance of entrepreneurship?
Creating new wealth
How do entrepreneurs create competition?
they challenge those that are running profitable businesses
the supply of entrepreneurs is therefore also dependent on levels of profitability
How do entrepreneurs create employment?
small businesses employ less than 50 workers each, generating 68% of the country's jobs
How do entrepreneurs improve efficiency?
if new entrepreneurs with new ideas that control costs by using resources prudently and who have a desire to succeed and be profitable are allowed to enter the market, the general efficiency of the market and overall efficiency of the economy improves
How do entrepreneurs create wealth?
entrepreneurs entering a market for the first time do so with their and their families' meagre savings and the money that they borrowed
they create new wealth
What does profit serve as to entrepreneurs?
A reward for risk bearing
What are profits influenced by?
Nature of the business
Skillfulness of the entrepreneur
How does nature of the business influence profits?
if the enterprise produces essential goods, demand is not likely to be affected by changes in the economy
if the enterprise sells luxury goods they will be affected
if consumers in general have less money to spend, the demand for luxury goods decreases first
How does skillfulness of the entrepreneur influence profits?
entrepreneurs who can control costs, produce efficiently and estimate their prices and sales correctly are likely to have higher profit than those who lack similar skills, they are competent
How does competition influence profits?
profits normally attract competition
when one business decreases its prices, other business enterprises have to do the same to keep their customers
when prices decrease so do profits
What are national accounts?
Record of goods and services and their aggregate values
What is final consumption expenditure?
The total spending of households and private non-profit institutions on new final goods and services
In which way do consumers spend their income in the national economy?
What are durable goods?
Goods that have an expected lifespan of more than one year
What are semi-durable goods?
Goods that last approximately one year
What are non-durable goods?
goods that are consumed or destroyed in the process of being used
What are services?
Last only for the time enjoyed
Why is classification of consumption goods useful?
-To assess household's stock of durable goods
-To predict cyclical movements in the economy
Why is classification of consumption according to purpose useful?
-It shows the relative importance of of subgroups of consumption expenditure
What is consumption expenditure?
It consists of wages and salaries of employees, purchases of non capital goods and services and the imputed value of capital consumption minus net reciepts from sales
What does expenditure on consumption consist of?
the purchases of goods and non-labour services
Why are values measured at cost?
The goods and services that government provides to consumers do not have market values.
What is compensation of government employees?
The remuneration paid to government employees, consists of salaries and wages
What is consumption of fixed capital?
Depreciation which is estimated on replacement cost
What are sales of government services?
Those transactions in goods and services, as provided by general government bodies, where there is a clear link between payment for and acquisition of the goods or services concerned
How is consumption expenditure classified?
- According to purpose
- According to individual consumption
- According to collective consumption
What are the characteristics of individual consumption?
-It must be possible to observe the acquisition of the good or service by an individual household
-The household must have agreed with the government to the provision of the good or service
-Acquisition of a good or service by one person prevents use by others
What are the characteristics of collective consumption?
-Services can be delivered simultaneously to every member of the community
-The use of such services usually doesn't require explicit agreement
-The provision of the service to one person or household does not reduce amount available to others in the same community
What is the importance of consumption expenditure?
It accounts for 27% of total consumption expenditure of the country
What is gross fixed capital formation?
The expenditure on tangible or intangible assets which have been produced and are themselves used repeatedly or continuously in process of production for more than one year
How is gross fixed capital formation important?
-Economic growth depends on the rate at which capital formation takes place
-The higher the rate of capital formation the higher the economic rate will be
Why is the classification of goods and services as intermediate and final goods and services important?
To avoid double counting errors in compiling GDP
Why is it important to classify goods and services into imports and exports?
Goods and services represent the value of transactions between residents of SA and non-residents
What is GDP?
The total value of all final goods and services produced within the borders of a country in a particular period, usually one year
What is the importance of GDP?
It measures the performance, such as growth or contraction of economies