What is scarcity?
Condition whereby human wants exceed the productive capacity of existing limited resources; HUMAN WANTS
What are commodities?
Goods and services
Definition and Classification of Human Wants:
Commodities that we wish to consume and that have value in exchange.
List the 5 Factors of production:
1- Natural resources 2- Labour 3- Human Capital 4- Physical Capital 5- Entrepreneurship
Which Factor of production is the nonhuman gift of nature, which are the available amounts of actual land or soil; natural forests on the land; water; and mineral resources beneath the land; etc.
Natural resources
Given to us by nature such as land plus everything on the land
Which Factor of production refers to the productive contributions made by workers?
Labour
work given by workers
Which Factor of production refers to the education and training of workers, which can increase their productivity?
Human Capital
refers to education/training of workers
Which Factor of production refers to the available stocks of factories, equipment, machinery, and infrastructure used in production?
Physical capital
Things necessary for production that isn’t human or natural resources
What is defined as the financial assets that measure ones ownership and access to goods, services, and physical capital, such as money, bonds, and stocks?
Financial capital
Money, bonds, stocks
Is financial capital a part of the factors of production?
No
Which factor of production refers to the human resources that perform the functions of risk-taking and organizing and management of the other factors of production?
Entrepeneurship
Productivity
What is the study of the behaviour of the economy as a whole (it deals with a nationwide economic phenomena and as a result, it focusses on aggregate economic variables such as inflation, national income, output measured by the GDP or GNP, unemployment, etc.)?
Macroeconomics
What is the study of how specific industries or markets function within the economy, and how individual economic units (firms and households) make production and consumption choices and determine market outcomes (individual markets, prices and wages in specific markets, outputs in specific markets, consumers and firms decisions in specific markets)?
Microeconomics
What is the definition of opportunity cost?
Opportunity cost of a choice is the value of the best alternative that must be given up because the choice was made.
How is opportunity cost (OC) measured?
OC = Explicit cost + Implicit cost - Sunk cost
Which is the cost that requires a direct outlay or spending of money on a choice or an activity? Provide an example
Explicit Cost (ex: tuition fees)
Which is the cost that does not require the direct outlay or spending of money, but nevertheless represents a value given up in the pursuit of the decision? Provide an example
Implicit cost (ex: lost salary while doing something else)
What is an irreversible cost in cured prior and irrelevant to a decision, over which one has no control (cost that is paid irrespective of whether or not the decision is taken)? Provide example
Sunk Cost (ex: gas money)
Give a brief definition of normative economics:
“what the world should be”
Give a brief definition of what positive economics is
“what the world is”
What does PPC & PPF stand for?
PPC: production possibilities curve
PPF: Production possibilities frontier
What is the purpose of a PPC or PPF?
It is a graph that shows that all resources are fully and efficiently employed in producing goods and services (no resources are left unemployed; maximized total output of goods and services)
Step one of drawing the PPC
Draw both axes (quantities of one good on the vertical axis and quantities of the other good on the horizontal axis)
Step two of drawing the PPC
Label each axis with the name of the good including the units of measurement
Step three of drawing the PPC
Plot the combination points from the PPC schedule and draw the curve by connecting points
What is the formula for calculating the opportunity cost from the PPC?
OC = -(what we give up) / (what we get in return)
Example: -(difference between cars from C to D) / (difference between books from C to D)
2 types of shifts in PPC:
1- Growth (balanced/neutral)
2- Contraction (unbalanced/non-neutral)
What is a meeting place or set of rules that connect to groups of economic agents (buyers and sellers) in the exchange of goods and services?
Market
What refers to the quantities of a specific good or service that consumers in a particular market are willing to purchase at various possible prices?
Demand
Describe law of demand
When prices increase, the quantity demanded decreases
Describe the law of supply
As prices increase, quantity supplied increases (vice versa)
What is a market demand schedule?
A tabular representation of demand
What is a market demand curve?
A graphical representation of demand
What is a market demand equation?
The functional representation of demand
Which form of market demand is the least used?
Market demand equation
Describe what market equilibrium is
Quantity demanded is equal to quantity supplied
What are the five determinants of demand?
1- Income 2- Tastes and preferences 3- The price of related goods 4- Expectations 5- Population or number of buyers
What are the five determinants of supply?
1- Cost of inputs 2- Technology and productivity 3- Taxes and subsidies 4- Price expectations 5- Numbers of firms in the industry
What is the price of which quantity demanded equals the quantity supplied?
The equilibrium price (P^x)
What is the quantity traded at the equilibrium price?
Equilibrium quantity (Q^x)
What are the two types of market disequilibrium?
Surplus and shortage
Describe what a surplus is
When quantity supplied exceeds quantity demanded (excess supplies)
Calculation: Qs-Qd = + (x)
Describe what a shortage is
When quantity demanded exceeds quantity supplied (excess demand)
Calculation: Qs-Qd= – (x)
