topic 1 Flashcards by Janithi Semage

Definition: Price

monetary indicator of relative value for both consumers and producers

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Definition: Economic Growth

refers to the increase in the output (GDP) of an economy over a period of time. it is a key economic indicator!
this is also shown by an outward shift of the PPF

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Real GDP Formula ($)

Nominal GDP
x
100/100+INFLATION

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Definition: technical efficiency

achieving the maximum improvement in output from resource inputs

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Definition: Human Capital

level of skills, education, training, experience, productivity and health of an individual in the workforce (low human capital = structurally unemployed)

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Definition: Complementary Wants vs Substitute Wants

two products that are generally consumed together vs products that are consumed as alternatives of each other

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3 contributors to the economy/marketplace

households
businesses
governments

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What are the key differences between a free and planned market economy?

government intervention
ownership of resources
inequality rates
standards of living

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Definition: Consumer Sovereignty

consumer spending and demand (and available resources) determines the pattern of business production

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Definition: Mixed Economy Market

an economic system that uses more than one aspect of both planned and market economies
- has a free market for consumers and firms
- government only steps in when necessary to protect consumer rights, etc.

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Definition: Individual Wants vs Collective

is specific to a person’s taste (provided by a private business) vs G&S that are wanted by a community of people (provided by government)

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Definition: allocative efficiency

allocating resources efficiently (how well you do something) to best satisfying the needs of society. this is achieved by minimising the Opportunity Cost.

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Definition: aggregate demand

the total demand for goods and services within the economy

C+I+G+(X-M)

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Definition: real GDP

monetary value of the G&S (output) produced in a country over a period of time after adjusting for inflation

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Definition: GDP / nominal GDP

monetary value of the G&S (output) produced in a country over a period of time

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What are the economic indicators?

employment (95%) (rest are structurally unemployed)
inflation (2-3%)
economic growth (3-4%)

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Definition: Marginal rate of Substitution

sacrifice of good A
/
to gain 1 unit of good B

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MPC/MPS formula

change in C or S
/
change in Y (income)
MPC + MPS = 1

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Definition: Basic Need vs Luxury Wants

a good or service needed for survival*, vs non-essential G&S

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Definition: Planned/Command Economy

economic system where the government (public sector) makes all the economic decisions about the big 4
- big 4 are controlled by specialised divisions within the government
- offers more security
- communistic (business cycle controlled bu government/public)
- reduces inequality
- lower standard of living (shortages, corruption, etc.)

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What are the 3 types of industry catergories?

primary industries (extraction of raw materials = 5%)
secondary industries (conversion of raw materials into goods, final or capital = 10%)
tertiary industries (provision of services = 85%)

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leakages > injections

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economy contracts

Definition: Economics

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Economics is about the study of human behaviour in the Distribution and Exchange and Production of goods & services in an economic system. (DEP)

What are the 4 types of income?

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wages (provided by labour = 56%)
rent, profits and interest/dividends (from providing FOP = 28%)
welfare payments ( =11%)
insurance claims/other ( = 5%)

Investing in Capital Goods (y axis on curved graph) ______

helps increase future GDP (CAPmax)

leakages < injections

economy expands

Definition: Marginal Propensity to Consume/Save

change in one unit of income that leads to a change in 'x' units of consumption/savings

Investing in Consumer goods (x axis on curved graph)

helps increase current GDP (CONmax)

2 sector, 3 sector, 4 sector and 5 sector model equilibrium's

2: Y=O=E 3: Y=O=E / leakages = injections (S=I) 4: Y=C+I+G / leakages = injections 5: S+T+M=I+G+X / leakages = injections

Definition: Nominal Interest

the rate you see when you apply for a credit card or loan. the lenders real profit desired + inflation

Definition: Market Economy

economic system where individual producers (private sector) own and determine the big 4 of G&S production - allocation = price mechanism - production = consumer sovereignty - economic decisions = free enterprise (market competition) - capitalistic (business cycle controlled by private) - government has no say - lots of inequality - insecure - higher standard of living

Factor Income for FOP

Capital = interest Enterprise = profit Land = rent Labour = wages/salaries

Definition: dynamic efficiency

the economies ability to adopt to changing needs and wants

Definition: Recurring Wants

wants that need to be repeatedly satisfied over a period of time

Definition: Opportunity Cost

the cost of the next best alternative forgone by present consumption expressed in money, items or time (graphically shown through the PPF)

Definition: Real interest rate

expresses the cost of borrowed funds after the expected erosion of the value of those funds due to the rise in the general price level Real Interest = Nominal Interest - Inflation

what are the key factors of the Business Cycle?

Expenditure Investment Employment Inflation (always a step behind) Output

Definition: Production Possibility Frontier

is a graph representing the maximum employment of resources (slope of PPF = opportunity cost) ASSUMPTIONS: - between 2 options (x and y axis) - in the short run - all resources are used efficiently

What is the Economic Problem?

the problem of trying to allocate scarce resources to satisfy societies unlimited needs and wants

Economic Growth Formula (%)

current real GDP - prior real GDP / prior real GDP

Definition: Productivity

output per unit of usually labour per unit of time

2 sector, 3 sector, 4 sector and 5 sector model sectors

2: households and firms 3: households, firms and financial (banks) 4: households, firms, financial and government 5: households, firms, financial, government and overseas

4 main questions: Whom to and how to distribute

decided using the price mechanisms and incomes

Definition: Disposable Income

= Gross Income - Taxation

Where does Economic Growth come from?

1. additional resources discovered 2. resources increase productivity 3. technology improves

Factors of Production

Capital (producer goods used to make more G&S) Enterprise (effort of managers to take risks while managing the FOP) Land (natural resources used in the production process) Labour (human put into the production

What causes an increase in GDP?

increase in: 1. population 2. participation 2. productivity (how much you produce of smth)

Definition: Business Cycle

a series of fluctuations termed as troughs and peaks of a countries real GDP over a period of time

4 main questions: what and how much to produce?

decide between consumer or capital goods consumer demand decides this factor of production as they have consumer sovereignty

Definition: Gross Income

total of household income from the factor incomes before deduction of taxation

Definition: specialisation

runs the economy because people rely on others who are more skilled in other goods and services opposite of self sufficiency

Total revenue formula

= price x quantity sold

What is the governments role?

to prevent dis-market failure by - allocating resources - stabilising the business cycle - redistributing income - market regulation

topic 1 Flashcards

(53 cards)