Topic 1 Flashcards
What is an incentive?
Something that encourages a choice or a consequence that discourages one.
What is economics?
‘An area which looks at the decisions made by individuals, businesses, governments and entire societies as they cope with scarcity and the incentives that influence these choices.’
What is the difference between Microeconomics and Macroeconomics?
Microeconomics = the decisions small companies and citizens make and how these are affected by governing bodies and other factors.
Macroeconomics = the study of ‘the national and global economy’.
What are goods and services?
Goods = physical items individuals want
Services = ‘tasks performed for people’ - phone service
What are the four factors of production?
Land, Labour, Capital & Entrepreneurship
What is land?
Land = earns rent
Classed as natural resources such as: land, oil, gas and water. Our land surface and water resources are renewable but the resources we use to create energy are non-renewable.
What is labour?
Labour = earns wages
The work time and work effort that people devote to producing goods and services. The quality depends on human capital (knowledge and skills people obtain from training) which expands over time.
What is capital?
Capital = earns interest
The equipment businesses use to produce products.
Financial Capital = used to enable companies to loan money they need to buy physical capital. It’s not a productive resource as it’s not used directly to produce goods/services.
What is entrepreneurship?
The human resource that organises labour, land and capital.
What is self-interest and social interest?
Self-Interest = a choice that is the best for you
Social Interest = a decision which leads to an outcome that is the best for society as a whole.
What is efficiency?
When available resources are used to produce goods and services at the lowest possible cost.
What is equity/fairness?
Being equal and fair to all individuals.
What are examples of social interest?
Globalisation - not in self-interest of low paid foreign workers
Information-Age Economy - is technology the best for our population?
Climate Change - affect the earth for future generations
Economic Instability - should banks allow people to loan money who won’t be able to repay it.
What are the six main principles of micro-economics?
1 = A choice is a trade-off 2 = People make rational decisions 3 = Benefit is what you gain from something 4 = Cost is what you must give up to get something 5 = Most choices are how-much choices made at the margin 6 = Consumers respond to incentives
Why are choices trade-offs?
You can’t do two activities at the same time, so you must do a trade-off and decide which one you give up to do the other.
What are rational choices?
One which compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.
What is the benefit?
The gain a product brings to the customer, which is affected by their personal preferences, and we measure it as the most that a person is willing to give up to get something.
What is opportunity cost?
The highest valued alternative that must be given up to get something.
What is a how-much choice?
Marginal Benefit = the benefit that arises from an increase in an activity.
Marginal Cost = the opportunity cost of an increase in an activity.
What is a positive statement?
It says about the opinions that are present about how the world works.
What is a normative statement?
Says about how the world should operate, it depends on values and can’t be tested.
What is an economic model?
A description of some aspect of the economic world that includes only those features that are needed for the purpose at hand.
Why are preferences transitive?
More is preferred to less.
What is efficiency in production and efficiency in consumption?
Efficiency In Production - Maximise profits, minimize costs.
Efficiency In Consumption - Maximise utility
