Topic 1: Enterprise and the Economy Flashcards
Exam revison (20 cards)
What is Economics?
Economics is the study of the decisions, outcomes and activities that occur as a result of a scarcity of resources. It is study of how society uses its limited resources to satisfy unlimited needs and wants.
Goods
Goods refer to tangible items (physical items) that can be stored, taken home, shared and touched. E.g. computers, phones, pens ect as it is a tangible.
Services
Services are intangible properties where the service receiver does not receive anything tangible. E.g. a hair cut, consultation, a plumber fixing your shower or someone to set up a tv.
The Economic Problem (Scarcity)
The economic problem is scarcity, people have unlimited wants but recourses are limited. Figuring out the best ways to use our scarce resources or finding alternatives is fundamental. People have to make choices about what needs and wants are most important to satisfy.
Needs
Needs are the things we NEED to survive and that are essential to your survival such as food, water, shelter and medication in some cases.
Wants
A want is when you desire to posses something, such as activities, new clothes; there things can increase your quality of life and make you happier but is not essential for your survival.
Land- Economic resource
Natural resources are useful raw materials that we got from the earth. The occur naturally, meaning humans cannot make then instead, humans can use and modify natural resources in ways to benefit us. E.g. forrests, water, fertile agriculture land.
Capital- Economic resource
Capital All equipment (machinery, buildings, infrastructure) used by
human labour in the process of production. E.g. hammers, computers and fences.
Labour- Economic resource
Human resources describe the human work effort, both physical and
mental, used in the production of goods and services. E.g. flying planes and teaching.
Enterprise- Economic resource
Enterprise is when a person uses their initiative, drive and personal
goals to start and maintain a business. For example, Bill Gates used enterprise to set up Microsoft.
Opportunity cost-
Opportunity Cost refers to the value of the lost alternative use to which resources could have been allocated. The benefits foregone
that could have been gained if the alternative option was selected.
For example, if you had the choice between going to the movies or
going to work and you chose the movies, you miss the benefit of the
income you could have earned if you had gone to work.
Markets-
A market is any situation where potential buyers in contact with potential sellers and there is a means of exchange. A means of
exchange is a way of paying for the goods and services that are
traded. Markets determine the allocation of resources in order to satisfy the needs and wants of consumers.
The three basic questions
What will we produce?
How will we produce it?
Who will receive the final product?
Price Mechanism-
Is the system whereby producer supply and consumer demand interact in the market place to set prices for goods and services.
The Law of demand-
As the price of an item decreases, the quantity of that item that will be demanded by the market will
increase. As the price increases consumers will be less willing and able to pay and demand will
decrease.
(In other words, the cheaper something is, the more we
will buy.)
- The demand curve (Down)
The Law of supply-
As the price of an item increases, the quantity of that item that will be supplied by producers will
increase. When the price decreases producers will be less willing to supply and therefore supply will fall.
- From for suppliers perspective- In other words, the more expensive something is, the more
producers will make.
- The supply curve (Upwards)
The equilibrium
This point is known as equilibrium; which is the
moment at which the quantity producers are willing to supply exactly equals the quantity
consumers will purchase. There is no shortages or surpluses.
Demand factors-
- Consumer expectations ( what the consumer believes it will benefit them)
- Consumer preferences and taste (personal preferences, if its cold more people want a cafe hot chocolate.)
- Income (a consumers income will impact their willingness to by G/S.)
- Complementary and substitute products (product pairs, only used alongside something elce.)
Supply factors-
- Availability of Resources (how easy it is to source inputs) e.g. weather conditions drought or cyclone.
- Cost price of the inputs being used (cost of inputs) e.g. changes in wage rates paid to consumers.
- Efficiency of resources (how well the production process uses
inputs) e.g. new machinery and technology.
Make sure you know how to make a graph-
Price and quantity (supply and demand) - different colors.
