Unit 1/2 Exam Flashcards
(34 cards)
The basic economic problem
The issue of scarcity and how best to produce and distribute these scare resources
Relative scarcity
Relative scarcity = wants and needs > resources
How relative scarcity affects decision making
Producers need to determine the best way to combine resources in order to best satisfy consumers and therefore make the most profit.
Opportunity cost
- The idea of there being a cost involved in all economic decisions making
- Sacrificing one opportunity to support another and pursue another one
Natural resources
Natural resources are resources that are drawn from nature and used with few modifications
Labour Resources
Human effort provided in the creation of products, paid in wage
Capital Resources
Tools, buildings, and other physical things that are used to make goods
Assumptions of a perfect competition
- large number of buyer and sellers
- all products sold are the same
- easy to entry
- easy to leave
Shift vs Movement
Movement occurs along a curve, where quantity moves up and down on the same demand curve
On the other hand, a shift causes the curve to change position either to the right or to the left, changing any combination of price and quantity
Law of demand
as the price of a product increases, the total quantity demanded decreases and as the price decreases the total quantity demanded increases.
non-price factors that affect the position of the demand curve
- disposable income
- price of substitutes
- consumer preferences and tastes
- interest rates
- changes in population
- government intervention
A higher quantity demanded in demand curve
Shift:
Demand curve shifts to the right
Movement:
Movement along the demand curve (expansion or down the curve)
A lower quantity demanded in demand curve
Shift:
Demand curve shifts to the left
Movement:
Movement up along the demand curve (contraction)
Law of supply
As the price of a product increases, the supply increases, and when the price decreases the supply decreases
Non-price factors that affect the supply of goods and services
- cost of production
- technological change
- climatic conditions
- government intervention
A higher quantity supplied in the supply curve
Shift:
Supply curve shifts to the right
Movement:
Movement up along the supply curve (expansion)
A lower quantity supplied in the supply curve
Shift:
Supply curve shifts to the left
Movement:
Movement down the supply curve (contraction)
Equilibrium Price
the price which leads to the total quantity demanded being equal to the total quantity supplied
Trade-offs
A trade-off involves a sacrifice that must be made to get a certain product or experience
Aggregate demand
Represents the total expenditure on the goods and services produced in the economy over a period of time.
AD = Consumption + Investment + Government Spending + Net Exports (exports minus imports)
Aggregate Supply
- The total volume of goods and services that producers are able and prepared to supply to the market.
- the ability of an economy to make available goods and services to meet AD
real GDP
A measure of a country’s gross domestic product that has been adjusted for inflation.
real GDP per capita
measures the average level of national income (adjusted for inflation) per person.
limitations of using real GDP per capita to measure living standards
- doesn’t measure changes in the quality of goods and services
- largely based on estimates
- excludes some non-marketed goods and services
