Unit 1 - Economics of the Market Flashcards Preview

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Flashcards in Unit 1 - Economics of the Market Deck (94)
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1

Basic Economic Problem

Scarcity - arises because human wants for goods and services are unlimited due to greed. However resources are limited. Therefore all countries, rich and poor, are affected by scarcity.

2

Resources

Used to produce goods and services - i.e factors of production (Land, Labour, Capital and Enterprise)

3

Land

Naturally occurring resources, such as oil. Also includes minerals from the land or anything from the sea/air or sunlight etc.

4

Labour

The human workforce available to produce goods and services. Can be manual - e.g. working in a factory, or mental - e.g. designing/planning

5

Capital

Man-made resources that are used to produce goods and services. They are not wanted for themselves - they aid production.

6

Fixed Capital

Resources that can be used again and again over a long period of time For example a nail gun or robotic machinery.

7

Working Capital

Resources that are used up in the production process. i.e raw materials such as aluminium.

8

Enterprise

Refers to the decisions and risks taken by the entrepreneur (This is the business know-how) The entrepreneur decides what to produce? how to produce? and for whom to produce? They combine the other three factors of production (inputs) to produce goods and services (outputs) in the most profitable way.

9

Need

Essential for survival - e.g. water

10

Want

Non-essential for survival i.e. Something that makes life more pleasant - e.g. WiFi

11

Opportunity Cost - Definition

Sacrifice of the next best alternative foregone

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Opportunity Cost - Individual

Aim to maximise our satisfaction (utility) but we are limited by our budget. For example, If I choose to buy a laptop, then the opportunity cost may be the utility I would have gained having bought a tablet instead.

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Opportunity Cost - Firm

Aim to maximise profit but limited by the amount of factors of production it has. For example, producing a laptop may have the opportunity cost of the profit that would have been made if a tablet was produced instead

14

Opportunity Cost - Government

Aim to maximise welfare of its citizens but limited by taxation revenue. For example, providing schools may have the opportunity cost of hospitals.

15

Reasons to Spend (Individual)

To purchase goods/services that give them utility

16

Reasons to Save (Individual)

To help purchase an expensive item (that they cannot afford now) in the future - instead of borrowing to buy now. Also, someone may save to protect against uncertainty - e.g. losing their job.

17

Reasons to Borrow (Individual)

To help them buy a good or service now. For example, most people cannot afford to purchase a house straight away and it would take a long time to save for one. So, they take out a mortgage (which is a loan for a house) This means that they can buy the house now and pay it off over time

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Income

Money made from the factors of production. For example, most people earn an income by working - this is known as their wage or salary.

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Disposable Income

The money a consumer has left to spend of goods ands services after deductions such as income tax, and national insurance have been made.

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Discretionary Income

Disposable income minus essential bills such as mortgage, gas, electricity, heating etc. i.e. The money a consumer has left to spend on "luxury" goods/services - e.g. eating out

21

Interest Rate

The price of money. This is the % charge on borrowing and the % returns on savings.

22

Interest Rate Rises - Impact on Individuals

More likely to save - greater returns
Less likely to borrow - more to be paid back

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Interest Rate Falls - Impact on Individuals

Less likely to save - lower returns
More likely to borrow - less to be paid back

24

Borrowing

Involves someone (such as a bank) agreeing to give you a sum of money which you have to pay back over time. Money is paid back with interest so you pay back more than you borrowed

25

Savings

An option to take with discretionary income. In return for savings, banks will give interest - so your money will grown in value each year.

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Savings - Instant Access Savings Account

Bank account that allows you to access money whenever you want and you can save as much as you want.

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Instant Access Savings Account - Benefits

Can access money very quickly and easily

28

Instant Access Savings Account - Disadvantages

Very low rate of interest on savings

29

Savings - Regular Savings Account

Bank account that gets you to commit to saving a certain amount each month.

30

Regular Savings Account - Benefits

Encourages you to save a certain amount each month
Pays a higher rate of interest than an instant access account.