What is Economics Flashcards
(74 cards)
1
Q
What is Economics
A
- Its the study of how scarce resources are allocated to fulfill the infinite wants of consumers.
- Its the study of rationing systems.
2
Q
Finite
A
This means that you only have a limited amount of resources
3
Q
Finite amount of goods and resources
A
The finite resources are used to produce the goods and services that we need or want. Therefore the quantity of goods and services available are also finite-
4
Q
Goods
A
They are physical objects that are capable of being touched. (Tangible)
5
Q
Services
A
They are intangible things that cannot be touched.
6
Q
needs
A
things we must have to survive
7
Q
wants
A
things we would like to have but are not necessary for our immediate physical survival.
8
Q
Why do we need a rationing system
A
There is a conflict between the finite amount of resources and the infinite amount of needs and wants. People cannot have everything they desire, and therefore there must be a system for rationing the scarce resources.
9
Q
Scarcity
A
- The state of being in short supply (scarce).
- All goods and services that have a price are relatively scarce, meaning they are scarce relative to peoples demand.
- Price is being used as a rationing system, since not everyone can afford the same resources as others, thus making the finite resources infinite for the consumers.
10
Q
Economic good
A
Any goods or services that has a price, and thus being rationed.
- Any good or service that has an opportunity cost. (must be scarce).
11
Q
Choice
A
- This is where decisions must be made whenever goods and services are purchased, since people do not have infinite incomes.
- people have to decide how to allocate their limited financial resources and so always need to choose between alternatives.
- Key concept of economics.
12
Q
Opportunity Cost
A
- The next best alternative forgone when an economic decision is made.
- what you give up in order to have something else.
13
Q
Free goods
A
Things that do not have an opportunity cost because they are not limited/scarce.
14
Q
What is the basic economic problem? examples
A
The choices to be made, due to scarce resources and infinite needs and wants are expressed in 3 questions, representing the basic economic problem.
- What should be produced and in what Quantity?
- How should things be produced?
- Who should things be produced for?
15
Q
Theoretical allocation systems
A
- The free market system
- The Planned Economy
16
Q
Factors of Production , examples
A
These are the four resources that allow an economy to produce its output.
- Land (wheat)
- Labour (work force)
- Capital (machinery, factories)
- Management
- Production Possibilities Curve (PPC)
17
Q
Land
A
These are all natural resources that grow above and beneath the land. This can be basic raw materials, cultivated products (wheat, rice), or renewable/nonrenewable natural resources.
18
Q
Labours
A
- Is involved with the Human Factor.
- It is the physical and mental contribution of the existing workforce to production.
19
Q
Capital
A
is the factor of production that comes from investment in physical capital and human capital.
20
Q
Physical Capital
A
The of manufactured resources that is used to produce goods and services (factories, machinery, roads).
21
Q
Human Capital
A
- The value of the workforce.
- Investment in human capital through education/improved healthcare may be a contributor to economic growth.
22
Q
Infrastructure (social overhead capital)
A
This is the large scale of public systems, services, and facilities of a country that are necessary for economic activities. (includes the stocks of a nations roads, hospitals, schools, telecommunication)
- These have bee accumulated through investment, usually by the government.
23
Q
Entrepreneurship
A
- This is the organizing and risktaking factors of production.
- Entrepreneurs organize the factors of production to produce goods and services.
- They use personal money and investors to buy the factors of production, produce the goods and services, and hopefully make a profit.
24
Q
Production Possibilities curve
A
This shows the maximum combinations of goods and services that can be produced by any economy in a given time period if all the resources in the economy are used fully and efficiently and the state of technology is fixed. (Potential output)
- It is used to show the concepts of scarcity, choice, and opportunity cost.
25
Trade off
It is an exchange for one thing in return for another.
26
Inflation
A general increase in prices and fall in the purchasing value of money.
- It is defined as a persistent increase in the average price level in the economy.
- There is a sustained increase in price level.
- the decline in value of money so that it takes more dollars to buy the same goods and services.
27
Effect of inflation
- a nation's nominal currency loses value.
| - on savers and investors is that they lose purchasing power.
28
Draw PPC showing opportunity cost, choice, and scarcity.
look it up.
29
Outward shift in PPC
This can only be achieved is there is an increase in the quantity or/and quality of factors of production.
30
What does the PPC in relation to points. Draw it!
- The opportunity cost of more Y is the number of X that are not produced.
- It is impossible to produce more Y without also producing fewer X.
- Point Z, the skilled workers in each industry will be specializing in the production at which they are best and so both sets of workers will be at their most productive.
- Point V, represents a combination of actual output.
- Point V-W, is there actual growth.
- Pint Z, shows the potential output (any point on the PPC).
- YX-Y1X1, represents an increase in potential output.
- Z-Z1, is the potential growth.
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Why is the PPC a curve?
Because not all of the factors of production used are equally good at both occupations. Also because resources are scarce.
32
Production at any point inside the PPC
it is possible to produce at any point inside the PPC, however not all Factors of production in the economy are being used or are being used efficiently.
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Potential output
- working at full employment
- what a economy can produce when all factors of production are fully utilized.
- defined as the level of economic activity at which aggregate demand and aggregate supply are consistent with a stable inflation rate.
- Total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed.
34
Actual output
a movement from a point inside the PPC to a point that is nearer to the curve.
- The amount of a product that a production facility actually produces, as opposed to the amount that it could produce if it were to run at full theoretical capacity.
35
Utility
Is a measure of usefulness and pleasure.
| - it gives an idea of how much usefulness and pleasure a consumer receives when consuming a product.
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Measuring Utility
- Total Utility
| - Marginal Utility
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Total Utility
This is the total satisfaction you gained utility from consuming a certain quantity of a product.
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Marginal Utility
This is the extra utility gained from consuming one more unit of a product.
39
Money
This is a rationing device that decides who gets what quantities of the available goods and resources.
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The Four stages of development
- Primary: Agriculture
- Secondary: Manufacturing
- Tertiary: Services
- Quartenary: High Intellect (Research and Development)
41
Microeconomics
This deals with smaller, discrete economic agents and their reactions to changing events.
- It looks at individual consumers and how they make their decisions about demand and expenditure.
- Individual firms and how they make decisions on what to produce and how much.
- Individual industries and how they may be affected by such things as government actions.
42
Macroeconomics
it takes a wider view and considers such things a measuring all the economic activity in the economy.
- Inflation
- Unemployment
- The distribution of income in the whole economy.
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Economic Goals
- Economic Efficiency (How to organize resources)
- Economic Equity (Equality)
- Economic Freedom (The freedom to decide what to buy)
- Economic Growth
- Economic Security (Property rights - ensures that people want to grow and live in an economy)
44
Positive statement
A statement that can be proven right or wrong by looking at the facts.
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Normative Statement
A statement that cannot be proven right or wrong since it is an opinion of one kind.
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Positive economics
This deals with areas of subjects that are capable of being proven correct or not.
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Normative economics
This deals with areas of subjects that are open to personal opinions and beliefs.
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Ceteris Paribus
The method of holding all but one of the variables constant.
49
Draw the circular flow of income
Look up in notebook
50
Goods and Services
These are split in durable (consumed over time)and nondurable (Consumed of a short period of time).
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Important sector of economy
The government and international trade.
- responsible for: law & order, national defense, adjusting the economy in order to achieve agreed economic aims, directly providing certain goods and services (water, public transport)
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Public Sector
The state-owned sector of the economy that provides goods and services (government).
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Private Sector
- The part of national economy made up of private enterprises. It includes the personal sector (households) and corporate sector (companies), and is responsible for allocating most of the resources within an economy.
- The private sector is the part of a country's economic system that is run by individuals and companies, rather than the government.
54
Planned/Command economies
Decisions as to:
- what to produce
- how to produce
- and for whom to produce it for
are made the government.
- All resources are collectively owned
- Government bodies set arrange all production, set wages, and set prices through central planning.
- Decisions are made by the government on behalf of the people.
- Central Planning is very difficult: quantity of decisions need to be made, data analysis, allocation of FOP.
55
Free Market Economies
- This is where prices are used to ration goods and services.
- All production is in private hands
- Demand and supply are left free to set wages and prices in the economy.
- Relatively efficient economy
- There are only few cases of surplus and shortages
- Individuals make independent decisions about what products to purchase at given prices and produces decide whether they are prepared to provide the products.
- Producers decide based on the likelihood of profits.
- A change in pattern of demand causes a change in pattern of the supply
- self-rightening system.
56
Disadvantages of pure Free markets
- Demerit goods will be over-provided, driven by high prices and thus a high profit motive.
- Merit goods will be under provided, since they will only be produced for those who can afford it.
- Too quick usage of resources, damaging the environment by pollution, as firms seeks to make high profits and minimize costs.
- Some people wont be able to look after themselves (orphans).
- Large firms may grow and dominate industries, leading to high prices, a loss of efficiency and excessive power.
57
Disadvantages of Planning
- The Total production, investment, trade, and consumption are too complicated to plan efficiently, and there will be misallocation of resources, shortages, and surpluses.
- Because there is no price system, resources will not be used efficiently.
- Incentives tend to be distorted. No motivation if unemployment and when workers gain no share of profit.
- Dominance of the Government may lead to loss of personal liberty and freedom of choice.
- Government may not share the same aims as the population, and yet by power continue their plans and do not satisfy the people.
58
Merit goods
These are under provided or under consumed goods
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Demerit goods
These are over provided or over consumed goods.
60
Role of the Government
- Protector
- Provider
- Regulator
61
GDP
Gross Domestic Product
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Economic Growth
Is an increase in real GDP/Capita in a year.
- an increase in the actual output.
- not a sufficient measure of economic development
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"Real"
an adjustment for inflation/ having allowed for the eefcts of inflation.
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Problems of GDP
Its does not consider the distribution and composition of the country.
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Economic Development
- The change in GDP/Capita
- a measure of welfare and well-being.
- education, Health, GDP, : Human Development Index
- measured in terms of indicators: education, health, social.
66
How to measure education
- literacy rate (difference of definition)
| - Number completed primary school...
67
How to measure Health
- Infant mortality
- Life expectancy
- Access to a Doctor
68
Sustainability
meeting the needs of the current generation without compromising the need of the future generation.
- development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
- decisions of allocating resources is a factor that effects sustainability.
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National income
the value of all goods and services produced in an economy in a given time period (year)
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Measuring national income
It can be measured by adding up all the activities along the diagram:
- output of goods and services
- expenditure of goods and services
- total income of the households for letting the firms use their FOP.
71
Economics 2
It is the study of how individuals and societies, experiencing virtually limitless wants, choose to allocate limited resources to satisfy those wants.
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Reason for Ceteris Paribus
Economics use theoretical models to test and illustrate their theories. these models may be manipulated in order to see what the outcome will be if there is a change in one of the variables. when economics want to test the effect of one variable on another, one variable needs to be independent by assuming that the others do not change. for example if you want to measure how a change in wages will affect peoples desire to work, they have to assume that there is no change in another variable, such as taxes.
73
HDI
most commonly used development measures:
- weighs up real national income per capita
- adult literacy rate
- average years of schooling
- life expectancy
calculated for a country, and gives a value between zero and 1. the nearer to one, the more developed a country is.
- 0.9+ very high human development
- 0.8-0-9 high human development
- 0.5-0.8 medium human development
- 0.5- low human development
74
The World Commission on Environment and Development
- formed by United nations (1983,1987)
- they believed that economic growth cannot be sustained into the future if environmental degradation is taking place and non-renewable resources are being used up at too fast a rate.
