What Is The Nature Of Economics? Flashcards
(37 cards)
What is scarcity?
Scarcity is the problem that arises because there are insufficient resources to provide for everyone’s wants.
Define economics?
The allocation of scarce resources to provide for unlimited human wants.
Define opportunity cost?
The value of the next best forgone alternative.
What are the four factors of production?
Land, labour, capital and enterprise.
What are factors of production?
Inputs in the production of goods and services.
What is a renewable resource?
A resource whose stock level can be maintained over a period of time (solar energy, water, oxygen, soil).
What is a non-renewable resource?
A resource whose stock level is decreased over time as it is consumed (oil, gas, coal, steel, copper).
What is a PPF?
Production possibility frontier
A graph that shows the maximum potential level of output for two goods or services that an economy can achieve when all it’s resources are fully and efficiently employed.
What are the axis of a PPF?
Y axis - good A
X axis - good B
How is economic growth shown on a PPF?
A shift outwards of the curve.
What does it mean if an economy is located at an point on it’s PPF?
It means that all of it’s resources are being allocate efficiently and there is no wastage.
What does it mean if an economy is located within it’s PPF?
That there is an insufficient allocation of resources because not all are being effectively used.
What does a typical PPF show?
A PPF bowed to the origin, which she is that as more of one good is produced, an increasing amount of the other good is forgone. This is because not all resources are as efficient as others in the production of two goods. This is called diminishing returns.
What does a cut in price cause if demand is elastic?
An increase in total consumer spending and total revenue.
What does an increase in price cause if demand is inelastic?
An decrease in total consumer spending and a fall in revenue of the firm.
At what point does a company maximise it’s total revenue?
When the PED is equal to -1 (unit elasticity).
What is marginal revenue?
The increase in revenue that results from the sale of one additional unit of output.
What is the PED if marginal revenue is:
a) positive
b) zero
c) negative
a) demand is price elastic
b) demand is unit elastic
c) demand is price inelastic
What does an XED of zero mean?
That there is no relationship between the goods.
Define supply?
The quantity of a good or service that firms are willing to sell at a given price and over a given period of time.
Define supply curve?
The quantity of a good or service that firms are willing to sell to a market over a range of different price levels in a given period of time.
What two reasons explain why a supply curve has a positive gradient?
As price rises, it encourages firms to supply more of a good to make more profit.
As firms raise output in the short run, production costs increase. This causes an increase in price of their product. Higher prices allow more companies to enter the market.
What causes a shift in the supply curve?
Cost of production
Price of other goods - competitive or joint supply
Productivity (of workers and firms)
Climate
Different values of PES?
PES>1 - price elastic PES<1 - price inelastic PES=1 - unit elastic PES=0 - perfectly inelastic PES is infinite - perfectly elastic
