1.1 Thinking Like an Economist Flashcards
Unit 1 AOS 1
Microeconomics
The study of individual and business decisions regarding the allocation of resources and the prices of Goods and Services. Looks at individual markets.
Macroeconomics
The study of the economy as a while, looks at decisions of countries and governments.
Normative economics
Statements or claims based on opinion or value judgements, based on opinion. Provide business & government w/ hypothetical & future-based decision making insight based on theoretical models or tools. Takes facts, makes predictions.
Positive economics
Fact-based economic statements, can be tested/verified to be true/false, based on evidence. Validate state of economy to provide insight into ‘why’ and ‘how’ the economy’s performed. Assist in devising plans and reaching desired goals.
Land resources
Any natural resource provided by nature, used in process of production.
Capital resources
Physical plant (factories), machinery & equipment used to produce other goods and services, man made resources.
Labour resources
Mental & physical capacity of workers to produce goods & services.
Entrepreneurship resources
A special type of labour, creative ability of individuals to the combination of resources to produce products & take financial risks to make a profit.
Relative scarcity
The problem the world faces is that we, as humans, have needs & unlimited wants, yet only limited productive resources.
Utility/satisfaction
Benefit, satisfaction, or usefulness one gets from the consumption of a good or service.
Diminishing returns
Increasing use of resources (input) will yield more output but at a diminishing rate (increasing at a decreasing rate).
Marginal utility
Addition to the total utility from the consumption of one more unit of a good or service. All economic decisions are based on perceived marginal utility of one more unit of a good.
Production Possibility Frontier/Curve
Shows combination of two or more goods & or services that can be produced using all available resources efficiently.
Productive efficiency
A situation in which the economy could not produce any more G&S without sacrificing production of another. Shown on PPF.
Allocative efficiency
A situation where resources are allocated to production of G&S which most satisfy needs & wants of society. Hypothetical point on PPF.
Microeconomic trade-offs
Trade-offs between spending & saving or between work & leisure.
Macroeconomic trade-offs
Trade-offs between economic growth & the environment, or between equity & efficiency.
Opportunity cost
Loss of the value of the next best alternative forgone when making an economic decision, can be measured/calculated, choice for better alternative made now.
Trade-off
Loss of multiple options when making an economic decision, cannot be measured/calculated, a choice is forgone (either in present or future).
Current vs future trade-offs
Economic decisions need to balance our current needs with or against our future needs.
The 3 basic economic questions
- What and how much to produce?
- How to produce?
- For whom to produce?
Resource allocation
Refers to assigning available resources, or factors of production, to specific uses chosen among many possible alternatives.
Planned economy
Government owns resources and decides where to allocate resources.
Marlet economy
Resources are owned by individuals and are allocated via the forces of supply and demand, and the market mechanism.
Economic activity
The volume of production/output, employment, income, & expenditure in an economy.
Economic agents
A person, company, or organisation that has influence on the economy by producing, buying, or selling (consumers, firms, government).
Public sector
Made of government owned, controlled, & managed orgnisations or other state-run corporations. The govt. make decisions that maximise living standards.
Private sector
Run by consumers and firms. Consumers seek to maximise utility while firms maximise profits.
Traditional Viewpoint of Consumer
- Rationality
- Ordered preferences
- Informed decision making
- Marginal benefits from consumption
Incentive
Something that motivates or encourages someone to do something.
Tax rebates
An amount of money paid back to you because you’ve paid too much or as an incentive for buying something.
Subsidies
A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government.
Taxes
A compulsory levy is charged by the government, and this increases the price of the good/service.
Regulations
imposition of rules by government, supported by the use of penalties that are intended specifically to modify the behaviour of individuals and firms.
The traditional economic viewpoint of businesses in the economy
Profit maximisation in the short and long term. Firms make decisions to maximise output and sales revenue, and minimise production costs.
Maximise revenue
Maximise revenue from selling goods and services. Uses strategies to attract more customers and grow the firm’s share of the market in which it sells.
Minimise production cost
Seek to source inputs at a lower cost and increase productivity by increasing output for every unit of input (productivity = output/input).
Strategies to maximise profits
Ensure excellent production method, develop good relations with customers to find out what they want and expect, product is technically superior in design and more advanced than rivals, and multiple branding to increase market share (identical products under different names to max shelf space).
