1.1 What is Economics Flashcards
What is economics?
Social science to examin how resources should be allocated to benefit the society.
Basic economic Problem
Limited needs (resources) , unlimited wants
4 Factors of Production (FOP)
Land, Labour, Capital, Enterprise
Scarcity
Finite resources
Needs
Goods and services necessary for survival
Wants
Desires of goods and services
Goods
Tangible products
Services
intangible products
Economic goods
Resources with limited supply with economics value (utility) to society.
Renewable resources
Factors of production that can regenerate/ replenish (future proof)
Free goods
No opportunity cost, abundance of supply
Private sector
sector of economy where private firms produce goods and services
Public sector
sector of economy where the government produces goods and services
Free market economy
Purely relies on market forces of demand and supply to allocate scarce resources in the economy
Mixed economy
Uses both public and private sector
PPC/PPF
Model of the maximum combination of two products that a country can produce using all factors of production at any moment in time
Marginal rate of transformation/ Rate of substitution
The gradient of the PPC showing the opportunity cost between the two products
Pareto Efficiency
Occurs when it is not possible to make one person better off without making someone else worse off.
Circular flow of income model
macroeconomic tool to explain how economic activity and national income are determined
Economic Agents
economic decision makers comprising households, firms and the government
Closed economy
Part of the circular flow of income model with firms. households and the governement, domestic sector. (where the economy has a limited amount of income in it.)
Open economy
Part of the circular flow of income model with foreign economic decision makers (foreing sector)
Injections (J)
Money entering the circular flow of income
J = G+I+X
government spending, exports, investment
Leakages/ Withdrawals (W)
Money leaving the circular flow of income
W = S+T+M
savings, taxation, imports
Economic Methodology
Study of the processes, practices and principles of economics. (Models, theories, assumptions, etc.)
Positive Economics
Study of economics that is provable. Factual statements about the economy.
Logic
Rationality and reasoning
Hypothesis
Assumptions, notion, educated guess made before the research is done.
Model
A hypothesis that had been repeatedly tested and proven/ rejected and can be used to explain the real world.
Theory
A broad generaliztation used ot exaplin situations or scenarios already supported by economic evidence.
Ceteris Paribus
Latin phrase “All other factors remain the same”
Empirical Evidence
First-hand data and information acquired by observation/ experimentation.
Refutation
Act of a statement/ theory being proven wrong by Empirical Evidence.
Normative Economics
Considers people’s varying opinions and beliefs.
Value Judgements
Beliefs of individuals and scoieties about right and wrong.
Equity
Fairness
Economic thought
Historical account of different economics ideas.
Laissez-faire
Free market without governement intervention.
The “invisible hand”
Adam Smith’s metaphor, individuals behaviour amd decision-making ultimately helps benefit society as a whole.
Classical Economics
Self-regulating markets and allocative efficiency.
Utility
Level of satisfaction by consumer from consumption
Marginal Utility
Level of satisfaction gained by consumer per unit consumed
Say’s Law
Supply first, then Demand.
Ability to purchase a product depends on the ability to produce or supply.
Marxism
Macroeconomics policy that focuses on needs and values of the masses.
Keynesian Economics
John Maynard Keynes, macroeconomic apporach to increase governement expenditure and decreases taxes to stimulte demand in the economy. (Fiscal policy)
Monetarists
Monetary policy (using money supply and interest rates) to control economy.
New Classical Counter Revolution (NCCR)
Supply-side policy, government interventions.
Sustainability
Somethign that increases living standards without affecting the needs and wants of future generations.
Circular economy
An economic system where raw materials, components and other resources are used sustainably to generate output.
