1.1 - What is economics Flashcards
What is the definition of economics?
The study of how to make the best possible use of scarce resources to satisfy unlimited human wants and needs
Why is economics a social science?
Because it relies on society’s behaviour, such as when looking to satisfy their needs and wants
What is microeconomics?
The behaviour of individual economic agents and their interactions within the markets.
- The study of how their interactions and decisions influence the allocation of resources.
What is Macroeconomics?
The study of the overall performance of the economy as a whole. It analyses the aggregate behaviour of consumers, producers, and the government and trends of the economy.
What are needs?
are the necessities of life
What are wants?
the goods and services that people desire beyond satisfying their needs
What are the 4 factors of production?
- Land (natural resources)
- Labour ( workforce)
- Capital (machinery, equipment)
- Enterprise
What is the economic definition of ‘scarcity’?
where humans have unlimited collective needs and wants, yet only limited productive resources
What are the economic agents and what do they want?
- Consumers - maximise their satisfaction
- Workers - maximise their wages & conditions of employment
- Firms - maximise profit
- Government - maximise the welfare of their citizens
What is the economic definition of ‘sustainability’?
Meeting the current needs of society while allowing there to be future resources
What are trade-offs?
The choice that can come at the expense of the natural environment
What is the economic definition of ‘opportunity cost’?
The next best alternative foregone when an economic decision is made
What are free goods?
Goods that are not considered scarce and thus do not have an opportunity cost
- has no price tag
What are economic goods?
Any good that is scarce and therefore has an opportunity cost
What is the 3 basic economic questions?
- What and how much to produce?
- How to produce it?
- For whom to produce?
What is resource allocation?
refers to assigning available resources (factors of production) to specific uses chosen from many competing alternatives.
Features of a planned economy:
- Government owns resources
- Government decides where resources will be allocated
Features of a market economy:
- Resources are owned by individuals
- Resources are allocated via the forces of supply and demand
Assumptions when constructing the PPC:
- A nation can only produce 2 types of output
- Scarce resources are “fully employed” and the most efficient production techniques are used
How does a PPC curve show scarcity, trade-offs, and opportunity cost?
- Scarcity - cannot produce anything beyond the curve
- trade-offs: If you want to start producing another item you will have to give up one of the 2 chosen outputs
- Opp. Cost: shows the best option foregone when an economic decision is made
The PPC graph can expand when:
- Larger quantity of resources
- Better quality of resources
- Improved Technology
The PPC graph can shrink when:
- Factory gets destroyed
- Decreased quality and quantity of resources
What is productive efficiency?
goods and services are produced at the lowest possible cost and an economy cannot produce more of one good without sacrificing the production of another
What is allocative efficiency?
resources are distributed that maximises the overall benefit to society. the production of goods and services best satisfies consumers’ needs & wants
What is unemployment of resources?
economy produces output below the maximum possible output that could be produced
What is Unobtainable output?
There are insufficient resources to produce the desired output as there is not sufficient quantity or quality of resources.
When does constant opportunity cost happen?
When the factors of production are equally well-suited to the production of both goods
Actual Output
when real output increases through time and is a result of more productive use of existing resources
- lower unemployment
- greater productive efficiency
Potential Output
occurs when there is an increase in production possibilities of an economy
- larger quantity of resources
- better quality of resources
- improved technology
