1A - What is economics? Flashcards
What is economics?
What is the overall economic problem?
Human needs are virtually unlimited while the resources required to satisfy them are relatively scarce.
For countries
What is the basic economic problem?
All countries must allocate scare resources to produce goods and services in the attempt to satisfy the competing and virtually unlimited wants of consumers.
How can resouces be categorised?
CELL
Capital
Entrepreneurship
Land
Labour
What is capital ?
Definition in Economics
Man-made goods used in the production process.
Such as machinery, vehicles and industrial buildings that help in producing goods or services
How to businesses use capital to remain competitive?
By Investing in capital.
This means that to keep up with competitors, a company must continuously invest in new machinery, technology, and facilities to improve or maintain its efficiency.
What is capital stock also known as?
Two further names
Capital accumulation
&
Capital Investment
What is capital stock?
The amount of capital goods like factories, roads and technology.
When a country increases its capital stock, what is this called?
Two names
Capital accumulation and Capital Investment
Why is capital accumulation good important for economic growth?
Also known as capital investment
New capital allows the country to produce more goods and services, which leads to increased productivity.
Productivity = the amount of output per unit of input, such as labor or resources
When a country replaces old capital, what does this do to productivity and economic output?
Increases productivity and improves economic output.
What is entrepreneurship?
In economic terms
Also known as enterprise
A special kind of labour responsible for risk-taking, innovation, and business organisation.
What are entrepreneurs?
In economic terms
The individuals responsible for bringing new ideas to life, organising the resources (factors of production like land, labor, and capital), and bearing the risks involved in production. They play a crucial role in the economy by creating businesses, generating jobs, and driving innovation.
Within and outside a corporate function
What are the two kinds of entrepreneurs?
People who set up their own business: bear the risk and take the profits
Innovators within a company: employment replies on devloping sucessful new products or methods of production
Entrepreneurship is closely tied to technological progress, why is that?
When entrepreneurs introduce new technologies or methods of production, they help increase the productivity of the workforce.
Increased productivity means that workers can produce more goods and services with the same amount of effort, which leads to higher output (more products) per person.
Within an economy, why is increasing productivity important?
When productivity increases, it often leads to higher living standards because the economy can produce more goods, generate more income, and improve overall welfare.
What is land?
As a factor of production/in ecconomics
Land refers to all natural resources used in the production process. This includes not only the land surface itself (for agricultural or industrial activities) but also natural resources like minerals, forests, water, oil, and other raw materials.
What are the three main types of land?
As a Factor of Production/In Ecconomics
- Agricultural land: Used for farming and growing food.
- Sites for production: Areas where factories, offices, or other production activities take place.
3.Natural resources: Raw materials provided by nature (like oil, coal, timber, and water) that are essential in creating goods and services.
Why is land important?
As a Factor of Production/In Ecconomics
Natural resources are foundational to producing virtually everything we use, from food to energy to materials for manufacturing.
What is Labour?
As a Factor of Production/In Ecconomics
Labour includes all the physical and mental effort contributed by humans in the production of goods and services. This could involve anything from manual work (like farming or construction) to intellectual work (like teaching or managing a business).
What does the amount of labour avalible in an economy depend on?
- The population size
- The working-age population
- Number of working-age people who are willing or able to work
What is human capital?
A skilled workforce embodies education and training, which contribute to improving productivity (how much output can be produced per worker).
Education and training are sometimes called human capital, reflecting the value that skills and knowledge add to a workforce.
What is labour force?
The total number of people who are available to work in an economy.
What does a growth in the labour force mean for an economy?
Can lead to economic growth because more people working means more goods and services can be produced.
However it doesn’t always lead to higher living standards unless productivity increases alongside it.
What factors influence the labour force growth?
- Natural population growth
- International Migration
- Increased participation rate
What are the factors of production?
CELL
(Capital, Entrepreneurship, Land & Labour Resources)
What is economic growth?
The increase in a country’s output of goods and services, which leads to an expansion of the country’s productive
capacity.
What is the Production Possibility Frontier?
PPF
A graph
Shows how a country can use its limited resources to produce two goods, like food and cloth. The curve shows the maximum possible output if everything is used efficiently. If the country produces more of one good (e.g., food), it has to produce less of the other (e.g., cloth).
What is the trade off shown in a PPF graph?
This trade-off is called opportunity cost.
What must be given up in one good to produce more of the other.
What is the oppertunity cost?
The cost of a decision to produce more of one good is
measured in terms of the next best forgone alternative.
What is captial goods and consumer goods?
- capital goods (used for further production eg to produce other goods or services such as a machine used to make an iPhone)
- consumer goods (used by individuals directly such as an iPhone)
The key difference is that capital goods are used to make other goods, while consumer goods are directly consumed by people.
The key economic questiosn all nations face are the what, how and for whom questions, expand on this…
- What to produce? Nations must choose which goods and services to prioritise based on limited resources.
- How to produce? Choices involve whether to use labour, land, or capital more intensively, depending on cost and resource availability.
- For whom to produce? Distribution can be based on income, government policy, or need, with some goods (like medical care) potentially unsuitable for market-based distribution. Different economic systems handle these decisions in varied ways.
What are the different categories of economics?
My Labour Is Money In Economics, Ey!
- Managerial economics
- Labour economics
- Industrial economics
- Monetary economics
- International economics
- Environmental economics
- Econometrics
What is microeconomics?
Focuses on the “small” parts of the economy, like how individual markets, businesses, and consumers interact. For example, it looks at how demand and supply determine the price of a single product or service (like insurance premiums).
What is macroeconomics?
specific markets or sectors
Looks at the economy as a whole, studying large aggregates like total output, unemployment, and inflation. It deals with broad issues like government policy on growth, employment, and stable prices.
overall health and structure of the economy.
Within the insurance industry, what insights does microeconomics help with understanding?
How premiums are set (based on risk, competition, and consumer demand). Insurers need to know how market forces affect pricing, what customers are willing to pay, and what competitors are offering.
In the insurance industry, how is macroeconomics useful?
An increase in interest rates might affect the investments insurance companies hold or influence how much customers can spend on insurance products.
What is positive economics?
- Focuses on objective analysis based on facts.
- Describes what is or what will be without making value judgments.
- Example: “A rise in tax rates will reduce consumer spending.”
What is Normative Economics?
- Involves subjective opinions and value judgments about what should happen.
- Focuses on what ought to be.
- Example: “The government should reduce taxes to boost the economy.”
What is the key difference between positive and normative economics?
Positive economics is fact-based, while normative economics incorporates personal views and policy recommendations.
