5.0 Introduction to Economics Flashcards
What is a need?
Something essential for survival, limited
What is a want?
Not essential for survival, unlimited
What is economics?
study of how society chooses to allocate scare land, labour, resources to production of goods and services to satisfy population’s needs and unlimited wants.
What is an economic resource or ‘factors of production’?
Inputs used in production of goods and services, include land, labour and capital resources.
What is land? Define
Any natural resources provided by nature used in process of production.
What is labour?
Mental and physical capacity of workers to produce goods and services.
What is capital?
Man-made tools, machinery and equipment used in production of goods and services.
What is scarcity?
Fundamental challenge of meeting unlimited human wants and needs with limited land, labour and capital resources.
Why are things scarce?
They have alternative uses, using them for one purpose means they cannot be used for another.
What are the three ideas that form the foundation of economics?
Scarcity, choice, opportunity cost.
What is a choice?
Economic decision made between competing alternatives.
Why is choice a central concept in economics?
Reflects the scarcity of resources and the need to make trade-offs between different uses of resources.
What do firms make choices about?
What inputs/resources to use, prices to charge based on costs and market conditions.
What does the government make choices about?
Allocation of public resources, regulation of economy, implementation of public policies based on social and political goals.
What is opportunity cost?
The loss of vale of the next best forgone alternative whenever economic decision made.
How can opportunity cost be expressed?
Monetary value and resource use, non-monetary costs and benefits (time, effort, enjoyment)
What assumptions does the Production Possibilities Model (PPM) make?
- Economy can only produce two different goods or services
- All scarce resources are being fully utilised.
What does the production possibility frontier (PPF) display?
Scarcity, choice and opportunity cost.
Each good is either on the X or Y axis to show all combinations the economy can produce with all their resources.
Why will all choices on PPF incur opportunity cost?
All incur opportunity cost because of the problem of scarcity.
What is efficiency?
The optimal use of resources in production of goods and services with no wastage.
What does it mean if a company is efficient in producing goods and services?
Producing the maximum possible output within its given scarce resources.
What does any point along the PPF (line) represent?
Economy being efficient with their resource use.
What does a point within the PPF represent (inside the line)?
Underutilisation of scares resources and inefficient resource use.
What does a point over/above the PPF?
Impossible to produce as this point due to scarcity.
When does a change in an economy’s potential output or production possibilities (efficiency) occur?
Change in quantity or quality factors of production (scarcity).
What are three factors that increase the quality of resources?
- More years of education (labour)
- GMO technology increases crop yields (land)
- New technology improves capital equipment (capital)
What are three factors that increase the quantity of resources?
- Increasing birth rates (labour)
- Finding new mineral deposits (land)
- Manufacturing more capital goods (capital)
When quality and quantity increase, what happens to PPF?
It shifts outwards, and makes previously unattainable output points possible.
