basic concepts Flashcards
economy
allocation (distribution), limited resources (not enough money/products), given ends (what at the end we will need to choose due to limited time and resources)
parts of the economy
microeconomics and macroeconomics
microeconomics
you are studying individuals, consumers, firms, markets, and companies
macroeconomics
studying aggregate variables: GNP, GDP, inflation, unemployment
market equilibrium
when supply and demand meet
parts of market equilibrium
price, quantity, demand and suppliers
profit
revenue-costs
excess of demands
(below the line) consumers are sad because there is no enough product, suppliers are happy because they can increase the prices and make profit
excess of supply
(above the line) consumers are happy because there is enough product, suppliers are sad
what is the market?
it solves the economic problem because it adjusts itself to what is trending at the moment
Adam smith
the invisible hand
the invisible hand
division of labour the government does not involve profit-seeking producers needs of society automatically meet competition keeps quality high competition keeps prices low competition and self-interest act as an invisible hand that requires the free market
two actors that created a solution model during the great depression
keynes and hayek
Keynes
the state needs to provide/invest in basic necessities for the people
Hayek
believed in the free market
business cycles
growth, peak, recession, trough or depression
Gross domestic product
the monetary value of all the finished goods (tangible) and services (intangible) produced within a country’s borders in a specific period of time
formula of GDP
consumption + investment + government + exports - imports
Gross national product
estimate of the total value of all the final products and services produced in a given period by the means of production owned by a country’s residents
the organization as an open system
environment input transformation process output feedback
environment
it is not in the system but it can influence the system
input
resources, people
transformation process
making the product
output
final product
feedback
to improve the product
the transformation process as a cycle
stage 1 inputs
stage 2 good and services
stage 3 sales revenue a or b
stage 1 of cycle
firm incurs costs to produce inputs of raw materials, labour, and tools and equipment
stage 2 of cycle
firm organizes the process of production. managing employees to use tools and equipment to transform raw materials into goods and services
stage 3 of cycle
firm generates revenue from sale of goods and services. the element of profit is the difference between total revenue and total costs
sales revenue b
profit van be used to grow the business
sales revenue a
profit can be taken out of the business as income for the owners
the domestic circular flow
assimilation of how the economy works in reality
3 actors of domestic circular flow
households
government
firms
households
consumers purchase goods and services from firms
firms
produce goods and services and needs to hire people, so they give: wages, dividends, interest, profits and rent to consumers
governments
take taxes from consumers and companies, give consumers public health, transport, schools, school grants etc, give companies government purchases
