Basic Economic Concepts Section Flashcards
Definition of market
A situation where potential buyers are in contact with potential sellers and there is a means of exchange.
Definition of consumer sovereignty
The consumer is king in deciding where resources are allocated in a market economy.
Concept of opportunity cost
Is a decision faced by an individual or group of people, where they are torn between different options and can only pick one. When a choice is made it takes out any other options including it’s benefits.
The 3 economic questions
- What to produce? What the consumer desires, this is known as consumer sovereignty.
- How to produce? By the most efficient method. (Cost effective)
- From whom to produce? Whoever can pay the market price.
The 3 types of resources
- Land, natural resources
- Labour, people power
- Capital, machinery and equipment made by man
The difference between needs and wants
To need and object it means that object is a necessity for you to survive eg. basic food such as bread and milk. Whilst if you want something it means there is a desire for you to posses that certain item but you do not need it to live or survive eg. jewellery
The concept of scarcity
We have unlimited wants and needs but limited resources.
Complementary and Substitute products
Complementary products are products which are designed as the name states to complement or correspond to another product and example would be iPads because their complementary product is iPad cases. Substitute products are an alternative good or service that can be used for the same purpose.
Factors of Production
For producers to supply the goods and services wanted by consumers, they must set about the process of production. The production process involves the actual making of goods or provision of services. To complete this task the producer will require various economic resources, Economic resources are the inputs required by the products to complete the production process.
Law of Demand
States that the consumer demand is inversely in proportion to the movement in price of that product, or in simple terms when consumer demand for a product goes up the price for that product goes up and when consumer demand for a product goes down the price follows. (The higher the price of an item, the less that will be demanded and vice versa)
Factors that could increase demand of a product:
Effective advertising campaign
Change in weather/seasons
Change in fashion/tastes/preferences
Increase in income
Increase in price of a substitute product
Decrease in price of a complementary product
Law of Supply
The higher the price that can be gained for an item. the more that will be supplied and vice versa. The suppliers desire to maximise profit will drive their behaviour on response to a change in factors of supply. So the Law of supply states that the quantity of goods supplied by a producer is directly proportional to the movement in price of that product.
Factors that could increase supply of a product (ACE) :
- availability of resources
- costs of resources
- efficiency of resources
Definition of economics (PCTW)
The branch of knowledge concerned with the production, consumption, and transfer of wealth.
Availability of resources
Anything that provides more resources for production, allowing more to be supplied.
Examples are increased labour force, new discoveries of raw materials such as iron and copper and good climatic conditions so there are more raw materials such as wheat, cotton and milk.
