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Basic economic ideas & Resource allocation 1 Flashcards

1
Q

What is the fundamental economic problem?

A

resources used to produce goods and services are scarce, but wants are unlimited.

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2
Q

Define opportunity cost

A

the cost expressed in terms of the next best alternative that is foregone when a choice is made.

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3
Q

What are the factors of production?

A

1) Land
2) Labour
3) Capital
4) Enterprise

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4
Q

Define Factors of Production

A

resources available in an economy used in the production of goods and services.

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5
Q

What are the 3 questions all economies must answer with regards to resource allocation?

A

What to produce.
How to produce.
For whom to produce.

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6
Q

Who has to make the choices with scarce resources?

A

Individuals, Firms, Governments

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7
Q

What is Macroeconomics?

A

study of an economy/ group of economies with regards to how consumers and firms interact on a broader level. This can include government spending.

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8
Q

What is Microeconomics?

A

study of individual markets and looks at the behavior and decisions of businesses and consumers & how they interact.

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9
Q

Why is economics a social science?

A

Similar to scientists, economists investigate theories and put forth new ideas, but looks at human behavior in relation to humans needs & wants to explain the changing economy.

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10
Q

what is a model?

A

a simplified view/ representation of reality used by economists to explain economic issues mathematically. Moreover, they can be used over and over again to test the theory in different contexts.

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11
Q

What is a Positive statement?

A

a statement based on objective facts and a observation evidence rather than opinions and value judgements.

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12
Q

What is a Normative Statement?

A

a statement based on an economist’s subjective opinion and analysis which can’t be proven

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13
Q

What is excludability ?

A

When its possible to stop someone from consuming a good / service.

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14
Q

What is Rivalry?

A

when one instance of consumption reduces availability of that good / service for others.

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15
Q

Define a Free good:

A

goods that aren’t scarce, took no factors of production to produce it and has no opportunity cost involved.

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16
Q

What is a Quasi-public good?

A

it appears to be a public good, but does not meet all the characteristics.

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17
Q

Define a Merit Good

A

a good that’s thought to be desirable for consumers, but is underprovided for by the market because of info failure.

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18
Q

Define Demerit good

A

a good thought to be undesirable for consumers, but is overprovided for due to an info failure.

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19
Q

Characteristics of demerit goods

A

1) cheap
2) habit-forming / addictive
3) readily available

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20
Q

Define Info Failure

A

a situation when consumers don’t have full/complete awareness when making decisions due to a lack of relevant or correct information.

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21
Q

What are some the characteristics of info failure?

A

1) consumers unaware of the good/bad effects of consuming a particular product.

2) persuasive advertisements that leads to consumption levels contrary to the interests of consumers.

3) misleading/ inaccurate product packaging

4) producers know more about the product than customers

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22
Q

How does the internet help info failure?

A

The internet contains a wide range for information on different products which enable consumers to make more informed purchasing decisions. In principle, the more information available to consumers, the more effectively the market works to maximize consumer welfare.

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23
Q

Why should an economy care about education?

A

All forms of education- if completed- universally benefits individuals and thus the economy as a whole through equipping it’s population with new skills, earning them greater salaries and better employment prospects. A more qualified workforce is essential source for economic growth and improves the competitiveness of a country.

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24
Q

Why should an economy care about healthcare?

A

A healthy population universally benefits both economies and individuals, as good health is indicative to a greater quality of labour as one of a country’s factor of production, and a more efficient workforce. It is argued that the government is responsible for providing basic healthcare to all members of an economy and would otherwise be considered morally wrong.

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25
What does a short run time period entail?
the time it takes for a firm to only change one factor input and all else remains ceteris paribus.
26
What does a long run time period entail?
the time period when all factor inputs are variable with one constant.
27
What does a very long run time period entail?
the time period when all key inputs are variable.
28
What is the term 'the margin'?
~ is a tool economists use to simplify a situation and predict what the likely change might be. ~ it states that a small change in one variable will lead to further changes in other variables.
29
What are the three economic systems?
1) market economy 2) planned economy 3) mixed economy
30
Define Production Possibility Curve
a representation of the max level of output that an economy can achieve, given the current resources and technology
31
What are some ways governments can combat info failure?
The government can use information provision as a form of direct intervention. Other measures such as info campaigns,
32
Define ceteris paribus
'other things equal' or 'other things are unchanged', used by economists to model the effects of one change at a time
33
What does analyzing decisions 'at the margin' mean?
Seeing how a small change in one variable, like consumer income, will lead to further small changes in other variables, like consumer spending and imports. Using the margin, economists can predict the impact of the change.
34
What happens to f of prod in the short run?
time period where a firm can change at least one but not all factor inputs
34
What happens to f of prod in the long run?
time period when all factors of production are variable but with a constant
35
What happens to f of prod in very long run?
time period when all key inputs into production are variable
35
What is land?
a factor of production, natural resources in an economy
36
What is labour?
a factor of production, human resources available in an economy
37
What is capital?
a factor of production, a physical resource made by humans to aids the production of g+s
38
What is enterprise?
as a factor of production, enterprise involves organising production and taking risks
39
What is economic growth?
In the short run, an increase in a country's output and in the long run, an increase in a country's productive potential.
40
Functions of human capital?
- Organises other factor of production to produce g+s and make a profit. - The ability + inventiveness of the entrepreneurs who are prepared to take risks.
41
Consequences of specialisation?
No one is self-sufficient. Exchange/trade of g+s. 1 country's surplus traded with other's surplusses. Major expansion of global living standards but some people's skills may become redundant as economy develops. ( Must be flexible and multi-skilled) Changing consumer's wants = g+s produceed can no longer be required in same quantity = unemployment. Policies can be adapted to deal with the social + economic problems arising.
41
What is Specialisation?
the process by which individuals, firms and economies concentrate on producing those g+s where they have an advantage oveer others
42
What division of labour?
When a manufacturing process is split into a sequence of individual tasks.
43
Advantages and Disadvantages of division of labour?
+ Quicker and cheaper than having one person complete a whole unit of work. Workers can be more specialised, can lead to increase in output per worker and improvement in quality of finished product - Dissatisfaction in the workforce. They become de-skilled, bored with repetitive work. Dehumanising
44
Entrepreneurs are individuals who...?
organise factors of production to form a business opportunity prepared to take risks, using their own money/borrowing to achieve ambitions. If plan fails, thy will lose that money.
44
Successful entrepreneurs are:
- are leaders - make business opportunit by putting together factors of production - are prepared to take risks - produce something the market wants - are creative + innovative to produce something valuable in the market - anticipate current + future nedds - may have good luck - makes the right decisions
45
Define an economic system?
the way in which production is organised + choices are made in an economy
46
What is market mechanism?
resource allocation decisions are taken by individuals, producers and consumers with no gov intervention a.k.a. price mechanism.
47
What is a market economy?
an economic system where most decisions are made through the market mechanism.
48
What is a planned economy?
an economic system where resources are state-owned and allocated by a certain body
49
What is a mixed economy?
An economic system where both market forces + gov are involved in resource allocation decisions
50
What are productive resources?
resources available to be used
51
What is the role of the government in a market economy?
Govt should have no direct role and not interfere in operation of price mechanism - only intervene when price mechanism is not providing the best allocation of resources. When price mechanism isn't effective = market fails. it seeks to regulate situations to stop firms using power to control the market for excessive gains.
52
What are the key features of a planned economy?
central gov responsible for resource allocation, not market. Production targets set for sectors, linked to long-term growth by increasing productive potential. Gov controls market mechanism. Rise + fall of prices doesn't happen but result of low prices is excess demand relative to supply.
53
What is the private sector?
that part of an economy under private ownership
54
What is the public sector?
that part of an economy under govt ownership
55
What is an emerging economy?
one that is making quick progress towards being a high-income economy
55
Define privatisation?
where there is a change in ownership from public to private sector
56
What is productive capacity?
the max output that can be produced when all resources are used fully
57
What does a shift to the right of a PPC mean?
Increase in productive capacity
58
What does a left shift of a PPC mean?
Decrease in productive capacity
59
Why do shifts on the PPC occur?
More resources become available - or quality of resources improves, usually from increase in factors of production There is a technological change - over time. Overall change is positive = more products being produced. But decline in tech progress can decrease production of products
60
Significance of a position within the PPC?

AS Economics (6 decks)

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