CH1: Intro to Economics Flashcards
What are the four factors of production and their rewards?
The four factors are land (earns rent), labour (wages), capital (interest), and entrepreneurship (profit). Entrepreneurs take risks to innovate and drive economic activity.
What are wants, needs, and trade-offs in economics?
Needs are essential for survival (e.g., food, shelter), while wants are non-essential desires. Because of scarcity, choosing one thing means giving up another — this is the concept of trade-offs. Opportunity cost always exists.
What is economics and why is scarcity central to it?
Economics is the study of how people allocate limited resources to satisfy unlimited wants. Scarcity means resources are limited, which forces choices and trade-offs. It differs from poverty, which is a lack of basic needs.
What is opportunity cost and how does it influence decisions?
Opportunity cost is the value of the next best alternative foregone. For example, choosing to study means giving up leisure time. It’s central to decision-making in all areas of economics.
What is the Production Possibilities Curve (PPC) and what does it show?
Efficiency means maximum output from resources. Points on the PPC are efficient, inside the curve are inefficient due to underused resources. Inefficiency results from unemployment, underinvestment, or misallocation. / The PPC shows the maximum combinations of goods/services that can be produced with available resources. It’s bowed outward due to increasing opportunity costs. Points on the curve are efficient, inside are inefficient, outside are unattainable. / Movement along the PPC shows reallocation between goods. Outward shifts indicate growth (more resources or better tech), inward shifts show decline. Economic growth expands the PPC.
What is the circular flow model and how does it work?
It’s a model showing how money, goods, and services flow between households and firms. Households provide factors of production and receive income, firms produce goods/services and receive revenue.
what are goods, services, consumer goods, and capital goods in economics?
Goods are tangible items, services are intangible. Services have features like intangibility and perishability. Consumer goods are for direct use, while capital goods are used to produce other goods.
what is the difference between microeconomics and macroeconomics?
Microeconomics focuses on individual agents like households and firms. Macroeconomics examines the economy as a whole, including inflation, unemployment, and national income.
what role do incentives play in economic behaviour?
Incentives motivate people to act. Positive incentives encourage behavior (e.g., rewards), while negative ones discourage it (e.g., fines).
