Chapter 1 - 10 Principles Of Economics Flashcards
Name the 3 scarce resources.
- Land
- Labour
- Capital
Define: Land.
“All the natural resources on earth.”
Define: Labour.
“The human effort - both mental and physical that goes into the production,”
Define: Capital.
“The equipment and structures used to produce goods and services.”
Define: Scarcity.
“The limited nature of society’s resources.”
Define: Economics.
“The study of how society manages its scarce resources.”
Define: The Economy.
“All the production and exchange activities that take place everyday.”
Define: Economic activity.
“How much buying and selling goes on in the economy over a period of time.”
Define: Microeconomics.
“The study of how households and firms make decisions and how they interact in markets.”
Define: Macroeconomics.
“The study of economic-wide phenomena, including inflation, unemployment and economic growth.”
Define: Economic growth.
“The increase in the amount of goods and services in an economy over a period of time.”
What are the 10 principles of economics?
- Trade offs
- Opportunity cost
- Marginal changes
- Incentives
- Specialisation
- Market economy
- Government intervention
- Standard of living & GDP
- Quantitative Easing & Inflation
- Phillips Curve
Explain the difference between ‘Efficiency’ and ‘Equity’.
Efficiency = Getting the most out of your resources.
Equity = Distributing economic prosperity fairly among the members of society.
Define: Opportunity cost.
“The value of the next best alternative foregone.”
Define: Marginal changes.
“Small incremental adjustments to a plan of action.”
How to make a rational decision?
You see which option has more marginal benefits vs. marginal costs.
Give an example of an incentive.
Petrol tax would incentivise people to buy more fuel efficient cars or take public transport.
Why is International trade good for countries?
Because it allows specialisation between the nations.
Define: Market economy.
“Allocation of resources through the decentralised decisions of firms and households as they interact in the markets for goods and services.”
Define: Invisible Hand
“The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically.”
What did Adam Smith say in the ‘Wealth of Nations’?
“By pursuing his own interest, he (the economic agent) frequently promoted that of society more effectually than when he really intends to promote it.”
Why do Governments intervene in the markets?
To promote Efficiency and Equity.
What is Market Failure?
“When scarce resources are not allocated to their most efficient use.”
Define: Externality.
“The cost or benefit of one person’s decision on the well-being of a third party, which the decision maker does not take into account.”
