Chapter 1 Flashcards
Define Consumer Goods
Consumer goods are goods that are created to satisfy consumer needs and wants. ex: iPads
There are two types:
- Durable
- Non-durable
[CONSUMPTION]
Define capital goods
Man-made goods that are produced to help in the production of another good or service. ex: printer
[INVESTMENT]
Define Free goods
Goods that are provided by nature and there is no opportunity cost for using them as they’re not scarce. ex: Air
Define Economic Goods
Goods provided by the economy and are scarce, so there’s opportunity cost. ex: phones
Define merit goods
Goods that are extremely beneficial to the economy yet are underproduced and under consumed; this is due to information failure
Characteristics:
Rivalry but Non-excludable
Define demerit goods
Goods that are extremely harmful to the economy yet are overproduced and over consumed; this is due to information failure
Characteristics:
Excludable and Rivalry
Define public goods
Goods that are provided by the public sector and state, and they are non-excludable, non-rivalry and non-rejectable. ex: streetlight
Non-excludable -> using them won’t prevent/exempt others from using them
Non-rivalry -> using them won’t decrease the chances of someone else using them
Non-rejectability -> no one can avoid/reject using it.
Define private goods
Goods that are provided by the private sector and individuals, and they are excludable, rivalry and rejectable.
Excludable -> using them will prevent others from using it.
Rivalry -> using them will lower the chances of someone else using it at the same time
Rejectable -> people can refuse to consume the item.
Define quasi-public goods
Goods that acquire some characteristics of public goods and private goods. They’re non-excludable, yet rivalry.
Examples: Train station or Public beach
Define the free-rider theory and its application.
A free rider is a person using government services without paying for them in return. They lack the incentive to pay for it as it is widely available.
This is mainly why private sector businesses do NOT supply public goods at all since people won’t pay for them, so they make no profits.
Difference in production of goods
Public goods are ONLY provided by the government.
Merit goods are MAINLY provided by the government, but there are some cases where they can be provided by the private sector if there is a charge on them. For instance, providing a private education.
Define scarcity
Scarcity is the basic economic problem where people have unlimited needs and wants, but there are limited resources, so they MUST make a choice.
Firms need to choose between which good to produce.
Consumers need to prioritize their consumption.
Define opportunity cost
The value of the second best alternative foregone.
Define Marginal principle
Consumers must take rational decisions and prioritize their consumption; this is done by measuring the benefits and costs of consuming an item. If the benefits exceed the costs, then it is worth consuming.
Choices are made at different levels. Explain
At a macro level: Study of large scale economies. [GOVT. and ECONOMY]
At a micro level: Study of small scale economies. [INDV. and FIRMS]
Define models
Economists must simplify complex issues to be able to tackle them, so they use models which are simplified representations of reality used to provide insights into economic decisions.
Define positive statement
Relies of facts and figures.
Key word: What IS
Define normative statement
Relies on assumptions and value judgments.
Key word: Should be or ought to be
Define value judgments
Based on opinions and beliefs
Define ceteris paribus assumption
Holding all variables constant, and only testing one variable to see its effect. The testing variable is usually price. It allows us to focus on one thing at a time.
Define short-run
Increasing output while keeping at least one of the factors of production constant.
(Usually labour varies}
Define long-run
Increasing output as there is an increase in all factors of production. This allows us to achieve potential economic growth.
Define factors of production
Input used during production to make the final product.
What are the types of factors of production
Capital -> Technological Resources
Land -> Natural Resources
Labour -> Human Resources
Enterprise -> One who takes the risk and combines all the factors of production to produce a product to satisfy consumer needs and wants.
