Chapter 1: Economic issues and concepts Flashcards
Factors of production
- Land
- Labour
- Capital
- Entrepreneurship
What is economics?
Economics is the study of the use of scarce resources to satisfy unlimited human wants in the most efficient way
Goods
Tangible products, such as cars or shoes
Services
Intangible products, such as legal services and education
Production
The act of making goods or services
Scarcity
It implies that choices must be made, and making choices implies the existence of costs
Opportunity cost
The value of the next best alternative that is forgone when one alternative is chosen
Opportunity cost formula
The concept of scarcity, choice and opportunity cost can be illustrated by a negative curve known as ________
Production Possibility Boundary (PPB)
A straight-line production possibilities boundary (PPB) indicates that the opportunity cost of each good is _____
Constant
A concave production possibilities boundary (PPB) indicates that the opportunity cost of each good is _____
increasing
What is the difference between microeconomics and macroeconomics?
Microeconomics studies the allocation of resources as it is affected by the workings of the price system, while macroeconomics studies the determination of economic aggregates
Resource allocation
The allocation of an economy’s scarce resources among alternative uses
Economic growth
It shifts the PPB outwards. A result of bigger budget or technological improvements
Suppose the country has a 10-year civil war that destroys much of its infrastructure
Suppose a small country produces only food and clothing. A new agricultural technology is then introduced that doubles the amount of food that can be produced per year
Suppose a small country produces only food and clothing. An earthquake destroys many of the clothing factories, but the ability to produce food is unaffected
The country admits approximately 250,000 immigrants each year, many of whom join the labour force
What are the four basic questions that must be answered in all economies?
- What is produced and How?
- What is consumed and by Whom?
- Why are resources sometimes idle?
- Is productive capacity growing?
A point on a production possibilities boundary shows an _____
efficient combination of goods
the types of decision-makers in any economy
- Producers
- Consumers
- Government
Marginal decision
Firms and consumers who are trying to maximise usually need to weigh the costs and benefits of their decisions at the margin.
The circular flow of income and expenditure
Specialisation of labour
The specialisation of individual workers in the production of particular goods or services
Division of labour
The breaking up of a production process into a series of specialised tasks, each done by a different worker
Barter
An economic system in which goods and services are traded directly for other goods and services
The double coincidence of wants may not exist
Types of economic systems
- Traditional economy: based on tradition, custom, and habit
- Command economy: most decisions are made by a central planning authority
- Free-market: most economic decisions are made by private households and firms
- Mixed economy: some economic decisions are made by firms and households and some by the government
The main characteristics of market economies that produce spontaneous self-organization include
market prices and quantities
