Chapter 1 - Intro Flashcards
Economics
The study of how humans utilize resources
Scarcity
The desire for goods and services outweighs resources available
Adam Smith
Innovation of division and specialization of labour
Division of labour
Dividing tasks among workers instead of everyone doing everything
Specialization of labour
Focus on one part of production at which you have an advantage
Advantages of specialization of labour (3)
- People can do what they are good at/they can do what is most profitable
- When given one task, people learn to it very well and produce higher quality items efficiently
- Cost of producing decreases as level of production increases
Economies of scale
Price decreases, level of production increases, cost of producing decreases
Does specialization require trade?
Yes. If you only do one task, how can you do anything else like build a house, make food, etc. You must trade your task and money earned for things you do not have.
Why study economics?
Learning about economics helps you understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker
Microeconomics
Actions of individual aspects, such as companies and workers
Macroeconomics
Big picture aspects, such as inflation and unemployment
Monetary policy
Bank lending, interest rates, etc. conducted by a central bank
Fiscal policy
Government spending dictated by a legislative body
John Maynard Keynes’ famous introduction
Economics is a method rather than a doctrine
John Maynard Keynes
Involved in helping the country in the Great Depression by innovating things such as unemployment insurance
Circular flow diagram
Households -> labour, payments for goods and services -> Firms -> salaries, goods and services -> Households
Goods and services market
Firms sell, households buy
Labour market
Firms buy, households sell
Traditional market
Patriarchal, on the land, occupation stays in the family. Involves very little economic progress (South America)
Free market
Private enterprises and companies control the market
Command market
Government control over the market (communism) (North Korea)
Market
Brings together buyers and sellers
Mixed economy
Combination of a free market and a command market (USA, Canada)
Underground economy
Where buyers and sellers have transactions without government approval
Globalization
Importance of international trade
Exports
Goods sent out to other countries
Imports
Goods brought in from other countries
5 factors of production
Land, labour, capital, entrepreneurs, information
Opportunity cost
By saying yes to one thing, you are forgoing another opportunity in the future. The value of one is forgone when the other is chosen.
2 causes of globalization
Reduced costs of transportation and revolution in technology
Capitalism
Free market, privately owned
Socialism
More things are owned by the government, some privately owned companies
Communism
No private property, government controlled
