Chapters 1 - 6 chug Flashcards
The economic problem
Unlimited wants exceeding finite resources
Scarcity
When there is not enough to satisfy everyone
Economic good
Uses resources to produce and are limited in supply
Free goods
Takes no resources to produce
Factors of production
Land, Labour, Capital, Enterprise
Land
Gifts of nature used in the production process
Labour
Human effort used in the production process
Capital
Man made goods used in the production process
Enterprise
The risk-bearing and decision making that combines other factors of production to produce a product
Mobility of land
Occupationally mobile, geographically immobile.
Mobility of labour
Varies, such as housing, family ties, education for children, lack of information, mobility restrictions (visa)
Mobility of capital
Varies on type of capital
Mobility of enterprise
Most mobile, entrepreneurs have the skills to apply skills in every industry and can move individually.
Quantity and quality of land
Quantity barely changes, quality can be affected by things like fertilizer and pollution
Quantity and quality of labour
Quantity: Population size, Age groups, School leave, Retirement, Women’s rights
(Hours worked by: Sick days, work hours, full or part time, holidays)
Quality: Education, training, experience, healthcare
Quantity and quality of capital
Quantity: Investment, gross investment - depreciation = net investment (if there is loss it is a neg ative net investment)
Quality: Technological advancements
Quantity and quality of enterprise
Quantity: no. entrepreneurs, education, taxes on firms, immigration
Quality: education, training, healthcare, experience
Rewards of FoP’s
Land: rent
Labour: wage
Capital: interest
Enterprise: profits
What is opportunity cost
Best alternative forgone
Opp. cost for consumers
Between goods/services
Opp. cost for workers
Between jobs
Opp. cost for producers
Between what to produce
Opp. cost for governments
Between expenditure of tax revenue on infrastructure
Opp. cost for goods
Economic goods have to decide the resources allocated for production while free goods don’t. Free goods don’t have an opportunity cost
PPC curve
Graph representing the combinations of products which can be produced with a limited amount of resources
PPC Production points
On the line: Using all resources to make a maximum amount of goods
Under the line: Not using all the resources in hand and produce some goods
Over the line: Impossible to produce, not enough resources to produce
PPC shapes
Curved: Allocating resources differently cause a difference in proportion produced (Different resources)
Sloped: Resources are equally suited to produce both types of products (Similar resources)
Movement in PPC
Using the same number of resources to produce a different combination of goods
Shifts in the PPC curve
Increase or decrease in the number of resources which can produce goods
Microeconomics
Study of the behavior of firms and households.
Macroeconomics
Study of the whole economy
Decision makers in economic systems
Economic agents: Households (Consumers, savers, workers), Producers, Governments
3 allocation decisions
Who is the consumer?
What to produce?
How to produce?
Planned economic system
Where the government makes the decisions of allocation. Will provide necessities and important products to it’s citizens.
Market economic system
Where consumers choose what to produce and firms individually choose how to produce. No government intervention. Firms have competition and seek to achieve the lowest cost for the highest quality.
Price mechanism
How price is determined by the forces of supply and demand. Resources are allocated to popular products which consumers want through demand to what they are prepared to pay.
Economic systems
The institutions, organisations and mechanisms that influence economic behavior and determines how resources are allocated
Directives
State instructions to state-owned enterprises
Gross investment
Total spending on capital goods
Depreciation
Value of capital goods worn out or obsolete
Net investment
Gross investment - Depreciation
Negative net investment
Reduction in capital caused by worn out, unreplaced capital goods
Labour force
Those willing or who are working
Entrepreneur
Bears risks and makes key economic decisions in a business
