EC1202 week 1,2,3 Flashcards
What is economics according to Robbins, 1932.
“Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”
what does Robbin, 1932, statement mean?
-Human wants are unlimited
-Limited means to satisfy human wants= scarcity
-Alternative uses of scare resources = trade offs
-To maximise benefits and minimize costs is to efficiently use scarce resources
-Humans have a need for choice and optimization which is opportunity cost
what are the key economic questions?
WHAT goods and services should be produced?
HOW should the goods and services be produced?
WHO receives and consumes these goods and services?
what is the role of firms in markets?
- Firms employ different factors of production:
- Developing new products:
Investing in capital and new technology:
Providing goods and services for the consumer
Why economics matters for business ?
helps in establishing relationships between different economic factors, such as income, profits, losses, and market structure
What is the economic system?
It is the combinations between various institutions, agencies, consumers, entities that compromise the economic structure of a community or society.
It also includes the way several institutions or agencies are linked to one another, how information flows between them and the social interactions within the system.
Types of economic systems
traditional economy
mixed economy
pure market economy
pure command economy
True or false?
In pure market economy the government is involved in economic decisions.
false
who accounts for all the production in pure market economy
all firms
what is the price system or market system
An economic system in which relative prices are constantly changing to reflect the changes in demand and supply
The Price System and Markets; How does it work?
- Emphasise voluntary exchange
- Determine the terms of exchange
- Facilitate exchange
In pure command economy who decides what products are needed?
One person known as dictator or a group of officials
In pure command economy all resources are owned by?
The goverment
what is a mixed economy?
A mixed economic system
It protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aim
According to smith what does the market system get us?
- It increase productivity as people specialise in doing what they are most productive in doing.
- People can trade in the market
- market exchange maximises wealth
what are the five principles of economics
- People Face Trade-offs
- The Cost of Something is What You Give Up to Get It
- Rational People Think at the Margin
- People Respond to Incentives
5.Trade makes everyone better off
trades offs society face are between?
efficiency and equality
what is scarcity?
means that resources are limited. There are not enough resources available to satisfy everyone’s wants.
This is clearly true for individuals.
what does the the idea to scarcity lead to?
opportunity cost
what is opportunity cost?
Opportunity cost is a direct implication of scarcity. People have to choose between different alternatives when deciding how to spend their money and their time.
what does PPF stand for
production possibilities frontier
what is PPF?
It is the boundary between those combinations of goods and services that can be produced and those that cannot
what is productivity efficiency
this is when we cannot produce more of one good without producing less of some other good.
what does it mean when we find a point inside the frontier of a PPF
this means that it is inefficient because it is possible to produce more of one good without producing less of the other good.
when do we find trade off in PPF
Every choice along the PPF involves a trade-off.
what does the outward bow of the PPF mean?
that as the quantity produced of each good increases, so does its opportunity cost.
what does the law of diminishing state?
That at one point employing and additional factor of production will cause a relatively smaller increase in output
WHYS IS THE PPF BOW OUWARD
BECAUSE RESOURCES ARE NOT EQUALLY PRODUCED IN ALL ACTIVITIES
CETERIS PARIBUS
UNCHANGED OR EQUAL
what does resources allocation mechanism decide?
what we need to produce and how to produce it
what are the two economic systems
planned economy
market economy
Planned economy ?
resources allocation is decided by the state
market economy?
the price mechanism dictates the allocation of resources evidenced in consumer spending and producer investing
what is the law of demand
this is when the quantity demand of a good rises when the price of the good declines. and vice versa
what are normal goods?
They are goods that follow the law of demand
what type of goods are represented with a downward slope
normal goods
What type of goods are represented with a upward slope
giffen goods
what are giifen goods?
they are low income, non luxury goods
the demand increase as the price increases and vice versa
what is another name for snob goods?
luxury goods
what are luxury goods?
Result in a demand increase due to a price increase. Therefore, it contradicts the law of demand
what Factors can cause Shift in Demand
BITER
buyer
income
tastes
expectations
related goods
how do you know that the demand has increased?
because the demand curve has moved outwards
what causes a movement along the demand curve?
a change in the price of the good
demand has a ……. perspective
consumer
supply has a ……. perspective
seller
what is the quantity supplied of a good or service
it is the amount that sellers are willing and able to sell.
what causes a change in the supply curve
a change in the price
what other factors but price can affect the supply curve?
technology
number of sellers
government policy
resource price
expectations
price of other goods
what causes a shift in the demand curve
a change in the factors ‘biter’
