Economic concepts and systems Flashcards
outline the choices that had to be made as a result of the COVID-19 pandemic by individuals
Individuals had to choose whether to follow the rules or bend/break them (e.g. facemasks).
outline the choices that had to be made as a result of the COVID-19 pandemic by governments
Governments had to choose how to support those affected by job losses caused by the pandemic.
What choices were firms exposed to during the covid pandemic
Firms had to choose whether to accept low in person sales or move to an online based retailer.
outline the choices that had to be made as a result of the COVID-19 pandemic by central banks.
Central banks chose to create more electronic money through quantitative easing, encouraging people to borrow and spend more. The choice came from deciding how much money to create as too little won’t affect the recession while too much will drive inflation too much
state two major areas in which individuals can make decisions to help address the global climate emergency
○ Individuals can choose to more ‘green’ with commuting and home heating. i.e. using EVs or electric heating over gas heating
○ Individuals can also choose where they get their food and other shopping from - they can get locally made items using local materials rather than foreign items that are transported on high emission plans and ships.
suggest how the government might encourage individuals and firms to make ‘green’ choices
The government may encourage peoples decisions through subsidies and green taxes.
outline possible winners and losers relating to the global climate emergency and the actions being taken to deal with it.
If more investment was made in renewable energy for example, winners would be those hired into roles relating to this new industry while the losers will be those losing their fossil fuel jobs due to less demand for this industry.
Define production
The transformation of inputs into outputs in order to earn profit.
Define consumption
The act of using goods and services to satisfy wants. Normally involves purchasing the good or service
define factors of production (or resources)
The inputs into production of goods and services: Labour, Land, raw materials, and capital.
Define labour
All forms of human input, both physical and mental, into production
Define land and raw materials
Inputs into production that are provided by nature
Define capital
All inputs into production that themselves have been produced
Define scarcity
The excess of human wants over what can actually be produced
Define macroeconomics
The branch of economics that studies economic aggregates (grand totals) - the overall prices, output and employment across the economy.
Define Microeconomics
The branch of economics that studies individual units (households, firms, and industries). It studies the interrelationships between these units.
Define aggregate demand
The total level of spending in the economy
Define aggregate supply
The total level of output in the economy
Define inflation
The general rise of prices throughout the economy
Define balance of trade
Exports of goods and services - Inputs of goods and services
Define recession
A period where national output falls for two successive quarters
Define unemployment
The number of people who are of working age, who are actively looking for a job, who are unemployed
Define demand-side policy
Government policy designed to alter the level of aggregate demand and then thereby the level output, employment and prices.
Define supply-side policy
Government policy designed to alter the level of aggregate demand and then thereby the level output, employment and prices.
Define opportunity cost
The cost of any activity measured in terms of the best alternative forgone.
define rational choices
Choices that involve weighing up the benefit of any activity against its opportunity cost so that the decision maker successfully maximises their objectives.
define marginal costs
The additional benefit of doing a little more of an activity
define marginal benefits
The additional benefit of doing a little more of an activity
define productive efficiency
A situation where firms are producing the max output for a given amount of inputs, or producing a given output a min cost.
define allocative efficiency
A situation where the current combination of goods produced and sold gives the maximums level of satisfaction for each consumer at their current level of income
Define the production possibility curve
A curve showing all the possible combinations of two goods that a country can produce during a specified time period with all of its resources fully and efficiently employed.
What is increasing opportunity costs of production?
When increasing production of one good involves ever increasing sacrifices of another.
describe the three main microeconomic choices that have to be made by an economy because resources are scarce
○ What goods/services are going to be produced, and in what quantities?
○ How are things going to be produced? What resources used and what quantities?
○ For whom are things being produced for?
Why is the production possibility curve not a straight line
It is not a straight line due to the opportunity cost - there is a cost in making a decision of how much of one output to produce.
Define centrally planned or command economy
An economy where all economic decisions are taken by the central authorities
Define a free market economy
An economy where all economic decisions are made by individual households and firms with no government intervention
Define a mixed economy
An economy where all economic decisions are made partly by the government and partly by the market
Define economic equilibrium
A position of balance - there is no inherent tendency to move away
Describe how a command economy allocates resources and distributes output
Plans the allocation of resources between current consumption and investment for the future.
Distributes output according to its judgement of people’s needs - or may give more to those who produce more.
Define a price mechanism
The system in a market economy whereby changes in price in response to changes in demand and supply have the effect of making demand equal to supply
Define the economic equilibrium price
A price where supply equals demand - the price where there is no shortage or surplus
Describe how a free market economy allocates resources and distributes output
Resources are allocated as each individual likes
Outputs are distributed as each individual likes
Discuss the advantages and disadvantages of a command economy
Advantages:
□ Allows government to align resources in accordance to specific goals
□ High growth rates can be achieved if government direct resources into investment
Disadvantages:
□ If the economy is large it is very difficult to collect information on needs of the population
□ Lack of individual liberty
Explain the interdependence of the goods and factors markets
○ Goods market
Demand for good rises
Shortage created
Price of good rises
Eliminates shortage as price increases and demand decreases
○ Factor market
Increased supply of goods causes increase in demand for factors of production (inputs)
Shortage of inputs
Prices of inputs rise
Eliminates shortage as demand as decreased and also encourages suppliers of inputs to supply more.
Discuss the advantages and disadvantages of a free-market economy
Advantages:
□ No need for costly decision makers to co-ordinate economic decisions.
□ There will be greater competition, hence providing better service and costs to consumers
Disadvantages:
□ Power and property will likely be unequally distributed
□ Some socially desirable goods would not be produced by private firms - eg counter terrorism
