Economics Flashcards

1
Q

Economics

A

The study of how scarce resources are allocated to fulfil the infinite wants of consumers; a study of rationing systems.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Needs

A

The basic necessities that a person must have in order to survive. E.g. food, water, warmth, shelter, clothing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Wants

A

The desires that people have. E.g. bigger homes, iPhones, etc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The Basic Economic Problem

A

There is a scarcity of resources to satisfy unlimited wants. There are finite resources and infinite wants. This means a choice must be made, which leads to an opportunity cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Scarcity

A

The issue of there being limited resources to fulfil infinite wants.

Not enough resources to fulfil all the wants.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Opportunity cost

A
  • The real cost of the next best alternative that is forgone when a choice is made.
  • ‘Next best alternative’ implies a scale of preference
  • Usually measured in terms of goods, services, or monetary value given up (relative to the alternative course of action)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Fundamental economic questions

A
  • What to produce (emphasis on agriculture, manufacturing, housing, leisure?)
  • How to produce (labour intensive, land intensive, capital intensive?)
  • For whom to produce (even distribution? More for the rich? For those who work hard?).
  • How much to produce
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Factors of production

A

Land, labour, capital, enterprise.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Land

A
  • Natural resources: available for production
  • Renewable resources: those that replenish
  • Non-renewable resources: cannot be replaced
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Labour

A

Physical and mental effort of people used in production.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Capital

A

All non-natural (manufactured) resources that are used in the creation and production of other products.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Enterprise/entrepreneurship

A

Refers to the management, organisation, and planning of the other three factors of production.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Interdependence of factors of production

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Free goods

A
  • Does not incur any opportunity costs in its production or when consumed
  • Not relatively scarce (not limited in supply)
  • Will not have a price
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Economic goods

A
  • Has an opportunity cost (goods that use resources which could have been put to use producing something else)
  • Uses scarce resources
  • Will have a price
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Economic Thinkers

A

Adam Smith, John Maynard Keynes, David Ricardo, Karl Marx

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Schools of Economic Thought

A

Classical, Keynesian, supply side, moneterism.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Who brought classical economics into the mainstream?

A

Scottish economist Adam Smith.

19
Q

Key pillars of classical economics

A
  • No government intervention in the marketplace
  • The market will sort it out
  • Free trade
20
Q

Adam Smith

Who was he and what was his first idea?

A
  • 18th century Scottish economist and philosopher
  • First idea: 1766 “wealth of nations”
21
Q

Key ideas from Adam Smith

A
  • Philosophy of free markets
  • Assembly line production methods
  • Gross domestic product (GDP)
22
Q

Philosophy of free markets

A
  • Freedom to produce and exchange goods
    -> Minimizing role of government interventions and taxation in the free markets (he did see the government as responsible for the education and defence sectors of the country)
  • Idea of “invisible hand”: forces of supply and demand, every person helps to create the best outcome for all
  • Opening markets for domestic and foreign competition
23
Q

Assembly line production methods

A

Evolution from land-based wealth to wealth created by assembly-line production: division of labour resulting in specialization produces prosperity

24
Q

Gross Domestic Product

A
  • Believed countries should be evaluated based on their** levels of production and commerce**
  • Bars for creating the GDP matrix for measuring a nations’ prosperity
25
Q

Adam Smith - historal link

A
  • Britain had just started entering Industrial revolution: encourage division of labour to specialize and increase productivity
  • Previous system of Monarch: Rejected the idea of government intervention in the market place
26
Q

Rise of Classical Economics

A
  • Coincided with the **industrial revolution **
  • Many fundamental economic theories such as supply & demand were a product of classical economics.
27
Q

Classical Economics is the opposite of…

A

Classical economics is the opposite of “command and control” systems and became associated with freedom.

28
Q

The Invisible Hand

A
  • A metaphor for the unseen forces that move the free market economy
  • Through individual self-interest and freedom of production as well as consumption, the best interest of society, as a whole, are fulfilled.
  • Part of laissez-faire, meaning “let do/let go,” approach to the market.
29
Q

According to classical economics, what causes the natural movement of prices and the flow of trade?

A

The constant interplay of individual pressures on market supply and demand.

30
Q

Classical Economics – key idea

The market will find its eqillibrium…

A

The market will find its equilibrium without government or other interventions forcing it into unnatural patterns.
-> This is why classical economists argued that there was no need for the government to intervene in markets.

31
Q

Classical economists

A
  • Adam Smith
  • David Ricardo
  • Karl Marx
  • Robert Malthus
  • John Stuart Mill
32
Q

Microeconomics

A

The study of the economic behavior of individuals and companies.

33
Q

Macroeconomics

A

The study of the behavior of the economy as a whole.

34
Q

Main idea of Keynesian Economics

A

The assertion that the aggregate demand created by households, businesses and the government and NOT the dynamics of free markets is the most important driving force in an economy.

35
Q

Keynesian economics details

Free markets have no…

A
  • The idea that free markets have no self-balancing mechanisms that lead to full employment.
  • Government’s intervention in the economy through public policies that aim to achieve full employment and price stability.
  • The idea the macroeconomy can be in disequilibrium (recession) for a considerable time.
  • Advocates higher government spending to help recover from a recession.
36
Q

Key Characteristics of Free Market (Market) Economies

A
  • Private properties
  • Freedom of choice
  • Motive of self-interest
  • Competition
  • System of markets and prices
  • Limited government control
37
Q

1.

Free Market Economy Description

A

All the economic decisions are made by individuals and private firms, without any government intervention or regulation.

38
Q

Strengths of free market economies

A
  • Strong incentive (businesses and individuals have a strong incentive to work hard to increase their wealth)
  • Resources are allocated efficiently (due to the invisible hand)
39
Q

Weaknesses of free market economies

A
  • Income inequality
    • Those who own the most productive resources or have valuable skills earn more than others
  • Monopolies
    • Can restrict output, raise prices and prevent competition
  • Externalities
    • Market decisions don’t always reflect the full cost or benefit of activities like pollution to society, resulting in negative externalities.
  • Fossil fuel dependence
  • Social inequality
  • Business cycle fluctuations
40
Q

Planned economy description

A

An economic system in whichthe government controls and regulates production, distribution, prices, etc.

41
Q

Planned economy strengths

A
  • Equality/equity
    • This type of economy can relatively easily redistribute wealth among its citizens, thereby reducing inequity
  • Social security
    • The government can act in the best interests of the people, rather than trying to make a profit like businesses do
42
Q

Planned economy weaknesses

A
  • Suppresses consumer innovation
  • Leans towards development in matters such as national security and defence, which pass less benefits to the citizens
  • Corruption/political influence
    • The government is more involved and has more influence, intentional or not
  • Government blindness/incompetence
    • The government, in the absence of the invisible hand, won’t know what to produce and how much therefore failing to meet the wants and needs of citizens
      may make a bad resource allocation decisions if it fails to accurately predict future economic conditions
43
Q

Planned economy characteristics

A
  • Centralised decision making
  • State ownership
  • Lack of consumer choice
44
Q
A