Economics Flashcards
What is Economics
Economics is the social science that explores how individuals, businesses and governments make decisions.
What is the Economic problem?
The Economic problem is scarcity. Scarcity means we lack the resources to satisfy all our needs and wants.
Needs and wants
A need is something that is essential for human survival.
A want however is something that makes life more pleasurable.
What are resources?
Economic resources are sometimes called factors of production. All goods and services are made from these resources.
Goods and services
Goods are physical things that we can touch.
Services are things that you cannot tough such as a haircut.
4 Economic resources
- Land- Natural resources, e.g. soil forests rock etc.
- Labor- Human work or effort exchanged for wages or goods.
- Capital- Man-made tools/ goods that assist us.
- Enterprise- The entrepreneurial ability to manage a business.
What is a market?
Markets are where the buying and selling of goods and services take place. We all take part in a market when we buy or use goods and services. Therefore we are consumers and the people who provide these goods are the producers.
Types of markets
- Virtual market. These markets are not in a set place but online.
- Labour market. This market operates by people selling themselves in order to work. This can be done through websites like Seek or ever signs in shop windows. People exchange their labour for a wage or salary.
- Financial market. Financial markets are markets in which money itself is traded. For example, a bank loans a business money so it can grow. The business then overtime has to pay back the bank in interest. This is an example of a financial market.
- Retail Markets. Retail markets are as simple as a grocers shop. They are physical and sell goods for money. For example your local grocery.
The key economic questions.
- What to Produce?
What is popular now?
What do people want/need? - How to Produce?
What is the cheapest way? - For whom to produce?
Who can afford it?
What age and gender?
Interests?
Interdependence in the market
(What the market relies on)
Consumers rely on producers to produce the goods and services that they consume. This is also true with businesses as they rely on consumers to purchase and provide labour to make their goods and services.
Circular flow of income
- Households provide businesses with factors of production (Labour).
- Businesses pay households in the form of wages or salaries.
- Households purchase goods and services from businesses.
- Businesses produce goods and services for households.
Law of demand
As the price of a good or service increases demand for the product decreases. This is as the product now costs more and takes up more of people’s money.
Law of supply
As the price increases the amount supplied will increase. This is due to the increased profit motive.
The Price mechanism
The point at which the demand and supply curves cross on a graph is known as the price equilibrium.
The price mechanism refers to the forces of demand and supply in determining the price and quantity of a good or service.
Shortage
A shortage occurs when there is excess demand due to a lower price. This drives the price up.
