Economics Flashcards
What is opportunity cost?
Opportunity cost is the next best alternative that is sacrificed/missed out on when a decision is made.
What is Ceteris Paribus?
Ceteris Paribus means, “all other things being equal”, which is used to isolate the effect of one variable by assuming that all other factors remain unchanged.
E.g. According to the law of demand, ceteris paribus, if the price of a product increases, the quality demanded will decrease.
What is the law of demand?
The law of demand states that, ceteris paribus, as the price of a product or service increases, the quantity demanded decreases, and as the price decreases, the quantity demanded will increase. It says that price and the quantity demanded have an inverse relationship.
What is a demand schedule?
A demand schedule is a table that shows the quantity of a good or service consumers are willing to purchase at different price levels, illustrating the relationship between price and quantity demanded.
What is a demand curve and what needs to be added when drawing one?
A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded. It typically slopes downward from left to right, showing that as the price decreases, the quantity demanded increases and vice versa.
What needs to be included:
Axes labels:
- Vertical axis: Price of the product
- Horizontal axis: Quantity demanded
Demand curve line (labeled with ‘D’)
The data points:
- Mark TWO points on the curve to show the change between the Mas the price decreases and the quantity demanded increases (labeled with ‘P1’ and ‘P2’).
The title
Arrows to indicate the movement from P1 to P2.
Ceteris Paribus assumption in the explanation.
What is economics?
Economics is the study of how people and societies use limited resources to meet their wants and needs.
What is scarcity or an economic problem?
Scarcity refers to the fundamental issue that arises because resources are limited while human wants are unlimited, leading to the need for choices about how to allocate those resources.
What are limited means of an individual?
Limited means of an individual refers to the finite (limited) resources, financial capabilites, or skills a person has, including their income, time, and assets. These restrict the individual’s ability to fulfill their unlimited wants and needs.
Give an example of opportunity cost faced by an individual:
E.g. a student deciding whether to spend the weekend with friends or studying for an important exam. If the student chooses to study, the opportunity cost is the enjoyment and social time lost by not going out. Conversely, if the student goes out, the opportunity cost is the potential for a better exam score.
Give an example opportunity cost faced by a business:
E.g. an example of opportunity cost for a business is choosing to invest in new machinery instead of expanding marketing; the opportunity cost is the potential sales growth from the marketing effort.
Give me an example of opportunity cost faced by a government:
An example of opportunity cost faced by a government is choosing to allocate funds for building a new hospital instead of improving public transport; the opportunity cost is the benefits the community would have gained from better transportation services.
