economics Flashcards
What makes a economic contract?
If Leakages are greater than injections the economy contracts.
(output/GDP drops and unemployment rises)
What is Aggregate Demand (AG)?
The Total expenditure on the goods and Services produced in an economy in a period of time.
AD=C+I+G+(X-M)
What is Disequilibrium?
When Leakages do not equal injections.
What is Equilibrium?
When all Variables remain equal.
C+S+T+M=C+I+G+X
Is a myth
What is Inflation?
Inflation is a measure of the rate at which the average price of a basket of goods and services in an economy increases over time. It indicates a decrease in the purchasing power of a nation’s currency.
what is the Circular Flow of Income: The 5 Sector economy?
Households – Provide labor and consume goods/services.
Firms (Businesses) – Produce goods/services and pay wages.
Government – Collects taxes and provides public services.
Financial Sector – Facilitates savings, investments, and loans.
Foreign Sector – Manages exports (X) and imports (M).
Leakages (Outflows): Savings (S), Taxes (T), Imports (M).
Injections (Inflows): Investment (I), Government Spending (G), Exports (X).
What happens when an economy expands too quickly?
If the economy expands too Quickley, it may lead to undesirable levels of Inflation. This could result in demand Pull inflation.
If production Sector can’t match the increasing demand.
What are the economic systems?
Subsistence Economy – Based on self-sufficiency; individuals produce goods mainly for personal use, with minimal trade. (High individual freedom, low central control)
Capitalist Market Economy – Private ownership and free markets determine production and prices, with minimal government intervention. (High individual freedom, low central control)
Mixed Market Economy – A blend of private enterprise and government regulation, balancing economic freedom with social welfare. (Moderate individual freedom, moderate central control)
Socialist Market Economy – Government controls key industries but allows market forces to operate under state guidance. (Lower individual freedom, higher central control)
Socialist Command Economy – The government owns all resources, plans economic activity, and sets prices and wages. (Low individual freedom, high central control)
what is cost- push
Inflastion due to increases in the cost of FOP (wages and raw materials).
what is Under-employment?
A measure of employment and labor utilization in the economy that looks at how well the labor force is being utilized in terms of skills, experience and availability to work. it refers to a situation in which individuals are forced to work in low paying or low skill jobs.
The economic problem?
💡 What is it?
Limited resources vs. unlimited wants → Scarcity
🔑 Key Questions:
1️⃣ What to produce?
2️⃣ How to produce?
3️⃣ For whom to produce?
⚖️ Opportunity Cost – Choosing one option means giving up another.
🌍 Why it matters?
Forces individuals, businesses, and governments to make choices about resource allocation!
what are the different types of wants?
Recurrent wants, Complementary wants, Competitive wants
what are recurrent wants?
wants that are never fully satisfied and keep recurring for example. choice of food: Chinese or Mexican.
what are competitive wants?
Goods or services that can be substituted for each other, for example: butter and margarine.
what are complementary wants?
wants that naturally go together, for example: Car and fuel.
what is a want?
Things that are desired because they give us satisfaction- various types of goods and services.
Unlimited and insatiable
vary in intensity
individually or collectively desired.
what is the Production Possibility Curve (PPC)?
The PPC is a graphical representation of the maximum possible output combinations of two goods or services that an economy can produce given available resources and technology.
Shape: Typically concave due to the law of increasing opportunity cost- as production of one good rises, more of the other must be sacrificed.
What is Enterprise?
The ability to initiate and manage the production process by combining and organizing the other factors of production.
What is Economics?
The study of scarcity and how we use the world’s limited resources in an attempt to satisfy what appear to be unlimited human wants.
What is Capital?
The stock of Human-made resources used to create further goods and services example: Tools, Machinery, Factories, Vehicles, Money.
What are needs?
things that are essential for life in our society.
Needs don’t change over time.
All individuals have the same basic needs.
example: Food, water, clothing, shelter, education.
What are the Factors of production?
Land, labor, capital, enterprise.
What is Relative Scarcity?
A Univeral problem which refers to the insufficiency of resources relative to wants.
Ultimately, the resources are limited while wants are unlimited.
example: Individuals, Businesses, Government.
what is Opportunity Cost?
The best alternative opportunity for gone when a choice is made. Also known as economic or real cost.
