Economics Basics- Definitions Flashcards
Economics
Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work.
Scarcity
A situation in which the needs and wants of an individual or group exceed the resources available to satisfy them.
What Does Scarcity Mean in Economics?
Scarcity results in consumers having to make decisions on how best to allocate resources in order to satisfy all basic needs and as many wants as possible.
Opportunity cost
The value of that which must be given up in order to acquire or achieve something.
- The cost of a good in terms of what must be given up in order to produce it
- The cost of a good in terms of the best alternative forgone.
PPF- production–possibility frontier, production possibility curve
The production possibility frontier (PPF) is a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture.
REASONS FOR AN OUTWARD SHIFT OF THE PPC
An increase in the hours of labour
Better methods for example the production line
An increase in the quantity of resources
- increase in the size of the labour force
- discovery of new natural resources
An increase in the level of technology
- laser technology
- increase in use of liquid nitrogen
An increase in the productivity of resources
- better quality resources available
REASONS FOR AN INWARD SHIFT OF THE PPC
Natural disaster
Depletion of natural resources - what if oil runs out in Trinidad?
INCREASING OPPORTUNITY COST
More and more of one good must be given up to achieve equal successive increases of the other good.
Economy
An economy is a system of interrelated production and consumption activities that determine the allocation of scarce resources.
Macroeconomics
A branch of economics that studies how an overall economy behaves.
(how the markets, businesses, consumers, and governments behave).
Macroeconomics is the branch of economics that deals with the structure, performance, behavior, and decision-making of the whole, or aggregate, economy.
Microeconomics
A branch of economics that studies the decisions of individuals and firms to allocate factors of production
(how resources are used for efficient production, consumption and exchange of goods and services)
Microeconomics deals with prices and production in single markets
What Is Efficiency?
The term “efficiency” refers to the peak level of performance that uses the least amount of inputs to achieve the highest amount of output.
Types
Economic efficiency
Market efficiency
Allocative efficiency
Operational efficiency
What is Inefficiency?
Prices do not reflect the true value of a good or service. Inefficiency causes the “wrong” quantity to be produced. Inefficiency results in shortages or surpluses.
Free Goods; like air, water, sunlight.
A free good is a good with zero opportunity cost. This means it can be consumed in as much quantity as needed without reducing its availability to others.
Economic Goods
A free good contrasts with an economic good (a good where there is an opportunity cost in consumption). An economic good has a price.
