Economics pt.1 Flashcards
what is economics?
the study of how people make decisions given the scarce resources that are provided to them
what is scarcity?
limited amount of resources to meet unlimited wants at a zero price
macroeconomics
the study of the economy as a whole on a nationwide scale (production, employment, prices)
microeconomics
study of how consumers, workers and firms interact to generate outcomes in specific markets
resources
productive resources - have to be able to be used for something
-materials used to produce goods and services
resources - land
natural resources used to produce goods and services
resources - labour
any human service (physical or intellectual) - effort people devote to tasks which they are paid
resources - capital
machinery and equipment - any human made resource used to create other goods and services
- factory machinery
- factory itself
- computers
- furnishings
- books & roads
you can add human capital (package of human services) through…
- job training
- experience
- education
- workshops
entrepreneur
- ambitious leader who combines land, labour, and capital to create and market new goods and services.
- someone who recognizes a profit opportunity, is able to organise the resources and is willing to accept risk
opportunity costs
- the most desirable alternative given up as the result os a decision
- what you give up to get it
eg. giving up buying an orange for an apple
value has 2 parts…
- benefits
2. costs
economic systems - traditional economy
- based on culture and rituals, and is focused on the community as a whole
eg. everyone benefits from everyones efforts - traditional inuit village in north america
economic systems - command economy
- relies on the government to make all economic decisions
- includes allocating, distributing and regulating prices/wages
eg. north korea
economic systems - market economy
- driven by consumers, whose decisions determine how the industries and financial markets will operate
- individuals choose resources used, what goods to make, what service to provide.
- no government envolvement
eg. none//no pure examples
economic systems - mixed economies
- utilises limited government involvement while also applying free market concepts
- eg. most countries - usa
globalisation
- process of international integration arising from the interchange of world views, products, ideas and other aspects of culture.
- the removal of borders for the international expansion of markets
globalisation - economy
- increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies.
- companies search for new markets and opportunities for cheap production in countries with low wages and soft environment regulations
globalisation - politics
- more interdependent on policy issues like climate change, gfc or terrorism
- politics tries to react by attempying to make decisions in boarder groups of countries (european union, g20)
- non governmental organisations (NGOs) are also able to assert influence and politics related to their field of work (lead to decrease of political latitude of single state governments for small states)
globalisation - culture
- transmission of ideas, meanings and values around the world in such a way as to extend and intensify social relations.
- global distribution of foreign things eg. music, news, products
- countering globalisation people are increasingly returning to local and regional cultural customs
business cycle
- describes overall trends in GDP
- shows economic swings from high economic growth to negative
- economic growth is about expansion in national output (GDP)
4 stages of business cycle
- boom (peak)
- recession (downturn-swing)
- slump (trough)
- recovery (upswing-upturn)
business cycle - boom
- demands for goods and services and level of production is high
- consumer confidence to spend money is high
- business invest and expand
business cycle - recession
- unemployment increases
- less spending by consumers (further job losses)
business cycle - slump
- also know as depression, many firms will go out of business
- consumer demand is very low
- unemployment very high
eg. great depression (1930s) - us economy declines 14% in 1932
business cycle - recovery
- output(GDP) begins to rise
- rising demands = firms hire more labour
- increases consumer confidence = increases demand
GDP
gross domestic product
- measures the total market value of all final goods and services produced in an economy in a given year
real GDP
GDP adjusted for inflation and more accurately reflects the increase and decrease in output (production of goods and services)
- level of final goods and services prices changes are removed from GDP data
- economic growth is presented as a percentage increase or decrease from an earlier period.
nominal GDP
total economic output of a country. This output is measured at current price levels and currency values, without factoring in inflation.
-unadjusted form
GDP per capita
measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country
standard of living
- the quality of life measured by the quantity of goods and services available for consumption
- increase in real GDP per capita over time is interpreted as an increase in the standard of living
- changes on real GDP per capita within the same country can be used to estimate the changes in the standard of living over time
unemployment
when the labour force is seeking employment but cannot find it
- unemployment rate of 2-3% are considered healthy economy
- economists believe unemployment rate underestimates the level of employment in the economy (when discourages workers exist)
number of unemployed persons…
includes people age 16years and older who are without a job but looking for work
labour force
includes the total number of people who are working or unemployed
people not included in the labour force..
- fulltime college students
- discourage workers (able to work but not looking)
- retired citizens
- homemakers
labour force participation rate
percentage of the population that is in the labour force
calculating labour force participation rate
labour force(employed and unemployed)
-------------------------------------------------------------- x100
adult population (15+)calculating unemployment rate
- represents number of unemployed persons as a percentage of the labour force
number of unemployed persons
——————————————————– x100
labour force (employed&unemployed)
job hoppers
those who are employed and looking for another job
types of unemployment - frictional unemployment
unemployment due to the natural frictions of the economy
- represented by qualified individuals with transferable skills who change jobs (tend to be very short terms)
eg. short term contract workers, college student looking for work
types of unemployment - structural unemployment
unemployment due to structural changes in the economy that eliminate some jobs and create others
eg. NAFTA (US) lost factory jobs but gained computer jobs (need to learn new skills)
types of unemployment - seasonal unemployment
unemployment due to seasonal trends
eg. jobs related to seasonal activities (demand) & are periodic and predictable- ski instructor, fruit picking
types of unemployment - cyclical unemployment
unemployment due to contractions/downturns in the economy/buusiness cycle
eg. great depression, global financial crisis, greece (unemployment 25%) // poor performance in the economy
full employment
condition that exists when the unemployment rate is equal to the natural unemployment rate
general policy makers have 3 economic goals…
3 measurements to analyse if the country is achieving each goal…
- keep economy growing over time
- limit unemployment
- ## keep prices stable-gdp
-unemployment rate
-inflation rate
4 components that make up GDP
- consumer spending (consumption)
- business spending (investment)
- government spending
- net exports (exports/imports) - spending by other countries
resources - enterprise
people who bring all the resources together for the purpose of production (also called entrepreneurship)
flow of money
- links main sectors within economy and is what makes it function
- without money = bartering (exchanging goods for other goods) … result in fewer and weaker links between sectors and lower standard of living
injections
- investment, government expenditure and exports
- if injections greater than leakages, economy expands
leakage
- savings, taxation and imports
- leakages greater than injections, economy contracts
circular flow of income
HOUSEHOLDS: consumers, owned economic resources (land, labour, capital and enterprise)
FIRMS: production, pays income to services
(households use income to buy goods and services - consumption)
