EMA1310 - Economics Flashcards
What is the main economic problem?
Scarcity; the need to allocate limited resources to meet unlimited wants.
What are the factors of production?
Land, labour, capital and entrepreneurship.
What does microeconomics study?
Individual markets, household and firm decisions, and consumer behaviour.
What does macroeconomics focus on?
The economy as a whole, including economic growth, unemployment, and international trade.
What are the 3 fundamental economic questions?
- What to produce?
- How to produce?
- For whom to produce?
What is the opportunity cost?
The value of the next best alternative that is forgone when making a choice.
What does the Production Possibility Curve (PPC) illustrate?
The trade-offs and maximum production capacity of an economy.
What does a point on the PPC represent?
Efficient use of resources.
What does a point inside the PPC indicate?
Allocative inefficiency - resources are being underutilised.
What is demand?
The quantity of goods/services that consumers are willing and able to buy at a given price, over a period of time.
What is the Law of Demand?
When price increases, Qd decreases, and vice versa, ceteris paribus.
What factors can shift the demand curve?
Changes in income, taxes, prices of substitutes/complements, advertising, and consumer preferences.
What is supply?
The willingness and ability of producers to offer goods/services at a given price, over a period of time.
What is the Law of supply?
As prices increase, Qs increases, and vice versa, ceteris paribus.
What factors can shift the supply curve?
Changes in production costs, number of suppliers, and technology.
What causes movements along the demand curve or supply curve?
Changes in price.
What causes shifts in the demand or supply curves?
Changes in non-price determinants
What happens when determinants other than price change?
It causes either an inwards or outwards shift in the supply or demand curve.
If the price changes, it causes a movement along the curve.
What is the supply function?
The supply function shows the relationship between Qs and P in a mathematical way.
Qs = a +bP (a positive relationship between the two).
What is the complex supply function?
The complex supply function accounts for price, taxes, and costs of production.
Qs = a + bP - Ct - dCp (Qs increases as price increases, but decreases as taxes and costs of production increase).
What is price and output determination in a market?
The price mechanism determines the price and output that clears the market, found at the intersection for the demand and supply curves.
What happens when supply exceeds demand (S>D)?
There is excess supply or a surplus.
What happens when demand exceeds supply (D>S)?
There is excess demand or a shortage.
What is consumer surplus?
Consumer surplus is the difference between the total amount consumers are willing to pay and the actual amount that they do pay for a good/service. It’s shown as the area under the demand curve and above the price.
What is producer surplus?
Producer surplus is the difference between the actual price producers receive and the minimum acceptable price.
When does maximum benefit to society occur?
Maximum benefit occurs when price and quantity are at the equilibrium point, optimising society’s welfare.
What is a minimum price (Price floor)?
A minimum price is set to protects producer’s incomes, creates a surplus for times of need, and acts as minimum wage legislation.
What is a maximum price (price ceiling)?
A maximum price ensures goods are on a first-come, first-serve basis, reduces production of already scarce resources, and can create a black market.