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Economics > Final Exam > Flashcards

Final Exam Flashcards

1
Q

what is economics?

A

the study of how scare resources are used to produce goods & service to satisfy unlimited human wants

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2
Q

what are the limited resources/factors of production? (4)

A

1- land: natural resources of nature
2- labour: human resources, mental or physical ability
3- capital: man-made aids (machinery)
4- entrepreneur: individual that combines 3 factors or production, takes risk

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3
Q

what are the 3 basic economic problems + brief explanation

A

1- what & how much to produce?
> opportunity cost due to scarcity of resources
2- how to produce?
> labour intensive or capital intensive
3- for whom to produce?
> based on income distribution (higher income grp get better quality goods)

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4
Q

what is opportunity cost?

A

the next best alternative sacrificed for a chosen alternative

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5
Q

what is a change in demand?

A

due to other factors and not a change in price of the good itself

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6
Q

what are the factors that affect the demand of a good?

A

1- changes in the price of related goods
a) substitute goods
> increased price of good Y will result in an increased demand of good X
b) complimentary goods
> increased price of good Y will result in a decreased demand of good X

2- income
(a) normal goods
> increased income, increased demand
(b) inferior goods
> increased income, decreased demand

3- consumer’s taste & preference
> festive seasons

4- advertising

5- expected future prices
> expected price to increase, demand now decrease

6- gov policy
(a) subsidy
> subsidise more, demand increase
(b) tax
> higher tax, demand decrease

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7
Q

what is a change in supply?

A

the change of supply is due to other factors and not the change in price of the good itself

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8
Q

what are the factors that affect supply?

A

1- prices of related goods
(a) competitive supply
> when price of a good increases, the amount supplied of another good decreases
eg: price of chicken increases, supply of chicken increases, fall in supply of eggs
(b) complements in supply
> the supply of one good will increase the supply of another
eg: beef & leather
(c) substitute in supply
> the price of one good increases, the supply of the other good decreases

2- cost of production
> cost increase, supply decrease

3- climate condition
eg: monsoon season, supply of fish falls

4- technology
> advanced tech, increased supply

5- gov policies
> tax increase, supply fall
> subsidy increase, supply increase

6- no. of producers
> a lot of producers, increase supply

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9
Q

what is demand?

A

the desire to buy goods & the ability to pay

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10
Q

what is supply?

A

the quantity of a good or service offered

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11
Q

what is market equilibrium?

A

when the quantity demanded equal quantity supplied

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12
Q

what is maximum price policy?

A
  • aka ceiling price
  • gov set max price below the equilibrium price
  • goal: protect consumers
  • imposed on essential goods (sugar, cooking oil & rice)
  • effect: increase of demand, shortage occur (demand > supply)
  • may hv black market, not all buyers able to purchase goods
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13
Q

what is minimum price policy?

A
  • aka floor price
  • gov set price below the equilibrium price
  • goal: protect producers when prices are too low, generate guarantee return (income)
  • imposed on agricultural products
  • gov can purchase surplus of goods for future use
  • effect:
    > consumers pay more
    > surplus purchased using taxpayer’s money (less money for other projects)
    > may lead to overproduction = wastage of resources
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14
Q

what is GDP + calculation

A
  • gross domestic product
  • final goods produced within the country

1- income approach
rent + wages + interest + profit
> transfer payment NOT included

2- expenditure approach
consumption + investment + gov expenditure + ( export - import )

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15
Q

what is GNP + calculation?

A
  • gross national product
  • final goods & services produced by the citizens regardless of where they are (ownership)

GNP= GDP + (factor income from abroad - factor income paid abroad)

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16
Q

what is NNP? what is NDP?

A
  • net national product = national income

NNP= GNP - depreciation
NDP= GDP - depreciation

17
Q

calculation for GDP per capita?

A

GDP/total population
for average income

18
Q

what are the factors that influence consumption? (4)

A

1- level of income
> income increase, consumption increase (+ve relationship)

2- cost & availability of credit (loan)
> low interest rate, increase consumption
> longer pay back period, increase consumption

3- consumer expectation
(a) inflation
> expect price of good rise, consumption now increase
(b) income level
> expect income rise, consumption now increase
(c) employment
> employment rise, consumption rise

4- wealth & savings
> more wealth & savings, higher level of consumption

19
Q

what is inflation + calculation

A

a continuous increase in the general price level of goods

inflation rate:
current yr CPI - prev yr CPI/prev yr CPI x 100%

20
Q

what is CPI?

A
  • consumer price index
  • measures changes in general price level
21
Q

what causes inflation? (3)

A

1- demand-pull inflation
- due to rising AD
- near full employment
- increase household income, foreign investment & lower interest rate
- increase money supply

2- cost-push inflation
- rise of cost of production
- pass the cost to consumers, increased prices
- decreased production

3- imported inflation
- import goods from countries experiencing inflation
- goods purchased at higher price
- goods sold at higher price in local market

22
Q

under monetary policy, what are the tools used to control inflation?

A

monetary policy- contractionary policy, aimed to reduce money supply

1- bank rate
> central bank (Bank Negara Malaysia) increase bank rate
> influence commercial bank, set higher interest rate
> borrowing more costly for consumers, demand for loans will fall
> fall in consumption, fall in investment
> reduced AD, reduced demand-pull inflation, fall of prices of goods

2- open market operations
> central bank sell more Treasury Bills
> bought by commercial banks & individuals
> deposit in commercial banks are reduced
> credit creation in more difficult (careful)
> reduce supply of loans
> fall in consumption, fall in investment
> reduces inflation

3- cash & liquidity ratio
*total liquid assets/total deposits**

> central bank will increase the ratio
commercial banks hv to put more $ in reserve requirement
credit creation is more difficult
supply of loan reduced
fall in consumption, fall in investment
reduce AD

23
Q

what is labour force + calculation?

A
  • ppl who are willing to work

number of employed + number of unemployed

24
Q

what is unemployed + calculation

A
  • willing and able to work, but fail to obtain a job

unemployment rate:
number of unemployed/labour force x 100%

25
Q

what are the causes of unemployment? (5)

A

1- frictional unemployment
- inevitable, no need gov intervention
- normal turnover labour
- ppl resign and are searching for a job
- job seekers or fresh university graduates

2- structural unemployment
two reasons:
(a) change in structure of economy
> decline of traditional manufacturing industries
> unemployed for **long periods*
> unable find job for their particular skill
(b) change in pattern of demand of good
> change in consumer preference
> goods out of fashion

3- technological unemployment
> change in method of production
> machines & robots replace jobs done by humans

4- cyclical unemployment
> during recession
> lack of AD
> firms produce less, layoff workers

5- seasonal unemployment
> out of work during certain periods or seasons
eg: fishermen, actors, tour guide

26
Q

under monetary policy, what are the 3 tools used to solve unemployment?

A
  • expansionary monetary policy, to increase money supply in market

1- interest rate
> reduce interest rate
> reduce cost of borrowing for consumers
> supply of loans increase
> increase consumption, increase investment
> firms produce more, hire more employees
> GDP increase, reduce unemployment

2- open market operations
> central bank buy back Treasury Bills from commercial banks/individuals
> deposit in commercial banks increase
> credit creation is easier
> supply of loan increased
> consumption & investment increase
> AD increase, unemployment fall

3- cash & liquidity ratio
> central bank reduce the ratio
> credit creation is easier (more money to lend out)
> supply of loan increased
> consumption & investment increase
> AD increase, unemployment fall

27
Q

what is money?

A
  • antg that is accepted as a medium of exchange
28
Q

what are the types of money?

A

1- legal tender
> notes & coins issued by central bank
> must be accepted

2- commodity money
> precious metals & cowrie shells
> value comes from the commodity it is made out of
eg: gold, silver,rice, alcohol

3- fiat money
> aka representative money
> is money issued by central bank, but has no intrinsic value
> actual value is zero
> only has value by government order

Economics (2 decks)

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