Foundation of Economics Flashcards
What is an economy?
An area where goods and services are produced. They vary in size and are often referred to as regional, national, or international.
Who are economic agents?
The decision-makers in the economy. The three main economic agents are:
- Consumers
- Producers (Firms)
- Government
Define scarcity.
A situation where limited resources need to be allocated among unlimited wants.
Factors of production.
The resources used to produce goods and services, also known as inputs:
- Land
- Labour
- Capital
- Enterprise
Define land.
All natural resources (eg. wood, water, soil) available for production of goods or services.
Define labour.
Any human effort (physical or mental) used in the production of goods or services.
Define capital.
Man-made resources (eg. machinery, computer, vehicles) used in the production of goods or services.
Define entrepreneurship.
- The organizing and risk-taking factor of production using the three other factors of production to produce goods and services.
- Take risk by using their own money to buy the factors of production, produce the goods and services, and hopefully, make a profit.
What is factor endowment?
The quantity and quality of land, labour, capital and enterprise available for production in an economy.
What is production?
The process of converting factors of production into goods and services.
Define opportunity cost.
The forgone benefit (eg. time, energy, money) of the NEXT BEST alternative when resources are used for one purpose rather than another.
How are resources limited?
- Limited in physical quantity
2. Limited in use
Economics as a social science.
Because it studies people in society and how they interact with each other.
What is a capitalism market?
Markets are unrestricted by limited government interference where buys and sellers interact to supply the required demand.
What is a mixed market?
The government plays a role to enforce property rights and to regulate markets. Taxes are also added to provide goods and services.
What is a command economy?
The government decides on everything in which the production is more efficient but possible failures could lead the nation to a collapse.
What is a production possibilities frontier/curve?
The model represents the maximum combination of two goods/services that can be produced by an economy in a given time period, if all the resources in an economy are being used fully and efficiently and the state of technology is fixed.
How does the PPF shift?
With any quantitative or qualitative change to the factors of production.
- More resources available
- Technological improvements
- Increased efficiency in labour force
Describe the structure of an economy.
Primary: produce raw materials that are used to make finished products
Secondary: change raw materials into finished products (aka. Manufacturing sector)
Tertiary: provide services to consumers and other firms
What is an investment?
Spending on capital goods such as new factories, machinery and vehicles.
What is a depreciation?
The decrease in the value of capital goods as the goods wear out it are used in the production process.
What is a positive economy?
Objective statements that describes how an economy actually works which can be tested or rejected by referring to the available evidence.
What is a normative economy?
Opinion based statements that is concerned with how the economy should work which carries out biased judgements.
Does economic growth lead to development?
- Higher income; improves standards of living
- Improved economic indicators of welfare (eg. life expectancy)
- Higher govt. revenues (ie. higher tax)
What is sustainable development?
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
