i hate econs Flashcards
me when me when me when *throws myself off a cliff*
microeconomics
individual parts of the economy + demand and supply of particular goods and services
macroeconomics
economy as a whole + aggregate demand and aggregate supply
positive statement
statement of fact + can be proven through facts
normative statement
statement of opinion + cannot be proved/ disproved by facts
what is the problem of scarcity?
limited resources and unlimited wants
factors of production (FOP)
CELL - capital, entrepreneurship, land, labour
capital
manmade resources (physical capital NOT money)
entrepreneurship
overall responsibility of decision-making process
land
natural resources
labour
human capital
opportunity cost
(expected) benefits from the next best alternative (only one) forgone + includes explicit (money) and implicit costs (time, energy, etc)
what assumption is made regarding economic agents
they are rational - aim to max. own benefit and min. costs of choice
marginalist principle
decisions made at the margin
marginal benefit
additional benefit derived from one additional unit of the good
marginal cost
additional (opportunity) cost incurred for one additional unity of the good
consumer: aim
maximise satisfaction/ utility, subject to income constraints
consumer: benefits
marginal private benefit = marginal utility
Law of Diminishing Marginal Utility (LDMU)
as the quantity of a good consumed increases, the marginal utility falls
consumer: costs
marginal private cost: price paid
consumer: decision making
consume if MU>MC
stop when MU=MC
consume less if MU<MC
producer: aim
maximise profit
producer: benefits
marginal private benefit = marginal revenue
producer: costs
marginal cost
Law of diminishing marginal returns
increase variable FOP with a given amt of fixed factor, there will be a point when each extra unit of variable FOP will produce less extra output than prev unit
producer: decision making
prod more if MR>MC
stop when MR=MC
prod less when MR<MC
government: aim
maximise social welfare and achieve both micro and macroeconomic objectives
government: benefit
marginal social benefit
government: cost
marginal social cost
government: decision making
continue if MSB>MSC
stop if MSB=MSC
do less if MSB<MSC
3 key econs qns
what and how much to produce
how to produce
for whom to produce
free market economy
allocate resources through price mechanism based on forces of market demand and supply + limited role of gov
planned or command economy
state allocates resources
mixed economy
mixed lor
what is production possibility curve (ppc)
it shows all maximum attainable combinations of two goods that a country can produce with all its resources fully and efficiently employed (within specified time period)
scarcity in ppc
attainable vs unattainable points
choice in ppc
only one combi can be chosen
opportunity cost in ppc
increasing OC: downward sloping gradient or ppc concave to origin
constant OC: straight line ppc
productive efficiency
all available resources are fully and efficiently employed
productive efficiency in ppc
all points on ppc
allocative efficiency
society produces and consumes a combination of goods and services that maximises its welfare
allocative efficiency in ppc
only one point on ppc
actual economic growth
increase in real national output
actual growth in ppc
movement from point within ppc to closer/ on the ppc
potential economic growth
increase in economy’s ability of produce goods and services (productive capacity)
affected by: change in quantity and quality of resources, change in tech (increase productivity of resources)
potential growth in ppc
shift of entire ppc
