Intro To Economics Flashcards
What is an economic good?
Any good with an opportunity cost
Example: A person chooses to spend money on a vacation, the opportunity cost is the new laptop they could have purchased instead.
Define economics.
How agents interact with each other and the choices they make with the scarce resources available
Example: Economics studies how individuals, businesses, and governments make decisions on resource allocation.
What is the economic problem?
Scarcity: unlimited wants with limited resources, therefore forced to make choices hence an opportunity cost is created
Example: Due to scarcity, individuals must choose between buying a car or saving for retirement.
Define opportunity cost.
The next best alternative foregone when making a decision
Example: If a student chooses to study for an exam, the opportunity cost is the time spent not working at a part-time job.
List the factors of production.
Land, labour, capital and enterprise
Example: A factory uses land for production, hires workers for labor, and invests in machinery as capital.
What is the role of households in economics?
Consumers demand goods and services, provide labor force to firms, objective is to maximize their utility
Example: Households decide between buying a new car or saving money for their children’s education.
What is the role of firms in economics?
Produce output of goods or services, purchase goods and services used in the production process, decide which techniques of production to use, maximize profit
Example: Firms analyze market demand to decide what products to produce and how to efficiently manufacture them.
What is the role of government in economics?
Use taxation, spending, and regulations to influence the economy, give benefits to the unemployed to manage poverty, aims to maximize welfare
Example: Governments implement policies to stimulate economic growth and provide social welfare programs for disadvantaged populations.
Define rationality in economics.
The assumption that each economic agent acts in their own best interest
Example: Rational consumers compare prices and quality before making a purchase to maximize their satisfaction.
Differentiate normative and positive statements.
Normative statement - based on opinion, not proven
Example: ‘The government should increase spending on education.’
Positive statement - based on fact, can be proven with evidence
Example: ‘Unemployment rate is 5% in the current economy.’
What are the three main choices in economics?
What to produce, how, and for whom
Example: An agricultural company must decide what crops to grow, how to harvest them, and who to sell them to.
What constitutes a bad decision in economics?
Choice is worth less value than the opportunity cost
Example: If a business invests in outdated technology instead of upgrading, the opportunity cost is lost efficiency and competitiveness.
What is economics? (Individuals)
households make choices to allocate resources during scarcity for consumption of goods and services in an economy to meet increasing demands with scarce resources to achieve utility.
What is economics? (Businesses)
firms make choices to allocate resources during scarcity for the production of goods and services in an economy to mee t increasing demands with scarce resources in order to maximise profit
What is economics? (Government)
gov make decisions to allocate resources during scarcity for the distribution of goods and services in an economy to meet increasing demand with scarce resources in order to supply welfare
