Introduction into microeconomics Flashcards
Define ecomomics
Unlimited human needs and wants can be satisfied through the use of limited resources.
Define needs
The goods and services that people believe are necessities of life.
Eg- Water, food, shelter
Define wants
Are the goods and services that assist people to enjoy a good standard of living.
Eg- new car, couch, makeup
Define relative scarcity
Is when the unlimited needs and wants of society is greater than the limited resources. When demand is greater than supply the prices will rise.
Define capital
Are the goods produced in order to create other goods or services.
Eg- crane
Define natural resources
The resources that occur naturally.
Eg- water, oil, coal, wheat
Define labour resources
The physical and mental effort used by people in the production process.
Eg- grape pickers
Define enterprise resources
Is the ideas and willingness to take a risk.
Eg- this is a common attribute for entrepreneurs.
Define opportunity cost
Is the value of the benefits received from a good or service that has been forgone for an alternative.
Eg- buying an apple over an orange.
Opportunity cost = benefits received from the orange.
Define Production Possibility Frontier.
Is the maximum output of two goods or resources an economy can achieve when resources are fully and effectively employed. This is usually shown when resources are land on the possibility frontier line of resource efficiency.
How can we grow production?
If there was an increase in quantity and quality (efficiency) produced.
This would also cause a shift of the PPF outwards.
What are the factors of production growth?
Immigration
Discovery of natural resources
Increased efficiency and productivity (improved skills and efficiency= training and education of employees)
Define price mechanism
Is where the producer of the supply and the consumer of the good or service being sold interact with one another in the marketplace to set prices. The price is usually based on the amount of supply available.
What are the three questions of production?
- What to produce?
- How to produce?
- For whom to produce?
Define ‘what to produce?’
Is determined by the consumers for the reason when they purchase g+s for a certain price this sends signals to producers of what their target market needs and wants are.
Define ‘for whom to produce?’
Those who are willing and able to exchange their income for a good or service. The gov may intervene in order for consumers to be able to afford necessities.
Define ‘how to produce?’
Businesses will aim to minimize costs of production while maintaining a good reputation in order to create a profit. Minimize costs by purchasing cheaper supplies form international markets.
What is the law of demand?
Is the quantity of goods and services that consumers are prepared to purchase that varies with the change in price.
What happens to the demand curve when there in an increase in price?
Contraction
What happens to the demand curve when there is a decrease in price?
Expansion
What is the law of supply?
The quantity of a good or service that sellers are prepared to pay depends on the change in price.
eg- Price raises= increase in g+s sold.
What happens to the supply curve when prices rise?
Expansion- producers will allocate more resources to this good or service as they will make a larger profit from it.
What happens to the supply curve when there is a decrease in price?
Contraction- producers will then reallocate resources to other goods or services to make a larger profit from.
Define equilibrium price
When the quantity supplied is exactly equal to the quantity demanded.
List two factors affecting the demand curve
- Consumer confidence
- Disposable income (causes shifts of the demand curve to the left or right)
List two factors affecting the supply curve
- Climatic conditions
- Costs of production (causes shifts of supply curve to the left or right)
What is the elasticity of demand coefficient?
%change in quantity divided by %change in price
What is elasticity of demand?
Measures how sensitive quantity demanded is to a change in price. Demand for a product changes significantly due to price changes this is elastic.
When quantity is greater than 1
What is inelasticity of demand?
When the demand for a product is hardly effected by price changes. When quantity is less than 1.
Eg-Petrol as people will still have to purchase petrol at high prices (no other alternative).
What is unit elastic?
When the change in %quantity demanded is the same as the %change in price.
Equals 1
