Introduction of Economics - Unit 1 Flashcards
What is the basic Economic Problem?
There are unlimited wants and scarce resources
What always results with an opportunity cost?
Choices made
Give 3 examples of maximising behaviour:
Businesses maximising profit/government maximising welfare/students maximising grades
Define opportunity cost:
The benefit lost from the next best alternative choice, which has been foregone
What is Economics?
The study of the allocation of scarce resources between alternative means.
What are Goods?
Tangible products e.g. cars
What are services?
non-tangible products e.g. taxis
Define Consumer Goods:
Products purchased for final consumption (use) eg TVs and food
Define Capital Goods:
Products used to produce other goods and services eg machinery
What are Factors of Production?
Resources used as inputs into the production process = land (natural resources); labour; capital & enterprise (CELL)
Define Specialisation:
Individuals, firms, countries focus on producing a narrow range of goods and/or services.
What are the Sectors of an economy?
Primary (extract natural resources); secondary (transform natural resources into manufactured products); tertiary (provides services).
What is Division of Labour?
An example of specialisation, whereby individuals or groups within a business concentrate on performing one or a limited range of tasks.
What is interdependence?
Where individuals, firms and countries are reliant on others in order to undertake their activities and/or for survival.
What is a Market?
A place where buyers and sellers come together in order to exchange goods and services
Define Effective Demand:
the quantity a buyer is WILLING and ABLE to purchase at a given price
Define Effective Supply:
the quantity a supplier is willing and able to offer for sale at a given price
What is another phrase meaning Market Economy?
A Free Market
What happens in a Market Economy?
Resources are privately owned and are allocated by the forces of demand and supply.
What is a Mixed Economy?
A mixed economy allows businesses to supply goods and services to overcome the problems associated with planned economies; It uses government intervention to overcome the problems of market economies such as using laws, fines or taxes so for example, pollution is taken into account, and harmful goods are made illegal; It may provide itself those goods and services that it believes may be undersupplied in the market eg education and health care.
Pros of the Free Market:
It responds quickly to people’s wants; The market provides a wide variety of goods and services to meet consumers’ wants; It encourages the use of new and better methods of production; It relies on producers and consumers to decide what, how and for whom to produce – so no one needs to be employed for this purpose!
Cons of the Free Market:
Factors of production will be employed only if it is profitable to do so – this could result in unemployment; It may fail to provide certain goods and services eg street lights; policing; It may encourage the consumption of harmful goods; The social effects of production may be ignored eg pollution, global warming; More goods and services may be allocated to those with more money
What are 4 main functions of money?
A medium of exchange (ie acceptable); A store of value (ie must keep its value); A unit of account (ie can be used to set a price for all products); A means of deferred payment (ie can delay payment).
Name 5 characteristics of Good Money:
acceptable; durable; portable; divisible; limited in supply.
