Introduction to economics Flashcards
What is scarcity?
The situation in which available resources are finite whereas wants are infinite
Outline the relationship between choice and scarcity
Choices are dependent on how scarce the resources are and how it is possible to best satisfy needs
What is economics?
The study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants
Define sustainability
Maintaining the ability of the environment and the economy to continue to produce and satisfy needs and wants into the future
Define sustainable resource use?
The preservation of the environment over time
Why is there a problem of sustainability?
Because resources are scarce.
What is economic growth?
The increase in the amount of goods and/or services produced in an economy GDP
List the four factors of production
- Land
- Labour
- Capital
- Entrepreneurship
What is entrepreneurship?
A human skill involving the ability to innovate, take business risks, and to seek new opportunities for opening and running a business. This manages other factors of production
What is efficiency?
Making the best possible use of scarce resources in order to avoid waste
What is equity?
The idea of being fair or just. Usually used in the sense of equality and inequality i.e. distribution of wealth and human opportunity.
What is economic well-being?
Levels of prosperity, economic satisfaction and standards of living among members of a society
What is resource allocation?
Assigning available resources or factors of production, to specific uses chosen among many possible alternatives
What are the three basic economic questions?
What/how much, how and for whom to produce
What is the market method?
Resources are owned by private individuals or groups of individuals and it is mainly consumers and firms who make economic decisions by responding to prices that are determined in markets
What is government intervention?
Government makes decisions that affect the economy
What is the command method?
Resources are owned by the government which makes economic decisions by commands
What is capital?
Resources than can produce a future stream of benefits
What are the different types of capital?
- Physical capital
- Human capital
- Natural capital
- Financial capital
What is opportunity cost?
The value of the next best alternative that must be given up or sacrificed in order to obtain something else
What are examples of human capital?
Skills, abilities and knowledge
What are two categories of goods that are free of charge?
- goods provided by the government
2. Certain natural resources such as clean air and forests
What is the circular flow of income model?
Illustrates the interdependence that exists between economic decision makers.
What are the 2 main sectors in a circular flow of income model?
Households and firms
What are the household’s two roles?
It is assumed that they are the owners of all the factors of production
They are the people who buy the nation’s output of goods and services
Draw a circular flow of income model.
Relate factors of production provided by households to payments to the factor provided by firms
Labour- wages
Land- rent
Capital- Interest
Entrepreneurship- Profits
What are the 3 additional sectors in the circular flow of income model?
Government, financial sector and foreign sector
What is a leakage?
The income that leaves
What are types of leakages?
- Taxes
- Saving
- Imports
What is an injection?
Sectors that are responsible for introducing income into the circular flow
What are three types of injections?
- Government spending- education, health care- affect the level of national income
- Investment- financial sector loaning money to firms
- Exports- foreign households and firms buy the country’s exports injecting money into the economy
Draw and label the circular flow of income with the three additional sectors.
What is the GNI?
Gross National Income- amount of income flowing in the circular flow is the national income
What is the circular flow of income useful for?
Showing the interdependence existing between the 5 sectors
What happens if leakages>injections?
Economy shrinks - goes into recession
