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Economics > Introduction to Economics > Flashcards

Introduction to Economics Flashcards

1
Q

What is the economic problem?

A

The economic problem is the problem of scarcity; that is, there are an unlimited amount of consumer and community wants but limited resources to fulfill them

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2
Q

Why is there need for choice by individuals and society?

A

Whenever a choice to satisfy a want is made, we are giving up the opportunity to satisfy an alternative want.

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3
Q

What is opportunity cost?

A

Opportunity cost is the value of the next-best alternative when a decision is made; it’s what is given up

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4
Q

A PPF is….

A

a graphical representation of the combinations of two alternative products demonstrating the production capabilities of two goods

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5
Q

What are the assumptions of the PPF?

A
    • Only two goods can be produced
    • At each point, all resources are fully employed
    • The level of technology is fixed
    • Amount of resources is fixed but are transferable
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6
Q

What do points on the frontier, inside the frontier and outside of the frontier indicate?

A

The point on the frontier demonstrates the most effective use of resources. Any point within the frontier means that resources are underemployed and not working at maximum efficiency and any point outside of the frontier indicate unsustainable production and that resources will run out

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7
Q

What are the economic factors underlying decision-making for individuals?

A

Education (the higher the level of education generally the higher the income; but you may have to forgo years of work in order to obtain this)
Spending v Saving, Work, Retirement, Voting

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8
Q

What are the economic factors underlying decision-making for businesses?

A

Pricing, production, recourse use and industrial relations

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9
Q

What are the economic factors underlying decision-making for governments?

A

Allocation of resources, redistribution of wealth and tax, policies, regulation of economic behaviour, influencing the decisions of consumers and businesses.

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10
Q

What are the four factors of production?

A

Land
Labour
Capital
Enterprise

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11
Q

What are the sources of income for each of the factors of production?

A

Land → Rent
Labour → Wages
Capital → Income
Enterprise → Profit

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12
Q

How are goods and services distributed in a market economy?

A

Individuals are paid in money in exchange for their resources. The individual will then use these funds to purchase goods and services (UNEQUAL)

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13
Q

How are goods and services distributed in a planned economy?

A

Government allocated goods and services toward its people, ie. rations (EQUAL)

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14
Q

How are goods and services exchanged in a market economy?

A

Money is used as a medium for exchange.

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15
Q

How are goods and services exchanged in a planned economy?

A

Barter [non cash exchange of goods]. ie. trading something

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16
Q

What are some advantages for market and planned economies?

A

Market Economy - easier to determine value of goods and services.
Planned Economy - Equal distribution of goods and services

17
Q

What are some disadvantages for market and planned economies?

A

Market Economy - unequal distribution of income means goods are distributed unequally.

Planned Economy - Hard to determine exchange rates of goods, particularly if only one party is interested in the good or service.

18
Q

What is the business cycle?

A

The fluctuations in economic activity over time

19
Q

What is an upswing/expansion?

A

Upswing/expansion is where expenditure, output, income and employment levels rise

20
Q

What is a boom?

A

Boom is where expenditure, output, income and employment levels reach a maximum point as economic activity peaks

21
Q

What is a downswing/contraction?

A

Downswing/contraction is where expenditure, output, income and employment opportunities begin to fall as economic activity decelerates

22
Q

What is a recession?

A

Recession is where expenditure, output, income and employment reach a minimum point as economic activity is at a minimum

23
Q

What defines a recession?

A

3 consecutive quarters of negative GDP growth

24
Q

What defines a depression?

A

A serious and continuing recession

25
Q

What are the impacts of the business cycle (expansion and contraction)?

A

Expansion - Upturn in economic activity, business production increases, higher employment rates, consumer spending increases due to higher pay and better quality of life
Contraction - Consumption levels fall, production levels fall, higher levels of unemployment, falling income and lower quality of life.

26
Q

What is the impact during an expansion on individuals?

A 
Consumer confidence rises 
Increased output 
Increased wage growth 
Lower unemployment 
Higher inflation
Increased quality of life
27
Q

What is the impact during an expansion on firms?

A

Increased production
Increased investment in new equipment/expansion
Increased profits

28
Q

What is the impact during an expansion on governments?

A

Increased collection of company and personal taxes

Reduced spending on social welfare payments (unemployment)

29
Q

What is the impact during a contraction on individuals?

A 
Consumer confidence falls 
Decrease output
Lower wage growth 
Higher unemployment 
Lower inflation
Decreased quality of life
30
Q

What is the impact during a contraction on firms?

A

Decreased production

Decreased investment in new equipment/expansion Decreased profits

31
Q

What is the impact during a contraction on governments?

A

Decreased collection of company and personal taxes

Decreased spending on social welfare payments (unemployment)

32
Q

What is the circular flow of income?

A

The circular flow model demonstrates how money moves from producers to households and back again in an endless loop. In an economy, money moves from producers to workers as wages and then back from workers to producers as workers spend money on products and services

33
Q

What are the roles of parties in the circular flow of income?

A

Individuals: demand goods and services, supply labour and resources
Businesses: demand labour and resources and supply goods and service
Financial institutions: Collect money as savings, spend money as investments in businesses
Governments: Collects taxation and supplies collective goods.
International: Buys imported goods and sells exported goods.

34
Q

What are leakages and injections?

A

S, T and M represent leakages - money not being spent within the economy
I, G and X represent injections - money going into the economy

35
Q

When is an economy in equilibrium?

A

Equilibrium is the state where S+T+M=I+G+X. However economies are rarely in equilibrium.

36
Q

What happens when leakages are greater than injections? (S+T+M>I+G+X)

A

When S+T+M>I+G+X the economy is in a state of downturn..
Overtime, consumers will have less to save, spend on imports or have collected as taxes to equilibrium will be restored at a lower level

Economics (6 decks)

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