Introduction to Economics Flashcards
What is Economics?
The study of how choices are made under conditions of scarcity, and the results of these choices for society.
The choices are centred on what to produce, how much to produce, and for whom to produce.
What is Microeconomics?
The focus on part of the economy containing individuals, households or firms. Thus, the wages of lecturers at a university, the number of cars produced by Toyota and similar are part of micro.
What is Macroeconomics?
When economics focuses on the economy as a whole. It covers issues such as aggregate supply and aggregate demand in the entire economy, the issues of inflation, unemployment, balance of trade, economic growth, and more.
What is the link between money and economics?
Money is just a TOOL of economics.
What is scarcity?
It is excess human wants over that which can be produced.
It arises because human wants can virtually be limitless whilst resources available (factors of production i.e. land, labour and capital) are limited.
What is an opportunity cost?
The cost of any activity measured in terms of the best alternative forgone.
It is the sacrifice of alternatives in production (or consumption) of a good, it is the best thing that could have been done as an alternative.
What is a rational choice?
It involves weighing up the benefits of any activity against its opportunity cost.
What is rational decision making?
It entails doing more of an activity if its marginal benefits exceeds its marginal cost and vice versa.
What is the production possibility curve (PPC)?
Its a curve showing all the possible combinations of two goods that a country can produce within a specific time period with all its resources FULLY and EFFICIENTLY employed.
What does the curve of the PPC suggest?
An INCREASE IN THE OPPORTUNITY COST of substituting the production of one good (e.g. guns), for another good (e.g. clothing).
The increase in the cost could be that the resources used efficiently in producing guns are not easily able to be efficiently used in producing clothes.
How is full economic efficiency achieved?
When each good is produced at the minimum cost (production efficiency) and where individual people and firms get the maximum benefit from their resources (allocative efficiency).
How can the PPC shift?
Outwards = if resources increase (e.g. the discovery of oil in an economy)
Inwards = in case of disasters such as earthquakes that reduce the resources in the economy
What is the circular flow of goods and income?
Shows the interrelationship between firms and households in the money economy. The household provides factors of production such as labour or land and this receive income from firms in the form of wages, rent etc. In return firms provides goods and services to households and thus receive income in the form of consumer expenditure.
How can economic systems be classified?
By assessing the extent in which the government intervenes in the economic decision of allocating resources.
What is a command (planned) economy?
All economic decisions are made by the government or state.
While this may enable to directly address national economic goals such as rapid growth and low unemployment, it tends to be inefficient and bureaucratic; prices and the choices of methods of production can be arbitrary; incentives to be efficient may lack and could result into shortages and surpluses
