Introduction to economics Flashcards
Scarcity
The basic economic problem – unlimited wants in face of limited resources
Economic goods
Goods that are scarce
Free goods
Goods that are not scarce e.g. the atmosphere
poverty
A situation in which people lack the basic necessities of life
rationality
Economic agents acting in their own best intrests
Factors of production
Resources used in the production process – Land, Labour, Capital and Enterprise
Oppertunity cost
The value of the next-best alternative
PPC
Production possibility curve - Used to show the maximum combinations of goods or services that can be produced in a set time
Capital goods
Goods used as part of the production process
Consumer goods
Goods produced for consumption
Resource allocation
The way in which a societies productive assets are deployed
Market economy
Where market forces are responsible for resource allocation
Centrally planned economy
Where the government is responsible for resource allocation
Mixed economy
A combination of market forces and government intervention are used to allocate resources
Capitalism
A system of production in which productive resources are privately owned
Invisible hand
A term used to describe market forces within an economy
GDP
The value of all goods and services produced in an economy in a year
What is the role of prices in a market economy
They act as incentives for economic agents
How do consumers express their preference in a market economy
By either buying or not buying
Advantages of a market economy
Households and firms can use all of their income to achieve their objectives
Invisible hand guides decision-making therefore there is efficient allocation of resources
Advantages of a centrally planned economy
The government can ensure that important areas get the resources that they need
Advantages of a mixed economy
Has the advantages of both centrally planned and market economies
Limited the issues that are caused by market economies over providing demerit goods
Disadvantages of a market economy
Overprovides demerit goods and underprovides merit goods
Disadvantages of a centrally planned economy
Due to the complexity of modern economies means that it is not logistically possible to have the government be responsible for resource allocation
Specialisation
The process of concentrating on a task to become an expert in it
Division of labour
A process by which the stages of production are broken down into a sequence of stages
Barter system
An economy without money
Labour productivity
Output per worker per unit of input
Benefits of the division of labour
More production
Tackles scarcity
Allows for trade
Disadvantages of the division of labour
Dull for workers
Inflexible
Overspecialisation creates risk for countries if circumstances change
Marginal principle
The idea that economic agents make decisions based on small changes from the existing
Rational decision-making
A decision that allows economic objectives to maximise their objectives
Utility
The satisfaction received from consumption
Marginal utility
The additional utility gained from consuming an extra unit of a good or service
law of diminishing marginal utility
The more units of a good are consumed, the lower the utility from consumption
What is a normative statement
A statement based on opinions that cannot be proven
