Introduction to economics Flashcards
What is economics?
Economics is a social science concerned with the economic problem
What is the economic issue?
Unlimited wants, limited resources, must make choices between wants
Four basic questions of every economy
What to produce
How much to produce
How to produce
How to distribute production
What is opportunity cost?
When ever we choose ot produce or consume one product, we miss out on an alternative product, this is known as opportunity cost
What’s a production possibility frontier?
A PPF is a graphical demonstration of the possible production possiblities of two alternative goods
What Does it Mean When a PPF Can Shift?
A PPF shifts when there is an improvement or decline in production capabilities
What Does it Mean When a PPF Can Pivot?
A PPF pivot happens when only one sector improves while the other remains unchanged
What are individual wants?
Individual wants: Are desires by each person and are affected by individual tastes and preferences.
What are collective wants?
Collective wants: Are demanded by a community as a whole.
What’s a consumer good?
Consumer good: Goods that are produced for immediate consumption/utility of community needs/wants
Immediate utility
What’s a capital good?
Capital goods: Goods that are not produced for immediate consumption, but, instead contribute to the production of another good.
Building for the future
Factors contributing to an individuals economic decisions
Income, spending vs. saving, education, future earning potential.
Factors contributing to a business economic decisions
Pricing, profit vs. market share, production costs, reinvestment, quality control.
Factors contributing to a governments economic decision
Taxation vs. spending, economic growth, employment, policy decisions
What is GDP?
Gross domestic product is the total market value of goods and services produced by an economy in a year
What is GDP per capita?
The value of GDP per person
What is the business cycle?
The business cycle refers to the flunctuation in the levels of econmic growth
What are the characteristics of expansion?
Increased consumption, inflation, jobs, investment, government expenditure
Whats the role of indiviudals in an economy?
Provide labour, consume goods and services
Whats the role of business in an economy?
Produce goods and services
Whats the role of financial institutions in an economy?
Act as an intermidery between borrowers and spenders
What is the role of a government in an economy?
Redistribute income through tax and spending
Whats an injection?
Monetary flow that boosts economic activity
Whats a leakage?
Monetary flow which reduces economic activity
Whats a command economy?
Government makes economic decisions
Whats a mixed economy?
A combination of market forces and government intervention
Whats a market economy?
Minimal government intervention
Whats a developing economy?
Low material wellbeing and economic development
Whats an emerging economy
Economy at its fastest rate of growth
Whats an advanced economy?
Developed high income economy weith stable growth
Whats HDI?
Human development index measures life expectency, education and living standards
Why is the income inequality and how do you measure it?
Because of the ecompetitive nature of a market ecnomy and you measure it with a Gini coefficent
What is aggregate demand?
The total demand for finished goods or services in an economy in a given time
What is the aggregate demand formula?
AD = C + I + G + (X - M)
What is the equilibrium formula?
S + T + M = I + G + X
What is consumer soverignty?
Consumers exercise their freedom to chose what G&S they want to buy.
What else does consumer soverignty determine?
The allocation of the factors of production.
What factors influence consumer soverignty?
Marketing
Misleading or deceptive conduct
Planned obselescense
Anti competitive behaviour
What is the income formula?
Y = C + S
What is APC?
Average propensity to consume is the proportion of income spent on consumption
What is APS?
Average propensity to save is the proportion of income which is saved for future consumption
What is the APC formula?
APC = C/Y
What is the APS formula?
APS = S/Y
What does marginal mean?
Extra
What is MPC? and whats its formula?
Marginal propensity to consume - changeInC/ChangeInY
What is MPS? and whats its formula?
Marginal propensity to save - ChangeInS/ChangeInY
What are the factors influencing consumer choice?
The level of income
The price of a good or service
The price of substitute goods
The price of compliment good
Consumer taste
Marketing and advertising
What does a firm sector do?
A healthy firms sector, is nessecary for the provision of both individual consupmtion and public goods and services
What is the key consideration of how to produce?
What combination of the factors of production are most efficent
What are the goals of the firm sector?
Maxamise profits
Please shareholders
Maxamise growth
Satisficing behaviour
increase in productive capacity
Large tax base
more employment opportunities
What is the productivity formula?
Output/Input
What is productivity?
Total quantity of goods and services an economy can prdouce with a given number of inpuits
Whats an expansion?
Economy showing positive growth
What is a contraction?
Economy showing negative growth
Whats a peak?
Economy reaches maximum for given economic conditions
What is a recession?
2-3 months of negative growth
What is the lowest part of a business cycle?
Trough
What is the pattern of economic activity called in a business cycle?
Cyclical
Characteristics of expansion
Increased consumption
Increased inflation
Increased Jobs
Incredased government expenditure
Increased investment
Increased income
Characteristics of contraction
Decreased consumption
Decreased inflation
Decreased investment
Increased unemployment rate
decreased standard of living
Less goods and services produced
What are internal economies of scale?
Cost savings a business gains as it grow larger. These savings continue until technical optimum
Advantages of internal economies of scale
Specilization
Bulk purhcasing
easier acsess to capital
Investment
Whats internal diseconmies of scale?
When a business grows to big and starts experiancing higher costs than savings.
What are the causes of internal diseconomies of scale?
Management inefficencies
Loss of employee motivation
Coordination issues
Administrive costs
What are external economies of scale?
Cost savings from favourable external conditions
Key factors of external econimies of scale
Localisation (Silicon valley)
Shared industry improvments
Easier acsess to funding
What are external diseconimies of scale?
Growth of an industry causes more costs for a business than savings
Causes of external diseconomies of scale
Too many business in one area
Infastructure strain
Increased demand for resources
What is specalisation?
Focusing on one task to get really good at it, helps to produce more with less effort.
What is industry specilisation?
Business make similar products group together in the same area to share resources
What is production at scale?
Making products in large quantitys improves efficency
factors affecting contemporary business
Ethical decision making
Production method
Cost
Investment, profit, output
Factors affecting spending or saving
Income levels
Cultural factors
Confidence in the economy
Life stage
government policy
access to credit
MPS-MPC
What are the sources of consumer income?
Return on factors of production
Wages from labour
Rent from land
Intrest from capital
Profit from entreprenerual skills
What are the Factors influencing consumer choice?
Level of income
Price of good or service
price of substitute good
price of compliment good
consumer taste
Whats a firm?
A firm or business is an organisation involved in using entrepernureal skills to combine factors of production to produce goods and services
What are the Challenges of how much to produce?
Purchase too much, goods soil
Purchase too little, cant keep up with demand
Lack of access to capital
Considerations of how to produce
What combination of factors of production is most efficent
