Introduction To Microeconomics Flashcards
What is scarcity
Basic economic problem based on the fact that there are limited resources to satisfy those wants and needs
What is a free good and what is an economic good
Free good- no scarcity
Economic good- scarcity attatched
What are the factors of production
Capital
Enterprise
Land
Labour
Explain what entails of the factors of production
Capital- physical assets or man made resources used in production
Enterprise- ability and willingness to organize, coordinate and take risks in production process
Labour- physical and mental effort exerted by individuals in production process
Land- all natural resources used in production. Fixed factor
3 main economic agents
Consumers
Producers
Government
What are positive statements
Objective statements that cab be tested, amended or rejected by referring to available evidence
What are normative statements
A value judgment is a subjective statement of opinion rather than a fact that can be tested by looking at available evidence
Factors of production, reward/incentives
C- interest from the investment
E- profit (an incentive to take risks)
L-wages
L-Rent
What does Incentive mean
when something motivates an individual to make a decision and act a certain way.
What is resource allocation
How resources are distributed among producers and goods and services are distributed among customers
What Is a market economy
An economy where market mechanism allocates resources so customers make decisions about what is produced
Planned economy
CELL are allocated by the state, so they decide what, how and for whom to produce goods
Economic efficiency
Resources are allocated optimally, so every customer benefits and waste is minimised
Productive efficiency
MC=AC
Optimum level of output is produced using all resources avaliable in the economy
Allocation efficiency
P=MC
Distributing and assigning resources a firm has available in the most effective way
What is a mixed economy
both free market mechanism and government allocate resources
what are the advantages of a market economy
More of an incentive for firms to be efficient as they have to provide G&S demanded by consumers.
likely to lower their average costs and make better use of resources. ↑ overall output of economy
- Bureaucracy for gov intervention avoided
- some economist argue some freedom gained from free economy leads to ↑ personal freedom.
What are the disadvantages of a market economy
-free market increases inequality and benefits the wealthy.
-could ↑ monopolies
-overconsumption of demerit goods which have negative externalities.(tobacco)
- public goods such as national defense is not provided.
- merit goods are underprovided(education)
what are the advantage of planned economy
- May be easier to coordinate resources in times of crisis.
- Gov can compensate for market failure by reallocation resources.
- inequality in society could be ↓
-prevent abuse of monopoly power.
What are the disadvantages of planned economy
- Gov and markets fail and they may not be informed what to produce
-limits democracy and personal freedom - may not meet consumers preferences
Division of labour
Where the production process is broken down into stages and workers are assigned different tasks
Demand
The amount of goods and services consumers are willing and able to purchase at a given price in a given time
Supply
The quantity of goods and services producers are willing and able to produce at a given price in a given time
Specialisation
Where an individual worker, firm, region, or country produces a limited range of goods or services
What is individual demand
the demand for a product by a consumer
what is market demand
the demand for a product by all consumers in a market
what is competitive demand
demand for goods that are in competition with each other
what is composite demand
demand for good that has multiple uses
what is joint demand
goods which are interdependent/ demanded together.
What is individual supply
supply for a product by one producer
what is market supply
supply for a product by all producers in a market
what is joint supply
hen a firm produces more than one product together
what is competitive supply
a firm can use its’ resources to produce more than one product
What causes a shift in the demand curve
Population
Advertising
Substitute goods/ price
Income
Fashion trends
Interest rates
Complimentary goods/price
What is the law of demand
there is an inverse relationship between price and quantity demanded. As price increases Qd decreases
What is the law of supply
there is a direct relation between price and quantity supply
what do we assume for both the law of supply and demand
Ceteris Paribus
What causes a shift in the Supply curve
Productivity
Indirect tax
No. of firms
Technology
Subsidy
Weather
Cost of production
Main objectives of economic agents
Consumers maximise utility
Firms maximise profit
Gov maximise welfare
Ways in which people’s behaviour may deviate from the social norm
Altruism/sense of fairness.
Limited capacity for calculations, we aren’t 100% rational
Biased in decision making
Is the environment a scarce or unlimited resource
Scarce resource
Marginal analysis used for
To see how one additional unit affects economic systems
