Introduction to Microeconomics Flashcards
Define economic goods
A product or service which can command a price when sold which satisfy the needs of humans
what are free goods?
a resource, such as sunlight or air, which has zero margional cost. For free
Define scarcity
A product which is restricted in quantity or availability to create or produce.
Define what is a positive statement
A positive statement is a statement with no value judgements placed in them and mentions just facts.
Define a normative statement
A statement that includes value judgements on whhat they think should be done ``should’’
What is opportunity cost
the foregone benefit for the of the next best alternative
Define utility
the satisfaction one gains from consuming a prooduct.
Define the factors of production
the factors of production are needed to make a good and service. Without factors of production, nothing will be produced/
what is margional utility?
The extra satisfaction of consuming an extra (additional) unit.
What are the factors of production?
C- Capital (man made - factories)
E-enterprise (who runs the business
L- labour (who makes the products
L- land
What is a free market?
In a pure Market Economy there is no government involvement in economic decisions. All busineses are run privatly with no government intervention
what is a command economy
An Economic system in which most resources are state owned and also allocated centrally (government)
what is a mixed market?
An economic system in which resources are allocated through a mixture of the market and direct public sector involvement
what are the advantages/disadvantage of the Free market economic system
Advantages of this market system include efficient resource allocation, competition, innovation, and product variety.
- monopolies, no government intervention, poor working conditions, and unemployment.
what are the advantages/disadvantages of the Mixed market economic system
- innovation, variety, social welfare.
- tax regulation, ghoverment monopolies, ineffective regulation
what are the advantages /disadvantages of the command market economic system
- efficiency, low unemployment,
- Lack of innovation and less variety, mislocation within the central sector
what is a ppc
The production possibilities curve (PPC) is a graph that shows all of the different combinations of output that can be produced given current resources and technology.
What causes the ppc to shift to the right
innovation, immigrants, war
What causes the ppc to shift to the left
conflict, weather, recession
Define specialisation
The concentration by a worker, firm, region or whole economy on a narrow range of goods and services
what are the benefits of specialisation
- Higher output - Total output of goods and services is raised and quality can be improved. A higher output at lower costs means more wants and needs might be satisfied with a given amount of scarce resources.
- Variety - Consumers have improved access to a greater variety of higher quality products
- A bigger market - Specialisation and international trade increase the size of the market offering opportunities for economies of scale (a fall in long run costs per unit of output)
- Competition and lower prices - Increased competition for domestic producers acts as an incentive to minimise costs and innovate to remain competitive.
what are the risks of specialisation
- If a country has Finite resources (such as oil), when these run out, the economy is likely to suffer
-If a country has Finite resources (such as oil), when these run out, the economy is likely to suffer
what is the division of labour.
The specialisation of labour where the production process is broken down into separate tasks
Advantages of division labour
To the business:
- Specialist workers become quicker at producing goods- Production becomes cheaper per good because of this- Production levels are increased- Each worker can concentrate on what they are good at and build up their expertise
To the worker:
- Higher pay for specialised work- Improved skills at that job.
disadvantage of division of labour
To the business:
- Greater cost of training workers- Quality may suffer if workers become bored by the lack of variety in their jobs
To the worker:
- Boredom as they do the same job for long periods to earn a descent wage - Their quality and skills may suffer- May eventually be replaced by machinery
When it comes to behavioural economics, how do most people act?
Most people act in wats which only maximises their happiness and maximises their welfare.
What is bounded rationality and why?
Bounded rationality is where people act on something without exploring all the possible options and outcomes.
This can happen through
- Limited amount of information
- Limited amount of time to analyze
- Limited mental capacity
What are heuristics?
Heuristics are mental shortcuts or rule of thumb which can produce a quick, satisfactory but not perfect answers to complex questions
such as
I want the same food as last time.
What are the shoves and nudges in behavioural economics
-Eliminating or restricting choices
• Banning smoking in public places
• Banning takeaways close to schools / laws on using tanning salons
-Financial disincentives to take a particular course of action
• Higher taxes on cigarettes / fuel / congestion charge
• Vouchers for healthy behaviour choices
-Influencing Choice
• Provision of information - e.g. calorie counts on menus
• Changes to environment - e.g. designing buildings with fewer lifts
