Introduction to Microeconomics (MICRO) Flashcards
what are economic goods
goods that are scarce
what are free goods
goods that are unlimited
what is the economic problem
how to allocate resources when resources are scarce and needs and wants are unlimited
normative statements
opinion based statements
positive statements
a factual statement
what are the economic agents
.households
.firms
.government
the role of households
.they consume g+s
.provide labour for firms
the role of firms
.produce g+s
.purchase g+s to use in their production process
the role of governments
.use taxation and spending to influence the economy
what is rationality
the assumption that each economic agent acts in their own best interest
e.g. households aim for satisfaction
firms aim for profits
government aim for welfare
the FoP
land labour capital enterprise
reward for using FoP
Land = rent
Labour = wages, salaries
Capital = interest
Enterprise = profit
incentive examples
.lower costs incentivises increased consumption
.higher profits incentivise an increase in supply
how is the effectiveness of incentives determined
.size of incentive
.timescale
.type of good/service
.objective of economic agent
.other changes to economy
what is a planned economy
.government controls the FoP and the allocation of resources
what is a market economy
allocation of resources are determined via the interaction of supply and demand
what is mixed economy
market forces and government policies determine the allocation of resources
evaluation of a planned economy
.government can focus resources on there they are most needed
.prices is lower so that more people can have access to g+s
.less inequality of income
evaluation of a market economy
.high competition leads to lower average costs
.high competition leads to more efficiency
.firms will be more innovative with a profit incentive
.people have a incentive to work to earn money for g+s
evaluation of a mixed economy
.government chooses which resources to control
.market forces is used for g+s that are less important
what is allocative efficiency
where production meets consumer preferences
.WHEN D = S
what is productive efficiency
.where all resources are being used as much as possible
.when no more can be produced
what is opportunity cost
cost of the next best alternative forgone when a decision is made
what does the PPC show
the range of possibilities of output that exists for a firm or economy
the PPC graph
.y = good A
.x = good B
.any point on the line is productively efficient
.any point within the line is productively inefficient = waste or not being used to the maximum
.any point beyond the curve is impossible
shifts in the PPC curve
.shifts due to a change in:
quantity/quality of raw materials
quantity/quality of labour available
quantity/quality of capital available
why is opportunity cost important
.helps producers deciding whether to invest in new capital
.helps consumer deciding whether to purchase one of two g+s
.helps government deciding whether to spend on healthcare or education
