M 1.1 Flashcards
What is economics?
study of how the worlds scarce resources are allocated to competing uses to satisfy society’s wants
What are positive economic statements?
objective statements that can be tested against facts to be declared either true or false
what are normative economic statements?
a subjective opinion, or value judgement that cannot be declared either true or false
often involve opinions on what individuals, firms or government should do
What is the main purpose of economic activity?
to satisfy society’s needs and wants
What is a need?
something that humans require to survive (food, shelter or warmth)
What is a want?
something non-essential for survival but which people think will improve standard of living
what is economic welfare?
the standard of living or general wellbeing of people in society
What does satisfying societies needs and wants in terms or material and non material things lead to?
increased economic welfare
What does GDP stand for?
gross domestic product
What are the countries economic resources known as?
factors of production
What are factors of production?
a countrys productive economic resources divided into capital, enterprise, land and labour
What are the 4 factors of production?
- capital
- enterprise
- land
- labour
What is capital?
man made physical equipment used to make goods and services. Includes machinary and computer equipment
What is enterprise?
entrepreneurs are individuals who take business risk in combining the other three factors of production in order to produce a good or service
What is Land?
all naturally occuring resources such as minerals, the sea, fertile land and the environment. further divided: renewable and non renewable
What is labour?
people involved in production, sometimes referred to as human capital
What is the basic economic problem?
scarce economic resources compared with society’s unlimited wants
What does the basic economic problem mean?
choices must be made when deciding how to allocate these resources
What are the three economic questions?
- What to produce and in what quantities
- How should goods and services be produced ]
- to whom should goods and services be allocated
What are opportunity costs?
the cost of the next best alternative that you give up when you make a choice
What are economic goods/
those that use up scarce economic resources in their production. most consumer goods
What are free goods?
a good that does not have an opportunity cost in consumption because it does not use up scarce resources
What does PPC stand for?
production possibility curve
What is a PPC?
a diagram which shows the maximum possible output combinations of two goods in an economy, assuming full employment of efficient resources
What are changes in the PPC caused by?
quantity and effeciency of the production
WHat are the factors causing an outwards shift in the PPC
- technological improvements that lead to increased productivity of capital equipment
- discovery of new resources
- improvements to education adn training, more productive workforce
- changes that lead to an increase in working population (increase in immigration)
what are the factors leading to an inward shift of the PPC?
- natural disasters (earthquakes, floods)
- wars
- global warming / climate change (loss of farmland)
- prolonged recession, may lead to permanent loss of productive capacity if businesses close down
WHat is economic growth?
an increase in the productive capacity of an economy over time
What are the two types of economic efficiency?
productive efficiency and allocative effeciency
What is productive effeciency?
when maximum output is produced from the available factors of production and when it is not possible to produce more of one good or service without producing less of another
What is allocative effeciency?
when an economy’s factors of production are used to produce the combination of goods and services that maximises societies welfare
What is a market?
a situation in which buyers and sellers come together to engage in trade
What is a competitive market?
a situation where there is a large number of potential buyers and sellers with abundant information about the market
WHat is equilibrium price?
the price at which the planned demand of consumers equals the planned supply of firms
What is demand?
the quantity of a good or service that consumers are willing and able to buy at given prices in a particular time period
What is effective demand?
consumers desire to buy a good, backed up by the ability to pay
What does the law of demand state?
as the price of a good or service falls, the quantity demand increases
WHat is an extension of demand?
an increase in the quantity demanded resulting from a fall in price
What is contraction of demand?
a fall in quantity demanded resulting from an increase in price
What causes a demand curve to move up or down?
change in price of a good or service
What are conditions of demand?
factors that lead to a shift in postition of the demand curve
What are the factors of contions of demand?
- real disposable incomes ( incomes of individuals after the effects of inflation, taxation and benifits taken into account)
- tastes and preferances (societies current preferance)
- population (size, age and gender will affect market size)
- prices of substitute products
- prices of complementary demand
What is taxation?
a charge places by the government on various forms of economic activity
What is a substitute?
a good that may be consumed as an alternative to another good
What is a complement?
a good that tends to be consumed together with another good
