Micro & Macro economics Flashcards
Learn all about Basic economic ideas and resource allocation
What is Micro economics?
It is the study of the behaviour of firms and individuals in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
What is Macro Economics?
It is a branch of economics that deals with the performance, structure, behaviour and decision making of the entire economy.
Name a few aggregated indicators used by Macro economists.
GDP, unemployment rates, Price indices
What are price indices ?
A price index is a measure of how prices change over a period of time, or in other words, it is a way to measure inflation.
What is the basic economic problem ?
The fundamental economic problem is how to make the best use of scarce resources and distribute these scarce resources.
Describe the concept of Opportunity cost and consumers.
As consumers, we can’t buy everything that we like, consumers will buy the product which gives them the highest satisfaction.
Describe the concept of opportunity cost and workers.
When many job opportunities are available, undertaking one job involves an Opportunity cost workers will select the job which gives them the highest income, satisfaction and security.
Describe the concept of opportunity cost and producers.
Producers, when deciding what to produce will decide to produce the product which gives them the maximum profit.
Describe the concept of opportunity cost and the government.
The Government has to carefully decide upon what it spends its revenue on, for instance if it decides to spend more on education it has to reduce its spending on health care.
What are economic goods ?
Economic goods are private goods which are scarce and limited, resources are used to produce them. They have an ownership and can be traded.
What are free goods ?
Free goods are not scarce, don’t have an ownership and can’t be traded. Ex: Fresh Air, Sunshine
Describe the concept of “ Ceteris Paribus “.
The phrase translates to “ all other things remaining unchanged or held constant “ It is used in economics to rule out the possibility of “other factors” changing. For instance a Ceteris Paribus analysis would conclude that “a minimum wage creates unemployment” also ignores the effects of other things that are potentially happening simultaneously such as what happens to the workers who remain in employment.
What is “ Invisible hand “ ?
The “ Invisible hand “ is a metaphor termed by Adam Smith, for the unseen forces that move the free market economy. The approach holds that the market will find it’s equilibrium without government interventions forcing it into unnatural patterns.
Why would a government invest more on capital goods ?
Investing more on capital goods would potentially increase labour productivity by making companies more productive and efficient. Newer equipment or factories lead to more products being produced, and at a faster rate.
What is the “Margin” ?
The word marginal means additional. It is the point at which the last unit of a product is produced or consumed. Marginal cost is the additional cost incurred to produce one more unit of a product. Marginal utility is the additional satisfaction gained from the consumption of one more unit.
Describe “short run “ time period.
A time period where atleast one input factor is fixed, while others are variable. Therefore in the short run there is both variable an fixed costs.
Describe “ long run “ time period.
Time period where all factors are variable, its a period of expansion. Ex ; a firm could move to a large factory and buy more machines in the long run.
Describe a “ very long run “ time period.
It is a time period where, it is possible to change the supply due to technical progress. Ex ; a bank could move from a paper based system to a completely electronic paperless system.
What’s a positive statement ?
They deal with scientific explanations of the economy. . Which also means they deal with objective statements which can be tested or proven right.
Ex ; More equal distribution of income would increase the rate of economic growth.
What’s a normative statement ?
They are based on judgement and usually express an opinion. They cannot be tested and proven right or wrong, words such as should, good, bad best, desirable indicate an opinion.
Ex; Cigarettes should only be available on premises which children do not have access to.
What are economic resources ?
These are resources which has limited supply. The nature of resources is that they are limited in supply relative to unlimited wants. The use of these resources involve an opportunity cost.
What are non economic resources ?
These resources involve no opportunity cost. supply will be unlimited even at a price of 0. Ex ; sunshine
What are the 4 types of factors of production ?
Land, Labour, capital, enterprise
Describe the 2 types of natural resources.
Natural resources consists of two types; Renewable and none renewable. Renewable resources can be regenerated. They are not reduced in quantity due to consumption. Ex ; Solar energy, hydropower, wind energy, bio energy. On the contrary non renewable resources cannot be regenerated. Ex ; Gold, crude. oil, coal.
