Micro Year 1 Flashcards
(53 cards)
What is the Basic Economic Problem?
Based on scarcity, the basic economic problem states that there are a finite amount of resources that are unable to meet the infinite wants of humans. We need to decide what we are going to produce, how we will produce it and for whom it is being produced for. After this, a question of opportunity cost arises.
Define Opportunity Cost
The loss of alternatives after an option is chosen
What is Ceteris Paribus
All things being equal
What is a Production Possibilities Frontier graph?
A curve depicting the maximum possible output for 2 products in a country being produced over a specific time period with minimal wastage in the products.
What can expand the PPF outwards? (3 factors)
Economic growth, increased investment, productivity improving, improvements in tech.
What can bring the PPF inwards? (3 factors)
Fall in population, fall in investment, fall in production, natural disasters
Define economic growth
An expansion in the productive capacity of an economy
What are the four factors of production?
Capital, enterprise, land and labour
What are the two types of capital?
Fixed - Resources like hospitals or factories, turning working capital into goods and services
Working - Resources used to produce goods and services
What are capital goods?
Goods used to make consumer goods
What are consumer goods?
Goods bought for consumption, not for the production of another good
Define specialisation
Focusing on carrying out/working on a goods/service being done
Define the division of labour
Specialisation amongst workers, working on different tasks at different productive stages, collaborating with other workers.
What is Herding mentality?
Suggests that consumers act and behave in packs and mimic each other
What is rationality
The idea that consumers aim to maximise utility
What is habitual behaviour?
Consumers sticking to what is familiar to them and dont want to risk a change
What is computation?
Society is bad at mathematical computation and can’t understand probabilities to make forecasts
What is demand?
The price that buyers are willing and able to buy at
What is supply?
The price that suppliers are willing and able to sell at
What shifts demand? (4 factors)
Income, trends, season, advertising, tax levels, substitutes, complements
What shifts supply? (4 factors)
Trends, season, taxes, tech, raw materials, productivity
What is the price mechanism?
When the price of goods and services effects the supply and demand of goods and services
What is the signalling function?
Price mechanism acts as a signal, where if prices rise due to stronger demand, it signals to suppliers that they can expand output
What is the incentive function?
Higher market prices act as an incentive to suppliers to raise output and make more profit
