Microeconomics LS1-LS6 Flashcards
What is economics?
Is a social science which studies the economy.
What is an economy?
All the goods and services produced in an area.
What are the factors of production?
Land
Labour
Capital
Enterprise
What is automation?
Uses capital machinery and new technology to replace human labour
What does ceteris paribus mean?
Assuming all variables within the economy remain constant.
What is the difference between empirical and theoretical models?
Theoretical- based on theories
Empirical- based on data
What is the economic problem?
How to use the available scarce resources to satisfy the consumers infinite needs and wants as effectively as possible.
What are the 3 questions?
What to produce?
How to produce it?
Who to produce it for?
Who are the economic agents?
Governments, consumers, firms
What are economic agents?
Groups that participate within the economy.
What is opportunity cost?
The cost of the next best alternative forgone.
What is PPF?
A PPF shows the maximum potential output of a combination of two goods and services an economy can achieve when all resources are fully employed.
What is economic growth?
Economic growth is an increase in production of goods and services within an economy (outward shift)
What causes an outward shift?
- higher productivity
- increase in stock of capital and labour supply
- innovation and invention of new products
Causes of an inward shift.
- natural disasters
- large scale of her migration out of country
- long-term fall in productivity of labour
What are consumer goods?
Goods used by people to satisfy their infinite needs and wants.
What are capital goods?
Goods which are used to produce other goods and services.
What are positive statements?
Can be proven true or false.
Objective
What are normative statements?
Based on opinions
Subjective
What is value judgement?
Can agree or disagree.
What is specialisation?
Occurs when an individual or firm concentrated production on a limited range of good or services.
What is division of labour?
Specialisation of workers on specific tasks within the production process.
What does increased productivity lead to?
- higher living standards
- higher quality and quantity of goods and services
- more efficient use of resources
Two methods of trading.
Bartering and money
What are the 4 functions of money?
1) Medium of exchange- something commonly accepted in exchange for goods
2) measure of value- price of something reveals its value
3) store of value- value maintained and kept for long time
4) method of differed payment- allows debt to be created
What is the price mechanism?
Process by which markets allocate resources.
What is a command economy?
Economy in which resources are allocated solely by the state
What is a mixed economy?
Economy by which resources allocated by the state and price mechanism (free market & supply and demand)
What is a free market economy?
Economy in which resources are solely allocated by the price mechanism.
Difference between the public sector and private sector.
Public sector- part of economy controlled by the gov
Private sector- part of the economy NOT controlled by the gov
What is there in both mixed and free market economies?
Innovation and quality.
This is because both competition and profit are motive are present.
Why might free and market economies have a less equitable distribution of income and wealth?
Because the owners of capital and land accumulate wealth over time and pass privilege onto children.
