Overall Flashcards
‘What is the basic economic problem?’
‘The basic economic problem is about scarcity and choice due to unlimited wants and limited resources.’
‘What are the three key questions arising from the basic economic problem?’
‘What to produce
‘What is opportunity cost?’
‘Opportunity cost is the loss of other alternatives when one alternative is chosen.’
‘What is demand?’
‘Demand refers to consumers having both the willingness and ability to purchase goods and services.’
‘What is the law of demand?’
‘If prices rise
‘What factors affect demand?’
‘Consumers’ income
‘What is supply?’
‘Supply refers to producers having both the willingness and ability to supply goods and services.’
‘What is the law of supply?’
‘If prices rise
‘What factors affect supply?’
‘Production costs
‘What happens when demand increases and supply remains unchanged?’
‘A shortage occurs
‘What happens when supply increases and demand remains unchanged?’
‘A surplus occurs
‘What is price elasticity of demand?’
‘Price elasticity of demand measures how responsive the quantity demanded is to changes in price.’
‘What is the formula for price elasticity of demand?’
‘Elasticity = (% change in quantity demanded) / (% change in price).’
‘What is income elasticity of demand?’
‘Income elasticity measures the relationship between a change in demand and a change in income.’
‘What is the circular flow of income?’
‘It shows the relationship between households and firms
‘What are injections in the circular flow of income?’
‘Investments
‘What are withdrawals in the circular flow of income?’
‘Savings
‘What happens when injections exceed withdrawals?’
‘The economy grows as the circular flow expands.’
‘What happens when withdrawals exceed injections?’
‘The economy contracts
‘What is the multiplier effect?’
‘It refers to the increase in final income arising from an injection of spending.’
‘What are limitations of the multiplier effect?’
‘It can lead to inflation and increased borrowing
‘What is national income?’
‘National income is the total value of goods and services produced in a country in one year.’
‘What are the methods of measuring national income?’
‘Product method
‘What are merit goods?’
‘Merit goods are services like education and healthcare that are underprovided by the market.’
‘What are public goods?’
‘Public goods are non-excludable and non-rivalrous
‘What are negative externalities?’
‘Costs imposed on third parties not involved in a transaction
‘What are positive externalities?’
‘Benefits gained by third parties not involved in a transaction
‘How does government address market failure?’
‘Through legislation
‘What is the free-rider problem?’
‘When individuals consume public goods without paying for them
