Overview of Economics Flashcards
Economics
A social science that focuses on an understanding of production, distribution and consumption of goods and services. The focus is on how consumers, businesses, and governments make choices.
Difference between Microeconomics and Macroeconomics?
Microeconomics generally applies to individual markets of goods and services, looking at how businesses decide what to produce and who to produce it for, and how individuals and households decide what to buy.
Macroeconomics focuses on broader issues such as employment levels, interest rates, inflation, recessions,
government spending, and the overall health of the economy. It also deals with economic interactions between countries
Examples of Micro & Macroeconomics.
Microeconomic concerns include: How are prices for goods and services established? Why did the price of bread
go up? How do minimum wage laws affect the supply of labour and company profit margins? How would a tax on
softwood lumber imports affect growth prospects in the forestry industry? If a government places a tax on the
purchase of mutual funds, will consumers stop buying them?
Macroeconomic concerns include: Why did the economy stop growing last quarter? Why have the number of jobs fallen in the last year? Will lower interest rates stimulate growth in the economy? How can a nation improve its standard of living: Why do stock prices rise when the economy is growing? How is inflation controlled?
Supply & Demand
If demand increases ( relative to supply), prices increases, if supply increases ( relative to demand), prices falls. The equilibrium price is the price at which the quantity of a good or service supplied equals the quantity demanded.
*The Law of Demand : The higher the price, the lower the quantity demanded.
* The Law of Supply states : The higher the price, the greater the quantity supplied.
*If the price is above the equilibrium price, there will be a surplus because producers supply more than consumers demand. Producers might lower prices to sell their excess goods.
*If the price is below the equilibrium price, there will be a shortage because consumers demand more than producers supply. Producers might raise prices since they know customers are willing to pay more.
Gross Domestic Product
GDP is the value of all the goods and services produced in a country in a given time period; usually a quarter or year.
GDP is measured in three approached; Expenditure Approach where C+I+G+(X-M).
Income Approach: Focuses on the total income earned in a given time period.
Production Approach: Also known as value-added approach, calculates an industry or sector’s output.
Leading Indicators
A leading indicator is a measure that predicts future economic or business activity. It gives early signals about the direction in which the economy or business is heading. For example, building permits are a leading indicator because an increase in permits suggests that more construction projects are likely to start soon, indicating future economic growth. In simple terms, leading indicators help forecast what is likely to happen.
Coincident indicators
Coincident indicators are measures that show the current state of the economy or business activity. They move at the same time as the economy, providing a real-time snapshot of its performance. For example, the Gross Domestic Product (GDP) and employment levels are coincident indicators because they reflect the current economic conditions. In simple terms, coincident indicators tell us what is happening right now.
Lagging Indicators
A lagging indicator is a measure that reflects the past performance or outcomes of an economy or business. It shows how things have changed after events or trends have already happened. For example, the unemployment rate is a lagging indicator because it tells us about the number of people who lost their jobs after an economic downturn has occurred. In simple terms, lagging indicators confirm what has already happened.
