Participants & Marginal Analysis Flashcards
What is law 1 of economics?
Scarcity exists
What is law 2 of economics
Because of scarcity, we must make choices
What is law 3 of economics?
Every choice has an opportunity cost
Who are the three economic participants?
Consumers
Firms
Governments
What is an incentive?
Something that motivates someone to do something
What are consumers’ incentives?
To maximise their utility
What are firms’ incentive?
To maximise their profit
What are governments incentive?
To maximise the general welfare of its people
What is a need?
A basic requirement for survival that one cannot live without
(Food, water)
What is a want?
Something one desires that is unnecessary for survival
(Entertainment, fun, pleasure)
What are consumers’ concern with wants & needs?
Consumers are constantly in pursuit of satisfying all their needs and as many wants as possible
What is the satisfaction of wants and needs referred to as?
Utility
How do consumers maximise utility?
Through purchasing goods & services
What are goods?
Physical objects that satisfy needs & wants
(Phone, shoes)
What are services?
Actions or activities that satisfy needs & wants
(Massage, therapy, consultation)
What are goods and services called?
Economic goods
What are inputs?
The resources used by firms to produce products
Also known as factors
(Raw materials)
What is output?
The finished goods/services produced by firms for profit
(Also known as products)
What are costs?
Combined wages paid by a firm to produce economic goods
What is revenue?
The price paid to the firm per unit of output sold
(Price x quantity)
What does marginal mean?
Each additional
How do consumers, firms and governments make decisions?
Marginal analysis
What is marginal analysis?
Weighing up marginal cost against marginal benefit
What is marginal benefit for firms, consumers and governments
Firms - marginal revenue
Consumers - marginal utility
Governments - marginal social benefit
What are economic costs?
Explicit costs + implicit costs
What are explicit costs?
Monetary costs
What are implicit costs?
Opportunity costs, missed opportunities
If marginal benefit > marginal cost…
Choice = yes
If marginal benefit < marginal cost…
Choice = no
