Subject Matter Of Economics Flashcards
1
Q
What is Economics
A
Is the study of how people allocate resources at their disposal to various requirements of individuals and their society
2
Q
Define production
A
Is an activity that involves decisions and activities of creating goods and services that people need in their lives
3
Q
Give economic definition of distribution
A
An act of rewarding factors of production
4
Q
Define exchange
A
Involves buying and selling of goods and it involves the use of cash, debit or credit cards, shares, bills of exchange and bonds
5
Q
Define consumption
A
Is an act of buying and using goods and services to satisfy human wants
6
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Define goods
A
Are items sold in the market with general assumption that the more quantity of goods an individual consumes the more utility they derive and they can be physically objects or services
7
Q
What are economic goods
A
These are goods that are scarce such that quantity demanded exceeds quantity supplied when they are to be availed for free
8
Q
What are the features of economic goods
A
*Must give utility when consumed
*Must be limited in supply in relation to its demand
*Must be transferable in terms of ownership
*Must have price or exchange value
*economic goods are products of economic resources
9
Q
Define free goods
A
Are goods that are already available in unlimited quantity such as every individual may be able to consume any quantity to their satisfaction without limiting other consumers demand for the good. Opportunity cost I zero
10
Q
What are the features of free goods
A
*are available in large quantities and satisfy needs of every one
*they don’t have an exchange value because they are in abundance
*they can satisfy human wants even though they have no exchange value
11
Q
Define consumer goods
A
Are goods that make individuals to derive utility from consuming them. Consumption of a good means to use it as an end use product rather than as an intermediary good in production
12
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Define producer goods
A
They are also known as capital goods. They are the goods used for producing consumer goods or other producer goods. Example machinery, seed and raw materials
13
Q
Define public goods
A
This are goods that exhibits non rivalry in consumption and non excludability in consumption thus exhibiting two characteristics
14
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Define private goods
A
Are goods that have the characteristics of being rival and excludable
15
Q
Define merit goods
A
These are goods with social benefits to consumers eg education, health services, sport facilities and fire protection. They should be available because they are useful
16
Q
Define demerit goods
A
These are goods with social costs to consumers example tobacco, cigarettes, and alcohol
17
Q
Define wants
A
It is anything a human being desires to have
18
Q
Differentiate between wants and need
A
A want can be anything an individual desire to have, even when it is unnecessary. Needs however are a special kind of wants that an individual must have to survive
19
Q
Define necessities
A
Are essentials for a human being. They include food, clothes and shelter. They also include things that raise performance of work such as use of computer and projectors in teaching and mobile phones for communication
20
Q
Define comforts
A
They make individuals like more comfortable and easier
21
Q
Define luxuries
A
They are goods consumed for ostentatious purposes rather than necessity
22
Q
What are the characteristics of human wants
A
*human wants are unlimited in number
*human wants vary among individuals, time and place
*human wants vary in intensity
*human wants are competitive
*human wants are repetitive
*human wants are complementary
*Human wants are subjective
23
Q
Define wealth
A
It’s the constitutes of all things that have value to society
24
Q
Mention qualifications for a product to be wealth
A
Scarce, transferability and validity, and has exchange value
25
Mention different forms of wealth
*individual wealth (private wealth)
*social or collective wealth
*national or real wealth
*international wealth
*financial wealth
26
What are economic resources
They are agents of production that is land, capital, labour, and entrepreneurship
27
Define utility
This is the satisfaction derived from consuming various quantities of goods and services
28
What are the types of utility
Form, place, time, possession, natural, knowledge, and service utility
29
Mention the three definitions of economics
-classical definition of economics
-neo classical definition of economics
-robbin's definition of economics
30
What do you know about classical definition of economics
*it was developed by Adam Smith(1723-1790)
*he explained economics as a science of wealth or the study of nature and causes of wealth of nations
*Adam's smith believed on free market
*another believer named (John mill 1806_1873)defined economics as practical science of production and distribution of wealth
His definition was based on economics as a study of wealth only and only goods that are scarce are included in wealth. Thus he didn't include non materia goods eg services as wealth
31
Point out the criticism of classical definition of economics
*didn't consider human welfare as an important aspect of economics
*didn't include services as part of wealth
*they are not explicit on resource use
*they focused solely on the economic man
32
What do you know about neo-classical definition of economics
*it was developed by Alfred Marshall(1842-1924)
*he defined economics as a study of man in an ordinary business life
*it defined economics as a study of human behavior as related to allocation of scarce resources which have alternative use
*it is primary concern with human economics behavior in the pursuit of happiness and secondary non wealth
*another followers *Arthur Cecil(1877-1959) & Edwin Cannan(1861-1935)* said economics is a stud, of cause of material and welfare. Emphasis on welfare meant that wealth was not not an end to human activities
33
Point out criticism of welfare definition of economics
*it is mainly focused on welfare leaving non material things that are beneficial for promoting human welfare
*Robbins argued that welfare is subjective as it varies among individuals, age group as well as across geographical locations
*Robbins argued that the concept of welfare is ambiguous cause it is difficult to be measured quantitatively
34
What do you understand about Robbins' definition of economics
*it was first introduced in 1932
*he defined economics as a science which study human behavior as a relationship between ends and scarce means which have alternative uses
35
What are the pillars of Robbins' definition
1st-Argues that human wants are unlimited
2nd-About scarcity of resources
3rd-Scarce resources for satisfying unlimited human wants have alternative uses
Lastly-Argues although human wants are unlimited they are not equally important
36
Point out strength of Robbins definition
*it is centered on scarce which is the economic problem
37
Point out criticisms of Robbins definition
*his definition ignores economic growth
*his definition ignores social values and social welfare
38
Name the two branches of economics
Microeconomics and Macroeconomics
39
Describe microeconomics
Is a branch of economics that focuses on individual economics unit
The study of economics at the micro-level focuses on analyzing small part or segment of an economy, rather than the whole economy
40
Hint at issues microeconomics is concerned with analyzing and understanding
-how resources for producing goods and services are allocated among various firms
-how micro-level economic units achieve efficiency in production and distribution of goods and services
-how prices of various products are determined
41
Explain macroeconomics
Is a branch of economics that focuses on analyzing mainly economic trends affecting the whole economy, especially key macroeconomic variables
42
What does macroeconomics deal with
National income and economic growth, employment and unemployment, aggregate consumption, saving and investment, the general price level and among others
43
Give the differences between microeconomics and macroeconomics
*unit of economy studied
*equilibrium analysis
*method used
*theory known as
*resulting policies affect
PG 20
44
What are the reasons for studying economics
*many of topical issues are partly microeconomic issues in character eg production and productivity of companies, environmental, education and health issues
*it enables one to understand the implicit logic behind the behavior of economic agents with regard to choice they makein consumption and production
*it explains about how producers reach decisions on how to allocate scarce resources efficiently to get maximum profit from production activities
*knowledge of demand and supply helps individuals to know how prices of goods and services are determined in their respective market
45
Where is microeconomics applied in other subjects
*In agriculture
*business
*In geography
*In civics
*I'm history
46
What is the nature of economics
Economics is both a science and an art
47
Elaborate economics as science
Economics is a social science that employs similar methods as those in other fields of science. like other science economics uses theories and models to enhance understanding and prediction of various economics situations in real world. Paul Samuel's famous economist claimed economics is the queen of all social science
48
What are the similarities of economics with pure science
*it applies principles, theories, and laws in research as in the case with pure science
*it uses scale of measurement and measurement units as in pure science eg inflation rate, price per unit. And GDP
*it conduct experiments as pure science but in real life cuz it deals with human behavior
*the principals and knowledge of economics can be improved and changed with time as in pure science
*forecast the future as other fields of science do
49
Elaborate economics as art
It's an art as it geared at finding solutions to economic problems that societies face. Such solutions may include sustainable economic, stable prices, and low rate of unemployment
50
Is economics a positive or normative science
Economics is both
51
Why economics is positive economics
Because it deals with what is happening in real situation using empirical method like "what is". It does not involve personal judgment or opinions. Positive statements are descriptive in nature. They make a claim about the present situation of the real world. For instance "low income tax rates encourage workers to work and save more"
52
Why is economics regarded as normative
Because it involves analysis of value judgment or opinions about economic policies or situations. It is a statement of what ought to be (what should be done). For instance "the government should ensure that all Healthcare services are available to every citizen" the statement is based on personal perspective
53
What are economic laws
Are generalizations (conclusions and inferences) about economic factors. They predict results of certain initial conditions and they are universally accepted facts used to make predictions
54
What are features of economic laws
_____________________
Why economic laws are not exact as those of natural sciences
*Natural science deal with matter which is lifeless while economics deal with human beings whose behaviors are erratic
*Economics is based on data with unproven reliability
*Economics deals with many variables
*Laws of economics are to be compared with the laws of tides rather than with the simple and the exact law of gravitation
*Economics laws are essentially hypothetical
*Economics laws are qualitative rather than quantitative
55
Point out types of economic laws
-Macroeconomic laws
-Individual economic laws
-Overall economic laws
56
Elaborate Macroeconomic laws
These are laws used in the macro-management of the economy. For instance fiscal and monetary policies
57
Elaborate individual economic laws
Are the laws that operate within the same mode of production (same economic system). For instance laws of distribution differ between the capitalist mode and socialist mode of production
They are also known as specific economic laws
58
Explain overall economic laws
Are laws that have operated throughout the history of humankind in all economic systems
They are also known as General economic laws
59
What are the methods of economic analysis
Inductive and deductive method or approach
60
Explain inductive method
It involves economic analysis which starts from specific to general. This is to say specific observations lead to broad generalizations
In summary it aims at developing a theory from the data
61
Explain deductive method
Is a method of analysis that involves reasoning from general truth to specific fact. It aims at testing the existing theory
62
What is the central economic problem
How to make best use of scarce resources. The essence of economic problem is that the needs and wants of people are unlimited whereas the resources needed to satisfy them are limited
63
What are the three basic questions that a society must answer to solve economic problem
What to produce?, how to produce?, and from whom to produce?
64
What do you understand on what to produce question
A society/producers must decide on the best combination of goods and services it can afford to produce so as to satisfy the needs and wants for people because resources cannot suffice to produce all goods and services to satisfy the needs and wants of every individual based on market price, available resources, costs of production and so on
65
What do you understand on how to produce question
The producer has to decide on the best combination of factors at its disposal to produce the desired output of goods and services, for instance how much of factors of production should go into production of consumer goods and capital goods
66
What do you know about from whom to produce question
Society has to address the question of who will benefit from the output generated from its economic activity and how much they will get. For instance producing luxury goods would imply targeting people with high income
67
Mention some economic problems
Scarcity, choice, scale of preference, opportunity cost
68
Explain scarcity
Is the core of the economic problem it refers to the fact that resources are insufficient ro satisfy all need and human wants for all societies
69
What are choice
It involves activity of selecting a particular option among alternative uses of scarce resources
70
Elaborate scale of preference
This is an arrangement of wants from the most preferred to the least preferred one(descending order of preference)
71
What do you know about opportunity cost
Is the cost of something in terms of opportunity sacrificed
OR the second best alternative forgone because of making choice
72
Show the examples of opportunity cost concept
A student may decide to study for one more hour however there may be many alternatives available for use of that hour. Or suppose the student chose to study instead of watching soccer the Opportunity cost while be watching soccer
73
Can opportunity cost be zero
Opportunity cost is only positive with economic goods, however, there are exceptions where the Opportunity cost is zero for example free goods have no Opportunity cost involved in their use. For instance there is no Opportunity cost(real cost) in breathing fot there is enough air for everyone
74
What are economic way of thinking
It assumes that an individual must develop rational behavior to provide a response to an economic problem of scarcity
75
Point out the core ideas of economic way of thinking
*people make rational choice by comparing costs and benefits
*cost is what an individual foremost to get something [in economics real cost is in terms of opportunity cost]
*rational choice is at the margin [an individual has to take into consideration magical costs and marginal benefits]
*In making choice people respond to incentives
76
What is marginal cost
The cost that arises from one unit increase in an activity
77
What is marginal benefits
The benefit that arises from one unit increase in an activity. It is an additional utility that a consumer receives when the additional goods and services are purchased
78
What do you know about incentives
Is an inducement to take a particular action. The inducement can be a reward in the form of an increase in benefit or decrease in cost
79
What is Production Possibilities (PPC)
Is a Curve that shows various combinations of outputs that the economy can produce with a given technology and available resources. It is a boundary or frontier beyond which the economy cannot exceed unless there is discovery of new resources or improvement in technology
It's also known as Production Possibilities frontier or transformation curve
80
What are the assumptions underlying production possibilities frontier
*The economy produces only two goods [Eg producer and consumer goods]
*Resources are fully used
*Production takes place over a specific time period
*The resources in both quantity and quality used to the output are fixed over this period
*Resources are substitutable[they can be used to produce either of the goods]
*Technology does not change over this period
81
What are things to consider in the PPF
-points beyond the curvean economy can not be attained due to limit of resources It has
-points with the curve are inefficient points because the resources are underutilized
-the movement along the PPF explains the Opportunity cost of the resources in the production of one good in terms of other
-the concave shape of the PPF reflects increasing opportunity cost
-PPF is linear when the Opportunity cost is constant
82
In what situation would opportunity cost be constant
It occurs when resources are not specialized in production of either good hence resources can be perfectly substituted to produce either good
83
What are the significance of the Opportunity cost
*it is used to depict levels of production and consumption in international trade to determine the country's comparative advantage
*opportunity costs aids in deciding on different choices when the scarce means have alternative uses
84
What are the factors that may influence economic growth (shift of the PPF)
-Increase I the quantity of natural resources
-Increase in quantity and quality of human resources
-Technological development
-Innovation
-Capital formation
85
86
87
What does economic systems mean
Is the mechanism by which an economy makes decisions on how to coordinate the production, distribution and consumption of goods and services
88
Name the three economic systems
-Socialist(centralized or command) system
-Capitalist(price or free enterprise) system
-Mixed economy system
89
What do you know about socialist economic system
*It was first introduced by Karl Marx
It emphasis on the role of the government in controlling and regulating the economy because Karl believed allowing the economy to individuals self interest would lead to crises and disorder. The government own all major means of production
90
What are the characteristics of socialist economy
*all means of production are owned by the government in interest of society
*forces of demand and supply have no influence in the market
*economic planning is done centrally whereby the government makes all decisions concerning production and consumption
*it's economies are able to reduce income inequalities through various means such as setting wages
91
Give examples of socialist economic systems in the world
Former Soviet union, China from early 1950s to 70s, Cuba 1959 and North korea
92
What are the advantages of socialist economy
*it provides economic security in the sense that the main objective of a socialist economy is to improve the welfare of all citizens and ensuring that all resources are fully employed
*unnecessary competition and income qualities are reduced
*it enables rapid transformation of societies to conform to the government vision
*there is no industrial unrest in socialist economies because wages are determined by the government
*it put great emphasis on improving the quality of life rather than increasing quantity of goods and services
93
What are the disadvantages of socialist economy
*leads to lack of economic freedom for producers and consumers
*it can cause economic inefficiency
*there is lack of innovation because workers and managers are not motivated to take risks where they can earn more
*there may arise conflicts of interests between the government and its people because what is produced does not always match what is demanded
94
What do you know about capitalist economic system
*it was introduced by Adam Smith
He advocated laissez-Faire policy, which means freedom in economic decision making with little or no government intervention
He referred this economic system as the "invisible hand" because self interest of individuals such as profit maximization and utility maximazisation guided these interactions between producers and concumers hence no government interference
95
What are the characteristics of a capitalist economic system
*there is freedom to ownership of property
*there is also freedom to make production decisions
*people have freedom to make consumption decisions
*there is a little or no role played by the government in economic activity
*entrepreneurs are guided by the profit motive
*there is stiff competition in the market due to freedom of entry and exit
*prices are determined by market forces of demand and supply
*the basic central problems of how, what and to whom to produce are solved by private sectors because economic decision are made NY the individuals
96
Give examples of countries that practice pure capitalist economy
UK, USA, Portugal, Netherlands, France and Canada
97
What are the advantages of capitalist economy
*decision making process is greatly participatory because there is little or no government control
*there is market efficiency because resources are allocated to their most profitable use and prices are determined by market forces of demand and supply
*there is improvement in the quality of products
*stiff competition stimulates firms to invent new techniques that will maximize their profits and make them highly competitive in the market
98
What are the disadvantages of the capitalists economy
*producers tend to produce only goods and services that yield the highest profit
*consumers could be charged high prices even for essential goods
*there is high income inequalities between the rich and the poor
*if the capitalist economy is not well regulated there can be overproduction and overcomsumption of demerit goods such as drugs, cigarettes and alcohol
99
What do you know about mixed economic system
*it was introduced by John Maynard
It combines some features of both free market and socialist economic systems. Individuals enjoy freedom of choice but the government also intervenes to protect the welfare of its citizens especially the weaker ones
100
What are the characteristics of mixed economy
*co-existence of private and public sectors
*there is freedom of individuals to choose any occupation that maximizes their income and any goods and services they want to produce and consume
*government intervene in the market by setting either price ceiling or price floor unordered to improve people's welfare
*government intervenes in market through redistribution of incomes to reduce income inequalities
*economic planning is done by the government by indicating roles to be played by both public sectors and private sectors
101
Give examples of countries that practice mixed economy
Tanzania, China, India, Sweden, and Denmark
102
What are the advantages of mixed economy
*the government can protect its people form unfair practices by setting laws that restrict such practice thus improve their welfare
*it encourages innovation
*there is improvement in service quality
103
What are the disadvantages of mixed economy
*too much government intervention can dimish the essence of free market
*it can led to development of monopolies
104
Elaborate transition perod
Is a period which a county is changing from one economic system to another mostly from centrally planned economy to market or mixed economy
105
What are the elements of transition period reform programmes
-Free prices and withdrawal of subsides
-Adoption of privatization policy
-Budget deficit and development of budgetary and fiscal system
