The Nature of Economics Flashcards
What is economics?
Economics is the study of the production, distribution and exchange of goods and services in order to address the economic problem
What is the economic problem/ the problem of scarcity?
Our wants are unlimited. Resources are limited (finite). We are forced to make choices between wants.
What are wants?
Material desires of individuals or the community. They provide utility and may be classified as a need.
What are individual wants?
The desires of each person. The ability to satisfy them depends on income.
What are collective wants?
Wants of the whole community, provided by the government. (Eg. parks, libraries)
What are recurrent wants?
Wants that must be continually satisfied.
What are complimentary wants?
A want that follows the satisfaction of another (car and petrol)
What are some factors affecting wants?
Age, income, technology, fashion
What are the four key economic issues?
What to produce?
How much to produce?
How to produce?
How to distribute production?
What is opportunity cost?
The cost of the alternative foregone in a choice. Represents the alternate use of resources.
What is a production possibility frontier?
A graph that shows the various combinations of two alternative products that can be produced, given current technology and a fixed quantity of resources, when they are used to full capacity.
What is the effect of new technology on a PPF?
It causes a pivot, relating to the specific good with improved production technology.
What is the effect of new resources on a PPF?
It causes an outward shift of the entire curve. (Can be caused by increased population)
What does the straight curve on a PPF indicate?
That the economy can substitute between the production of two goods at a constant rate, and that it is possible to shift all resources between the production of the two goods. Marginal rate of substitution is 1:1.
Distinguish between consumer and capital goods.
Consumer goods are produced for the immediate satisfaction of wants, whereas capital goods are used for the production of other goods.
Describe the basic future implications of choosing between consumer and capital goods.
Choosing consumer goods will satisfy short term wants and improve standard of living, but will stagnate long term economic growth. Investing in capital goods will increase long term productive capacity.
Provide example of the future implications of economic decisions.
For an individual, choosing between a holiday, or a home deposit will impact future financial security.
For a business, increasing success is dependent on assessing which business areas will provide the most gains in the long term (eg. investing in communications)
For the government, deciding between short term areas including health and social welfare, or long-term growth areas, being infrastructure, education.
Identify the factors that influence an individual’s economic decisions
Age, income, expectations, family circumstances, personality.
Identify the factors that influence a business’s economic decisions
Maximising profits, target market, minimise production costs, ethical factors, industrial relations, supply, quality
Identify the factors that influence governments’ economic decisions
Desired economic outcomes, re-elections
What are merit goods?
Goods and services not produced in sufficient quantity by the private sector because individuals do not place sufficient value on them.
