Topic 1: Intro to economics Flashcards
Define economics
Economics is the study of how people allocate their limited resources to satisfy their unlimited wants
Define the economic problem
It is a problem of scarcity and choice. It is that there are unlimited wants but scarce resources
3 basic questions of economics
What to produce?
How to produce?
For whom to produce?
Define microeconomics
Deals with economic problems from an individual perspective
Define macroeconomics
Deals with the economic problems from society’s POV
Define Scarcity
There is limited availability of resources in relation to unlimited wants and needs
What is opportunity cost?
The value of the best alternative you give up also includes the value of time
State the principle of decreasing marginal benefits
that as you consume more of something the external additional benefit you get declines
- Net benefit = benefits - cost
What is the economic model and its use?
An economic model is a simplified representation of economic reality showing the relationship between certain economic variables
Use:
- Determine cause and effect
- Allows economist to make predictions about economic behaviours of consumers and producers
- test theories
What is a PPF
Economic model that allows economists to illustrate economic problem and the concept of opportunity cost. eg illustrate economic growth
Why is a PPF bowed outwards
PPF is bowed outwards due to the law that increases opportunity cost. As the government reallocates resources from one area to another, it incurs higher opportunity costs
Define the law of increasing opportunity cost
The opportunity cost of increasing the production of one good in an economy with scarce resources normally increases.
Straight PPF - Opportunity cost between two goods is constant]
constant OC- resources are divided suited to producing all types of goods
Characteristics of market economy
- low barriers to entry
- High number of sellers
- Motivated by profit and self interest
- private ownership of owners
What is positive and normative economics
Positive is based on facts and can’t be approved or disapproved and normative is based on valued judgements
