Topic 1 - Introduction to Economics Flashcards
What is Economics?
Economics is the study of factors affecting the production, consumption, and distribution of goods and services involving individuals, businesses, and government.
What are goods?
Tangible products - e.g. a pencil case
What are services?
Intangible products - e.g. a haircut
What are wants?
Consumers desiring a product that is not necessarily required for survival. (Basic goods and services)
What are needs?
Consumers purchasing basic goods and services that are required for general living purposes.
What is Scarcity?
A short supply
What is the economic problem?
Unlimited wants with limited resource.
What are the factors of production?
Resources used to produce goods and services that are wanted and needed by consumers.
The 4 factors of production are…
Land, Labour, Capital, Entrepreneurs
What is LAND?
Natural resources produced to make various goods and services
Income return for owners: RENT
What is LABOUR?
Human labour is utilised to produce goods and services
Income return for owners: WAGES
What is CAPITAL?
Equipment used to produce other goods and services
Income return for owners: INTEREST
What is ENTREPRENEURSHIP?
Taking risk in utilising the other factors of production for business ventures
Income return for owners: PROFIT
These factors of production are bought and sold in the Factor Market … what is the factor market?
Physical or non-physical place where any good and services are bought and sold
What opportunity cost?
Occurs when whenever a decision or choice is made.
Why does opportunity cost exist?
Scarcity - Finite resources to fulfill infinite wants and needs - requires a DECISION and CHOICE to be made
What should be produced?
Dependent on the market
How much should be produced?
Dependent on consumer demand
How should it be produced?
Dependent on resources availability
Who should it be distributed to
Dependent on individuals income
Despite taking theses factors into account, opportunity cost of the forgone alternative will still exist - For an economy, this can be drawn out as the PPF..
What is the PPF
Maximum production potential of the economy with given, fixed or finite level of resources.
The PPF shows the opportunity cost of each possible production level.
The formula for calculating the cost is …
Opportunity cost =
what is given up
————————–
what is gained
Distribution of goods and services in the economy
The level of income is influenced by the individual’s level of education, employment, occupation and productivity
What is ‘employment’ ?
Employment refers to individuals that are engaged in paid work
What is ‘unemployment’ ?
Unemployment refers to individuals that are actively seeking for work
Employment in Aus is created in the…
Private sector and public sector
What are the three main industries of employment ?
Primary industry, secondary industry, tertiary industry
What is the primary industry?
Businesses selling raw materials such as agriculture and mining products
What is the secondary industry?
Businesses involved in manufacturing or uses raw materials to create finished goods
What is the tertiary industry?
Businesses that distribute or sell quinary and quaternary goods and services
Quality of Life ?
standard indicators of the QoL include wealth, employment, environment, physical and mental health, education , work status and many others
What is Tax revenue?
Tax revenue is for the government which is used to provide public goods and services such as healthcare and education
Employment and QoL will also be influenced by the business cycle …
The business cycle represents the general volatility and fluctuating movements of the economy
What is ‘GDP’ ?
‘GDP’= GROSS DOMESTIC PRODUCT
measures total production of goods and services in the domestic economy
Used as a measurement of ‘ economic growth’
4 PHASES OF A BUSINESS CYCLE?
Trough, expansion, peak, contraction
4 PHASES OF A ECONOMIC CYCLE?
Low, increasing, high, decreasing
What is the circular flow of income?
The economy is a continuous cycle, it operation is built upon the inter-relationships of various economic sectors; they include household sector, business sector, finance sector, government sector, and international sector
PLEASE REFER BACK TO PPT 6 TO SEE HOW ALL SECTORS CAN WORK.
…….
What is the equilibrium?
Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand.
Leakages are
Savings
Taxation
M-imports
‘leakage’ meaning they take out the money out of the economy
Injections are
Investments
Gov spending
X exports
‘Injections; meaning that they bring money into the economy
When the value of leakages and injections are equal to each other, the economy is said to be in EQUILIBIRIUM; This means..
S+T+M = I +G+X
When S+T+M is greater than I+G+X….
The economy is contracting and there is DISEQUILIBRIUM
- Households will receive less income
- Households will reduce spending
- Households pay less tax and buy less importas
When S+T+M is less then I+G+X…
The economy is expanding and there is DISEQUILIBRIUM
- Households will receive more income
- Households will increase spending
- Households will pay more tax and buy more import
