UNIT 1 Flashcards
Entrepreneur
An individual who has an idea for a new business starts it up and takes most of the risks but benefits from the rewards. They combine the other factors of production into a unit capable of producing goods and services.
Fundamental Economic Problem
- Basic economic problem -
When there are limited resources but unlimited wants and needs.
Scarcity
Scarcity is a situation where the demands for the wants and needs are greater than the finite resources available.
Choice
Since the resources are scarce and in finite supply, individuals, firms, and organizations have to consider alternatives.
There is a need to make choices at all levels since not all wants and needs can be satisfied
Productive resources
Resources that are available to be used
Emerging Economy
One that is making quick progress towards becoming a high-income economy
Asian tiger country
Export-led, high-growth economies in Asia
Opportunity Cost
Opportunity cost is the cost expressed in terms of the next best alternative that is forgone when the choice is made.
The true cost of this choice between alternatives is known as opportunity cost.
Wants
Goods or services that a person may like to have but are not always realized/needed.
Needs
Things that are necessary for survival, such as food
Microeconomics
The study of individual markets.
Macroeconomics
The study of an economy or a group of economies.
Models
Models are a simplified representation of what has actually taken place and are usually explained mathematically.
The value of models is that they can be used over and over again to test a theory in many different contexts.
Positive Statement
A statement that is based on facts or actual evidence.
Normative Statement
A statement that is based on the economist’s opinion or value judgement, which cannot be proven.
Ceterius Paribus
Other things remain unchanged.
It is used by economists to model the effects of one change at a time.
The Margin
A small change in one variable will lead to further small changes in other variables
Short Run
The time period where a firm can change at least one but not all factor inputs
Long Run
The time period when all factors of production are variables but with a constant, such as the state of technology
VERY Long Run
The time period when all key inputs into production are variables.
Economic growth
an increase in the amount of goods and services produced per head of the population over a period of time
Short run - Increase in country’s output.
Long run - Increase in country’s productive potential
Economic Systems
The way in which production is organized and choices are made in the economy.
Market economy
An economic system where most decisions are taken through the market mechanism.
Price depends on the supply and demand of goods and services.
Mixed economy
An economic system where both market forces and government are involved in resource allocation decisions.
Planned economy
An economic system in which resources are state-owned and allocated by a central body.
Market (Price) Mechanism
Resource allocation decisions are taken by individual producers and consumers with no government intervention.
This mechanism allows the market to go to a new equilibrium when disequilibrium occurs.
Private sector
Part of the economy under private ownership
Privatization
Privatisation is where a public sector changes to a private sector.
Public sector
Part of the economy under government ownership
Trade-off
What is involved in deciding whether to give up one good for another
Productive capacity
The maximum output that can be produced when all the resources are used fully.
Excludability
Where it is possible to stop someone from consuming a good or service
Rivalry
Where consumption by one person of a good or service reduces the availability of the good or service for others
Non-Rival
Where the consumption by one person does not reduce consumption by someone else
Non-Excludable
Freely available and nothing can be done to prevent its consumption
Free goods
Goods that are not scarce, have zero opportunity cost and in principle, no factors of production are required to produce them.
Eg: Sunlight, oxygen
(Pure) Public goods
A good that is non-excludable and non-rival and non-rejectable.
Eg: Defense, vacciantion.
Private goods
Goods that are consumed by one person and not available to anyone else.
Has rivalry and excludability.
Quasi-public good
A good that has characteristics of both public and private good.
Semi-non rival [Parking space]
Semi-non excludable [Toll booths]
Free rider
An individual who does not pay to use a public good.
Merit good
A good that is thought to be desirable for consumers but which is underprovided by the market because of information failure.
Has positive externalities
eg: Health and Education
Demerit good
A good that is thought to be undesirable for consumers and is over-provided by the market because of information failure.
eg: Junk Food
Market Failure
Occurs whenever the free market mechanism results in inefficient allocation of resources. This means that the economic benefits of the production of goods and services are not being maximised.
Information failure
A situation where consumers do not have complete information when making decisions
Normal goods
Occurs when an increase in income leads to an increase in demand.
Has positive YED.
Luxury goods
When an increase in income leads to a bigger percentage increase in demand.
Inferior goods
When an increase in income leads to a fall in demand.
Has a negative YED.
What to produce?
Economies cannot afford everything therefore they must choose what to produce, and in what quantities
How to produce?
Firms need to consider how they can get the maximum use out of the resources available
For whom to produce?
Governments need to decide whether everyone will have a more or less equal share of what is produced or whether some will have more than others.
Low-Income countries
Economies where income per head was $1025 or less in 2018 (World Bank)
Lower-Middle-Income countries
Economies where income per head was between $1026 and $3995 in 2018 (World Bank)
High-Income countries
Economies where income per head was $12,376 or more in 2018 (World Bank)
Factors of production
The resources people use to produce goods and services.
1) Land - Rent
2) Labour - Wages
3) Capital - Interest
4) Enterprise - Profit
Firms
Firms are any business that hires factors of production to produce goods and services
Specialization
Refers to a situation where individuals, firms, and economies concentrate on producing those goods and services where they have an advantage over others
Production possibility curve
Production possibility curves / Production possibility frontiers
A simple representation of the maximum level of output that an economy can achieve, given its current resources and state of technology
