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Economic IB 1 > Unit 1 > Flashcards

Unit 1 Flashcards

1
Q

Who is the father of Modern Economics?

A

Adam Smith

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2
Q

What did Adam Smith believe in?

A

Laissez-faire
-“don’t interfere” in English
-Free-market with SOME intervention
- While advocating for free-market, There could be problems if firms dominate the market.
- through the invisible hand of competition, it would grant most efficient outcome.

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3
Q

What is a social science?

A

The study of how society and people interact with each other.

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4
Q

Examples of social sciences

A

ECONOMICS, Anthropology (study of primitive societies), political science (study of how politics work, and thus how politics affect others), psychology (study of human behaviors and their interactions based on their behavior), sociology (study of society), history (study of past societies and human interactions)

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5
Q

Why is Economics a social science

A

It is because Econ deals with human society and our behavior in relation to economics
- Why?: We impact one another through our economic interactions, and economics examines these interactions and how they affect our society

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6
Q

What are the differences between goods and services?

A

1.) Goods are physical objects
- For example, instant ramen, books, etc.

2.) Services are intangible
- Cannot be touched
- More of acts of service
-E.g.: Getting a haircut, tire-changing services, etc.

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7
Q

What do we mean by “scarcity” in economic terms?

A

This does not always mean “rare”
- Scarce, in econ, means FINITE — a limited supply.
- Also applies to plentiful resources that are finite

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8
Q

What is used to ration goods and services (and thus resources)?

A

Prices.
- Everyone has limited income. If the price is higher, less likely that people would buy it (see demand and supply chapter)

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9
Q

What is choice?

A

People have limited income
- DUE TO THIS, people have to choose what to purchase
- And what they don’t choose, in favor for another choice, is called an opportunity cost (OC)

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10
Q

What is opportunity cost?

A

What one has to give up in favor for something else.
E.g.: Tim has a limited income and thus has two choices: to buy a new car OR to invest into a bigger house.
- If Tim chooses to invest into a bigger house, the new car is the opportunity cost

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11
Q

What is an economic good and what is a free good?

A

An economic good has an opportunity cost.
- Due to the LIMITED number of resources, economic goods must be rationed, and thus have a price.
- AND BECAUSE they have a price, then there will be an opportunity cost

A free good has has NO opportunity cost.
- These have UNLIMITED resources, thus free goods have no need to be rationed.
- THUS (without any price), they have no opportune cost
-e.g. salt water and air.

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12
Q

What is the basic economic problem? (without the three questions)

A

Resources are relatively scarce and people’s wants are infinite.
- “How will we satisfy their wants while not exhausting all available resources?”
- Leads to three questions.

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13
Q

What is a need and what is a want?

A

Needs are things needed for (physiological*) survival
- Food, shelter and clothing
(also includes infinite stuff like air — but take note not all needs are infinite)

Wants are things that are unnecessary for survival
- BUT would be nice to have.
- mobile phones, TVs, etc.

*(I wonder when wants become needs because we are in a technologically advancing world… ask this soon. But I guess when we say needs it’s physiological needs)**

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14
Q

The three questions that represent the basic economic problem (to review)

A

“What should be produced and in what quantities?”
- using these (relatively) scarce resources, how many of this product can we produce?
- should be decided for all
-rationing resources by product planning

How should things be produced?
- rationing resources by manufacturing
- There are many different ways of producing things and there are many diff. resource combos
- ideally should retain/improve the quality of a good while wasting as few resources as possible. (efficiency)

Who should things be produced for?
- rationing resources by distributing
- also includes things like income in the textbook (2nd edition)

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15
Q

Does everything have a cost in Econ?

A

“There is no such thing as a free lunch”
- Any resources put into a “free” good/service (e.g. free educ, free lunch) can be used for another thing.
- Opportunity cost is not limited to just consumers but also firms (producers) as well.

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16
Q

What is equity?

A

NOT equality, equity is normative fairness
- for example, certain resources are distributed unevenly as some people do not need it much whereas some do more.

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17
Q

What is the difference between microeconomics and macroeconomics?

A

Microeconomics focuses on smaller economic agents such as consumers and producers in individual markets/industries
- Examines their choices that impact their well-being, how firms could improve efficiency, things about a singular market etc.

Macroeconomics focuses on the economy as a whole
- focuses on how well-being is impacted by economic growth.

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18
Q

What is Economic well being?

A

Multidimensional concept that relates to the level of prosperity and quality of living standards enjoyed by members of an economy
- present and future financial security
- ability to meet basic needs
- the ability to make economic choices for personal satisfaction
- the ability to maintain adequate income levels over the long term

(all of these concepts are interrelated, to meet basic needs, make economic choices, you need financial security which means adequate income levels [in the long term])

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19
Q

What is sustainability?

A

The ability to meet the needs of the present generation without compromising the needs of the future generation.
- How?: Limit the harmful environmental outcomes
- This is important as planetary limits are being pushed

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20
Q

What is change?

A

An important concept in economics that focuses on the change of variables from one situation to another

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21
Q

What is interdependence?

A

**All economic agents (e.g. consumers, firms, households, etc) interact with each other **
- Goal: To accomplish economic goals
- ^ interaction = ^ interdependence.
- That is why many there many unintended economic consequences

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22
Q

What is intervention? When does it happen?

A

Government intervention in markets.
- When does it happen?: If markets fail to attain their goals, then there could be gov. intervention

23
Q

How do we classify the types of resources?

A

The 4 FoPs:
- Land
- Labor
- Capital
- Management/Enterpreneurship

Long Logs Cut Mongoosees

24
Q

How does scarcity happen?

A
  • Cause of issue: Resources are finite (relatively scarce) whereas everyone’s demands (wants and needs) are infinite.
    • Because of their wants, some people occupy excessive resources they don’t need.
    • We can satisfy everyone’s needs though, its the wants that cause the excess and the deficiency.
25
Q

What falls under the FoP of Land?

A

Any natural resources, including oil, vegetables, minerals, elements, etc.
- any natural resources “below or grown on land”
- AKA “natural capital”

26
Q

What kind of resources fall under the FoP of Labour

A

All human resources used in producing goods and services.
- physical and mental contribution of the workforce
- e.g. physical: construction workers, mental: architects planning the building

27
Q

What kind of resources fall under the FoP of “Capital”? Why are they considered an investment?

A

Infrastructure and technologies, anything used for producing a good or service.,
- physical capital
- buildings, offices, machines, factories, etc,
Also considered an investment
- allows for products to be produced and generate income.

28
Q

What kind of resource falls under the FoP of “Entrepreneurship”/“Management”?

A

The organizers/the risk takers, the entrepreneurs
- organize the other FoPs
- may also invest personal assets.
- Why is it risk-taking?: A profit is never guaranteed

29
Q

What is the relationship of sustainability and efficiency?

A

Efficiency can be under sustainability but it as a lone concept, may not care for sustainability.
- Efficiency only cares about getting the best output with as little waste possible — even if these inputs or outputs are environmentally unfriendly

30
Q

Trade-off

A

The option one did not pick in favor of another

31
Q

Outline the difference between trade-off and opportunity cost

A

Trade-off is the option not picked, Opportunity cost is the value of the option not picked

32
Q

Define waste

A

Anything or anyone that is “unused/not used to their full potential”
-When it comes to people it’s the action that is worthless, not the person

33
Q

Define Economic Growth

A

an increase in the amount of goods and services produced per head of the population

34
Q

Examine the relationship of Economic growth with the environment

A

Economic growth often leads to destruction of the environment
-Examples: pollution, destruction of forests, wildlife, ozone layer, increase in pollution

35
Q

What is the value of output flow?

A

Market value of a product/service produced.
- Sales + (closing - opening stocks)
- to help ration because prices help with rationing

36
Q

Define market value

A

The price an asset would get in a marketplace

37
Q

Define leakages and give examples.

A
38
Q

Define injections and give examples

A
39
Q

Explain what would happen to the circular flow in relation to the size of leakages and injections

A

Circular income’s size depends on the amount of money that flows in the economy
Therefore:
- Leakeges > injections, circular flow becomes smallers
- Leakages < injections, circular flow becomes bigger

40
Q

Define Logic

A

reason/method reasoning
- comes from Greek word meaning ‘logos’

41
Q

Define hypothesis

A

an educated guess, usually indicates cause-and-effect relationship

42
Q

Define theory in Economics

A

general explanation from deductive reasoning

43
Q

Define laws in economics

A

a concise universally valid statement

44
Q

Define refutation in relation to social sciences

A

In (social) sciences, it must be possible to contradict or disprove a hypothesis or theory.

45
Q

Define models in relation to Economics

A

representations of theories/laws

46
Q

Explain why economists disagree with each other

A

Prior info: Economists use models to understand the effect of specific few variables at a time.

Therefore: the other factors are ignored.

This results: in economists disagreeing with one another because of the simple nature of models

47
Q

Outline how economists build models:

A

1.) Economists decide which relationships (aka effect of variables) they want to examine

2.) They make a hypothesis

3.) Each choice and hypothesis differ from each economist.

4.) Thus some models contradict each other.

48
Q

Define Ceteris Paribus

A

“All other things being equal.”
- Isolates a variable by not changing the other variables

49
Q

Outline how positive economics is based on the scientific method.

A

1.) Use of logic

2.) Use of models, hypotheses, theories and laws

3.) Use of ceteris paribus assumption

4.) Empirical evidence

5.) Refutation

50
Q

Explain why normative economics cannot be empirically measured.

A

It’s because it uses value judgements (subjectivity) and the subjective meaning of equity (fairness)

51
Q

Outline what the PPC aims to represent

A

scarcity, opportunity cost, efficiency and choice.

52
Q

Explain what is represented in the PPC and how?

A

1.) Scarcity
How?: PPC notes that we have limited (therefore scarce) resources which is why we can’t simultaneously maximize the production of two competitive products as shown in the PPC.

2.) Opportunity cost
How?: the PPC shows that in order to get X amt. of Product A, the opportunity cost is Product Y

3.) Efficiency
How?: Via the points OF the PPC. The points on PPC illustrate that the resources are being used to its fullest extent/potential (aka efficient) whereas the points that lie inside the PPC are inefficient and the point outside the PPC is impossible unless there’s economic growth.

4.) Choice
How?: All points in the PPC are choices producers could make

53
Q

Outline the two types of PPC

A
54
Q

How to calculate for opportunity cost?

A

Assuming that the PPC is an increasing opp. cost because you’re calculating the opportunity cost…

Opp cost of Product X: Number of Product X in Point 1 - Number of Product X in Point 2 (in order to create Product Y in between those points)

Economic IB 1 (8 decks)

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