Unit 1 Flashcards
Good
A material that is bought to satisfy customers need. (tangible and can be touched)
Types:
1) Public - good supplied that benefits multiple
people such as parking spaces
2) Individual - Individually owned good such as a
teacher
3) Complementary - goods that work together, one
doesn’t work without another such
as petrol for a car. When one of the
economies is impacted then it affects
the other. Petrol prices increase causes
demand for cars to go down
4) Competitive - When one prices go up the demand
for the other also goes up. Coca Cola
prices go up therefore people decide to
buy pepsi.
Service
A transaction of a non-physical value from seller to buyer (not giving a physical product)
Land
All resourced found in nature
The reward to the owners of this resource is called rent
Labour
Human effort… Includes both physical and mental effort.
The reward to the owners of this resource are wages…
Enterprise
The organisation of the other factors of production
The reward for enterprise is Profit
Capital
Goods used in the production of other goods and services.
Funds for the purchase of capital goods are made available for loan by the savings of consumers.
The rewards to the suppliers of these funds is interest
Infrastructure
Systems, services, and physical structures that facilitate economic activity E.g Communication systems, roads, networks of electricity wires, police services
Diminishing Return
A decrease in the return on each new unit added. Eg. 1 tractor increased my production massively but when im bought another it had less effect on my ability to increase income. Still helped but not as much.
Opportunity cost
The value of your choice’s next best alternative.
We know we have limited resources - limited budgets, limited resources, limited time. We want unlimited resources (this is the economic problem)
Rational decision makers ask themselves; is this the best use of my money?
Eg - Using your holiday time to visit one country costs you the fun you have had in another.
Consuming one good or service reduces our purchasing power and prevents us from consuming another good or service.
The monetary cost of eating a sausage roll is five dollars but the opportunity cost is the enjoyment of eating a sausage roll for example
Producing one good means foregoing the production of another good.
Retail trade
Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain.
GDP per capita
Gross Domestic Product divided by population
GDP per capita is a measure of a country’s economic output that accounts for its number of people. It divides the country’s gross domestic product by its total population.
y=c+m
disposable (after tax) income = total consumption + imports
3 types of Specialisation
1) division of labour
2) location of industry
3) Large Scale Production
Division of Labour
When businesses break down their production process into multiple sub-process. Allows labour to specialises in particular part of the process, therefore avoiding time and effort of moving from a process to another.
Location of Industry
When a large number of businesses produce similar goods and services congregate in the same area to reduce production costs. They share common infrastructure requirements.
Large-scale production
Occurs when businesses grow so large they can use highly specialised capital equipment in their production process
Inflation
The general prices of goods and services of an economy increases for a significant period of time: money becomes worth less. Should be around 2-3%
Deflation
The general prices of goods and services of an economy falls for a significant period of time: Money becomes worth more
Hyperinflation
Extraordinary high (rapid) rates of inflation. money loses its value
CPI
consumer price index
The CPI measures changes in the prices of a “basket” of goods and services consumed by an average household.
Disequilibrium
Sum of leakage > sum of injection
When leakages area greater than injections, there is a downturn in economic activity (recession of business cycle)
income falls, production falls, unemployment rises
less income = less saving, less imports, less taxes
leakages fall until equal to injections. Therefore, equilibrium or sum of leakages < sum of injections
Inflation Rate
percentage change in the general prices of goods and services over time (usually a year)
Pro cyclical
Something that moves in the same direction as the business cycle
eg international tourism
countercyclical
something that moves in the opposite direction to the business cycle
eg. domestic tourism
sector
part of the economy where the participants are all engages in similar economic activity
financial sector - link between savers and burrowers of money
government sector - role is to satisfy collective wants
international sector - includes all trade + money flows eg leading/borrowing foreign aid, remittances
circular flow of income
S - saving T - taxation M - imports I - investment G - government expenditure X - exports Y - Income E - consumption expediture
Equilibrium
STM (leakages) = IGX (injections)
Boom
increasing production of goods and services (output)
- increases consumption and investment
- inflation rises (increase in prices)
- falling levels of unemployment
- rising income levels
- rising quality of life
Recession (or downturn)
Falling production of goods and services (output)
- falling consumer and business confidence
- falling levels of spending and investment
- sluggish rates of inflation
- rising or high unemployment
- falling wage rates
- falling quality of rights
occurs when there are 2 economic quarter of negative growth
Depression
A retained recession
Consumer Sovereignty
As a collective group, what consumers spend their money of directly determines.
- What is produced by their actions. Firms that meet consumers demand will make sales; firms that are not producing what consumers want will not make sales.
- How much product is produced
- The price of the product
Marketing can influence consumer sovereignty. The drive for businesses to seek profit. Rather than responding to the wants of consumers, marketing often attempts to create and/or intensify consumer wants.
Consumer Sovereignty and Income
As income level changes, so does consumer demand for different types of goods and services, thus changing what is produced in the economy.
Product Market
the market for the outputs of production (goods and services)
Factor Market
Is a market for any input into the production process (factors of production - land, labour, capital and enterprise)
Product Markets
consumers: consumers within the constrain of their income choose what to buy from product market based on the relative price of each good or service.
Types of Demand
Individual demand: is the quantity of the good or service that a consumer is willing and able to purchase at a given price.
Market demand: is essentially the sum of all individual demand - the demand by all consumers for a particular good or service
Influenced by: price, income, tastes, expected future prices, prices of other goods and services, population
The law of demand
The law of demand states there is an inverse relation between price and quantity
Ceteris Paribus
with other conditions remaining the same; other things being equal
Demand for Labour (markets)
PRODUCT FACTOR MARKET
- In most markets, Demand comes from consumers who belong to household
- supply comes from producers, who belong to firms
LABOUR MARKETS
- “backwards” compared to product factor market
- in labour markets, Demand comes from the employer of labour, which area firms
- supply comes from the owners of labour which are households in exchange for wages
*demand for labour is “derived demand”
How to analyse a graph
TEEA
- trend/average
- evidence (specific statistics)
- explanation (low modality)
- anomaly (if relevant)
Factors influencing demand for labour
Due to “derived demand”, the amount a firm produces (its output) directly influences the amount of labour the firm demands.
INFLUENCED BY:
Aggregate Demand
- GDP
- Higher GDP = more output = more labour
Industry Conditions
- changing tastes of consumers
Selling Techniques
- Ultimately, the effectiveness of the individuals firm’s
selling techniques determines their output
*Firms decide how to produce their product by combining F.O.D. If capital is cheap relative to labour, firms will choose to substitute away from labour
Productivity of Labour Formula
total output
—————– = productivity of labour
Labour Input
The Economic Problem
An economy’s finite resources are insufficient to satisfy all human wants and needs
Share
A financial asset which represents ownership over part (a ‘share’) of a business or company
*transactions occur over the digital stock exchange
Primary Financial Market
Where new financial products (securities) are offered for the first time.
Secondary Financial Markets
Where existing financial products (securities) are traded after their initial sale.
Shareholders/Investors
- Owning share gives investors the right to vote for company’s board of directors and voice opinions
- If the company turns a profit the shareholders may receive dividends.
- If you sell for - more = capital gains
- more = capital gains - If company falls bankrupt, shareholders may lose their investment, but aren’t liable for company debt.
Publicly Listed Company
- The share market allows businesses that are public companies and incorporated businesses to raise funds.
- Managers have an ethical duty to manage company in best interests of shareholders (known as fiduciary duty)
Bull Market
Prices rise and investors can’t keep up (buying spree)
