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Economics 1,2 > Unit 1, AOS 1 > Flashcards

Unit 1, AOS 1 Flashcards

1
Q

What is economics

A

= study of human behaviour - it’s re looking @ the way individuals, families, businesses + gov.ts make decisions / choices re how 2 use their limited resources in ways that best help 2 satisfy their basic needs and unlimited wants

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2
Q

What is microeconomics

A

= study of behaviour of individual c’ers as well as bus

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3
Q

What is macroeconomics

A

= involves analysis of economy-wide phenomena

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4
Q

What is the/an economy

A

= a place where scarce resources are allocated among competing uses and g/s are brought +sold

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5
Q

What is a consumer

A

= a person who purchases g/s

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6
Q

What is a producer

A

= person who provides g/s 2 c’er 4 payment

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7
Q

What is positive economics

A

= fact based economic statements or claims that can be verified or tested to be true/false

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8
Q

What is normative economics

A

= opinion of value judgement statements or claims that are subjective in nature and thus can’t be verified/tested to be true/false

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9
Q

What is the difference b/n normative and positive economics and why is it important to know

A

-> p.o.d = if it is fact based

important b/c-
- help inform decision making -> decisions based on fact
- help us determine how 2 use scarce resources 2 best meet our needs and wants

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10
Q

What are the 3 main components of economic activity

A

= production, income, expenditure

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11
Q

What is relative scarcity

A

= the imbalance between our unlimited needs and wants compared to our limited resources

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12
Q

What are needs

A

= basic g/s that are necessary 4 our survival

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13
Q

What are wants

A

= something we desire 2 have 2 improve our satisfaction or quality of life h/r x necessary 4 survival

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14
Q

What are resources

A

= inputs by bus 2 produce or supply g/s that we need or want

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15
Q

What are the types of resources

A
  • Natural = productive inputs that occur from nature
  • Labour = intellectual skills, knowledge + manual effort that people provide as members of nation’s labour force
  • Capital = involved manufactured or produced goods
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16
Q

Who are the main decision makers in an economy, what do they decide and what are their aims

A
  • C’ers = decide what types of g/s 2 consume -> aim 2 maximise own s.o.l
  • P’cers = decide what 2 produce + materials, equipment + labour needed 2 produce 2 best satisfy c’er
    -> aim 2 maximise profits
  • Gov.t = decide how + how much tax p’cers + income earners + home /+ how 2 spend public funds -> aim 2 maximise s.o.l for all Aus’s
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17
Q

What is opportunity cost

A

the value of the next best alternative foregone whenever a decision is made

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18
Q

What is the production possibility frontier/curve

A

a graphical representation of choices available 2 society about how resources may be used

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19
Q

What is productive capacity

A

the point @ which production (gdp) is occurring @ max level possible in an economy

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20
Q

What are the important assumptions of the ppf

A

1) only 2 goods are produced in an economy
2) all resources or factors of production are fully and efficiently employed

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21
Q

How to increase productive capacity

A

the availability and efficiency (productivity) of resources

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22
Q

What is productivity

A

the level of output produced from a given number of inputs

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23
Q

What are the 2 types of efficiency

A
  • productive efficiency = maximising output from any given level of input
  • allocative efficiency = most efficient allocation of resources occurs when living standards and welfare are maximised + not possible 2 further increase S.O.L by changing the way resources are allocated
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24
Q

What are the 3 basic economic questions

A

1) What and how much to produce
2) How to produce
3) For whom to produce for

-> needed b/c relative scarcity

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25
Q

What is planned socialism

A

-> gov.t / central authority controls the economy t/f decides
- what 2 produce + how much
- how 2 produce via determining production methods
- distribution of g/s

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26
Q

Key beliefs of market capitalism

A
  • Private enterprise
  • Free enterprise
  • Self interest
  • Competition
  • Consumer sovereignty
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27
Q

What is capitalism

A
  • market determines what and how much to produce
  • how to produce determined by market
  • c’er = for whom to produce

Aus also has minimal gov.t intervention

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28
Q

What is a market failure

A

= under-production of essential g/s
= over-production of undesirable g/s

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29
Q

What is economic activity

A

= refers 2 the volume of production, income and expenditure

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30
Q

What is the role of households

A
  • They provide their time and skills (labour) in exchange 4 income
  • c’er purchase g/s
  • pay tax 2 gov.t
  • may borrow from or save with financial sector
31
Q

What is the role of businesses

A
  • produce output which is sold 2 c’er 4 a price 2 receive revenue from H sector
  • they pay taxes to the gov.t
  • may borrow from or save with financial sector
32
Q

What is the role of governments

A
  • They receive taxation revenue from h + b sectors
  • spend money on pub. g/s i.e roads
33
Q

What are the 4 flows of the 3 sector- four flow model of the economy

A

1) Resources provided 2 bus sector
2) income returned 2 H. sector 4 provision of resources
3) expenditure on g/s (H + gov.t expenditure)
4) production of g/s ( real gdp)

34
Q

What are material living standards

A

= access 2 g/s

35
Q

What are non material living standards

A
  • relate 2 influences which generally money can’t buy
36
Q

What are trade offs

A

= forgoing the opportunity to gain something of value with our time or money once we use our time or spend money on some other activity / g/s

37
Q

What are the differences between trade offs and opportunity costs

A
  • T.O = range of dif. benefits we could have gained h/r O.C = next best alternative
  • O.C is forgone h/r T.O = flow on affect of what we’ve missed out on
  • 1 T.O will be O.C h/r many aren’t clear @ time
  • T.O = more indirect, O.C = more direct
38
Q

Examples of microeconomic trade offs

A

-Spending vs saving
- Work vs leisure
-Producing 1 product over other ones

39
Q

Examples of macro economic trade offs

A
  • Economic growth vs environment
  • Efficiency vs equity
40
Q

What are short run trade offs

A

= period of time close enough to heavily influence decision making (0-12 months)

41
Q

What are long run trade offs

A

= period of time far enough to have a smaller influence on todays decision making (12 months - infinity)

42
Q

What is a cost benefit analysis

A

= comparison of the expected costs + benefits of a particular course of action / project

43
Q

What + who are economic agents

A

= individuals + orgs that participate in the economy + make economic decisions
-> c’ers, p’ers, gov.t

44
Q

What is the private sector

A

-> relates 2 private ownership / control of resources + economic decisions made by owner of resources

45
Q

What is the public sector

A

-> relates 2 gov.t ownership / control of resources + economic decisions made by gov.t + its agencies

  • 3 levels = Fed, state + local
46
Q

What are the 3 traditional view points of consumers

A

1) c’er have an ordered set of preferences
2) Consumers make informed decisions
3) Consumers act rationally (2 max utility)

47
Q

What is utility

A

= the satisfaction or benefit gained from consuming a g/s

48
Q

What is marginal utility

A

= extra satisfaction that c’ers gain from consuming additional units / g/s

49
Q

What is diminishing marginal utility

A

= occurs when the more of a g/s consumed in a period of time, the smaller the total utility that is gained from the last unit

50
Q

What is total utility

A

= total satisfaction c’ers gain from consuming g/s

51
Q

What is the law of diminishing utility

A

-> each additional unit of a g/s that is consumed generates decrease utility than the previous one
t/f growth in total utility slows after each consumption

52
Q

What is utility maximisation

A

-> c’ers seek 2 increase utility by consuming different combinations of g/s

53
Q

What are budget constraints

A

= the amount of income available 2 c’ers 2 spend. This affects c’er ability 2 purchase g/s as income available 2 spend is limited

54
Q

What is an incentive

A

= described as a benefit, reward or cost that motivates economic agents 2 make specific decisions or act in a particular way

55
Q

What are disincentives

A

= punishments used 2 discourage economic agents from completing certain behaviour.

56
Q

What is the traditional economic viewpoint of businesses

A
  • Meet c’er demand
  • Max sales revenue
  • Min production cost

-> businesses seek profit maximisation in both short and long term

57
Q

What is consumer sovereignty

A

= where c’ers primarily determine what will be produced via their purchasing decision

58
Q

What is comparative advantage

A

= a country should specialise in producing those g/s where its opportunity costs are relatively lower than that of other countries

-> max lvls of output of g/s from economy’s resources (efficiency)
-> surplus can be exported and income earned can be used 2 import g/s (profitability)

58
Q

What is comparative advantage

A

= a country should specialise in producing those g/s where its opportunity costs are relatively lower than that of other countries

-> max lvls of output of g/s from economy’s resources (efficiency)
-> surplus can be exported and income earned can be used 2 import g/s (profitability)

59
Q

What is comparative advantage

A

= a country should specialise in producing those g/s where its opportunity costs are relatively lower than that of other countries

-> max lvls of output of g/s from economy’s resources (efficiency)
-> surplus can be exported and income earned can be used 2 import g/s (profitability)

60
Q

What is an incentive to businesses by gov.ts

A
  • Production subsidies -> dec. cost of production 2 incentives production of specific g/s e.g solar panels
  • Lowering tarrifs -> promoting structural change 2 economy performance through dec. price of imported goods
61
Q

What is a disincentive to businesses by gov.ts

A
  • Tax e.g emissions trading scheme
61
Q

What is a disincentive to businesses by gov.ts

A
  • Tax e.g emissions trading scheme
62
Q

What are the 3 goals of governments in pursuit of economic stability. (budgetary policy)

A

-> low inflation
-> strong and sustainable economic growth
-> full employment

63
Q

What is the goal of low inflation

A

= gov.t aims 2 have gen lvl of prices inc @ rate of 2-3% over medium term

64
Q

Problems with high and low inflations

A

over 3% -
- c’er save rather than spend
- bus lay off workers b/c prod costs
- slow production
under 2%
- c’er delay purchases b/c decrease pressure
- bus see slow price rise t/f less potential 4 increase profits + x inc production

65
Q

What is the goal of strong and sustainable growth

A

= gov.t aims 2 inc the total real value of production by the highest rate possible without causing any unnecessary environmental, external or inflationary pressures, measured @3-3.5 % Real gdp growth per annum

66
Q

Problems with slow or high growth rates

A

Slow rates -
- -> bus slow production + lay off labour
- dec. M.L.S
High rates -
- -> inflation if producing @ capacity
- -> environmental damage

67
Q

What is the goal of full employment

A

= gov.t aims 4 the lowest interest rate of unemployment possible without causing inflation 2 accelerate, usually around 4.5% unemployment rate

68
Q

Issues with low or high unemployment rates

A

Low
- -> shortages +inflation b/c increase average income
High
- -> decrease in production due 2 lower demand
- put inc pressure on gov.t finances

69
Q

What is expansionary budgetary policy

A

= used when economy is underperforming + gov.t wants 2 speed up economic activity where gov.t outlays are greater than their revenues

70
Q

What are possible expansionary changes to budgetary policy

A
  • infrastructure projects
  • lower tax rates
  • greater transfer payments
71
Q

What is contractionary budgetary policy

A

= used when economy is overperforming + gov.t wants economic slow down, where revenues are greater than their outlays

72
Q

What are possible contractionary changes to budgetary policy

A
  • increase tax rates
  • lower transfer payments or make welfare access inc difficult

Economics 1,2 (7 decks)

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