Unit 1 Basic Econ concepts Flashcards
What is economics?
The science of scarcity
What is scarcity
We have unlimited wants but limited resources
Economics is the study of
Choices
All decisions involve
Trade-offs
What is trade-offs
All the alternatives that we give up when we make a choice
What is opportunity cost
Most desirable alternative given up when you make a choice
What is microeconomics?
The study of small economic units such as individuals, firms and industries.
What is macroeconomics?
The study of the large economy as a whole or economic aggregates
How is economics used?
Economics use the scientific method to make generalizations and abstractions to develop theories
What is positive statements?
Based on facts. Avoids value judgment
What is normative statements?
Includes value judgement
What are the 3 economic questions?
- What goods and services should be produced?
- How should these goods and services be produced?
- Who consumes these goods and services?
What is an economic system?
The method used by a society to produce and distribute goods and services.
To answer the “how goods and services should be produced” we use?
The four factors of production
What are the four factors of production
- Land
- Labour
- Capital
- Entrepreneurship
What is land?
All natural resources that are used to produce goods and services
What is labour
Any effort a person devoted to a task for which that person is paid
What are the two types of capital
Physical capital
Human capital
What is physical capital?
Any human-made resource that is used to create other goods and services
What is human capital?
Any skills or knowledge gained by a worker through education and experience
What is entrepreneurship?
Ambitious leaders that combine the other factors of production to create goods and services
What are 3 things entrepreneurs do?
- Take the initiative
- Innovate
- Act as the risk bearers
What is the product market?
The place where goods and services are sold to households
What is the resource (factor) market?
The place where resources are sold to businesses
What is self interest?
When someone makes decisions they think are best for their own welfare
What is social interest?
When people make self-I retested choices that are best for society ( everyone is better off)
What is a circular flow market?
A model of the market economy
That shows the circular flow of expenditures and incomes that result from decision makers choices
What is a market?
A mechanism that brings together buyers and sellers
What is a goods market?
Markets in which goods (or services) are bought and sold
What is a factor market?
Markets in which factors of production like labour are bought and sold
What are real flows?
The goods and services and the factors of production
What is money flows?
The expenditures on goods and services and the incomes that accrue to the factors of production
What is the agricultural revolution?
7,500 to 10,000 years ago
Moved from being nearly lawless nomads constantly ins watch of food to farmers belonging to various communities with laws and economic exchange
What is the industrial revolution?
Second economic revolution in the mid 1700s.
New technology allowed people to manufacture on a larger scale.
People moved from rural areas to cities brining new forms of economic organizations and change how people lived.
What is the digital revolution?
Both what we do and how we do it are being changed quickly due to technology and computers
This one is only taking place in decades.
Why is economics a social science?
It studies the behaviour of individuals and society with regards to economic livelihood
Why do we say our wants are unlimited?
Our wants are sometimes insatiable.
What is the key underpinning of economics and why economics exists in the first place?
Scarcity
The choices we make depend on what?
Incentives
What are incentives?
A reward that encourages a choice or a penalty that discourages a choice
What is a cost?
What must be given up.
Each decision involves a cost
What is a benefit?
What one gets
Each choice or decision involves a benefit
I do I duals make optimal choices at?
The margin
What is the margin
Where marginal benefit equals marginal benefit
What is opportunity cost
The highest values alternative that is given up
What is ceteris peribus
All other influences are held constant
What are economic models?
A description of some aspect of the economic world that includes only those influences that are required for analysis
What are economic models used for?
Economists use it to help make better business decisions.
What are the big economic questions?
What, how and for whom goods and services are produced
What are goods and services?
Things that people value and produce to satisfy wants
What is the what question of economics?
What goods and services will we produce and in what quantities?
Why is the economic how question?
How will goods and services be produced?
Why are the 4 factors of production?
Land, labour, capital, entrepreneurship
What is land?
Natural resources. Either physical one or anything coming from the land
What is labour?
Work time and effort people put into making goods and services
What is capital?
The tools, instruments, machines, buildings, that businesses use to produce goods and services
What is entrepreneurship?
A human resource that organizes labour, land and capital in the production process
What is labours factor payment?
Wages/ salary
What is capitals factor payment?
Interest
What is lands factor payment?
Rent
What is entrepreneurs factor payment?
Profit/ loss
The quality of labour or how productive someone is depends on what?
Human capital
What is human capital?
The knowledge and skills people obtain from education, work experience, and on the job training
What is the for whom question?
For whom are foods and services produced
What is the circular flow model?
A model of the market economy that shows the circular flow of expenditures and incomes that result from decision makers choices and how those choices interact to determine what, how and for whom goods and services are produced.
What is a market?
A mechanism that brings together buyers and sellers.
What is a goods market?
Markets in which goods or services are bought and sold
What is a factor market?
Markets in which factors of production like labour are bought and sold
What is a real flow in a market economy?
The goods and services and the factors of production
What are money flows?
The expenditures on goods and services and the incomes that accrue to the factors of production
