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Year 11, 2023 > Unit 1: Economics > Flashcards

Unit 1: Economics Flashcards

1
Q

What is the economic problem?

A

Asserts that there is scarcity, or that finite resources available are insufficient to satisfy all human wants and needs.

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2
Q

The fundamental questions of economics determines…

A

What is to be produced and how the factors of production are to be allocated.

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3
Q

What are the three economic questions?

A

1) What to produce? - best combination of goods and services to meet varied wants and needs, and how factors of production are to be allocated
2) How to produce? - best combination of factors to create desired output of goods and services
3) For whom to produce?- who benefits from the output, problem of distribution

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4
Q

What is choice?

A

An act of choosing between two or more possibilities.

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5
Q

What is opportunity cost?

A

The next best alternative foregone when a choice is made, benefits are lost due to sacrifices.

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6
Q

What do the factors of production impact?

A

Financial markets and investment outcomes
The inputs used to produce a good or service to produce income and is measured by GDP.
The success or failure of the outcome.

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7
Q

Define economic resources

A

The factors of production - land, labor, capital, and entrepreneurship

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8
Q

Define the ceteris paribus assumption…

A

A Latin phrase meaning ‘other things being equal’

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9
Q

Define economic growth…

A

Sustained increase in the productive capacity of an economy over a specific period of time, usually indicated by the increased availability of goods and services in the economy.

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10
Q

Define efficiency…

A

Achieving maximum productivity with minimum wasted effort or expense.

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11
Q

Define Production Possibility Curve / Frontier…

A

A model used by economists to demonstrate the concept of opportunity cost

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12
Q

Assumptions involved in the PPC/F are…

A
  • economy aims to use all resources fully and efficiently
  • only two goods produced in this simplified economy
  • all resources can be used to produce each good - perfect mobility
  • level of technology is assumed to be fixed
  • resources are fixed
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13
Q

Define productivity…

A

How much output can be produced with a given set of inputs. Productivity increases when more output is produced with the same amount of inputs or when the same amount of output is produced with less inputs.

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14
Q

Define scarcity…

A

Insufficiency relative to wants. Universal problem - resources available for satisfaction of human wants are limited while wants are unlimited

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15
Q

Define recession…

A

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP

During a recession, the economy struggles, people lose work, companies make fewer sales and the country’s overall economic output declines. The point where the economy officially falls into a recession depends on a variety of factors.

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16
Q

Why is the economy so important?

A

It can influence the decisions we make, which influences how the economy is performing. It is important to us all and can equally affect our lives.

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17
Q

What are the four phases of the cycle?

A
  • expansion
  • peak
  • contraction
  • trough
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18
Q

What is economic expansion?

A

The upswing of the cycle towards a peak. It is associated with

  • increase in production/output
  • decrease in unemployment
  • increase in wages
  • increase in consumer spending
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19
Q

What is economic contraction?

A

The downswing of the cycle towards a trough. It is associated with

  • decrease in production/output
  • increase in unemployment
  • decrease in wages
  • decrease in consumer spending
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20
Q

What is a boom?

A

A period of strong economic expansion where businesses are operating at full capacity or above and the unemployment rate is very low. Income and production are at very high levels. This can lead to rapid growth in prices.

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21
Q

What is a depression?

A

very severe recession.
large contraction in the economy
very high unemployment rate

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22
Q

Efficiency is…

A

using the least amount of resources to produce the goods and services that people value most
how cheaply firms can combine land, labor, and capital resources to maximise output while generating profits

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23
Q

Underutilisation is…

A

using fewer resources than an economy is capable of using.

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24
Q

Trade-offs are…

A

a balance achieved between two desirable but incompatible features, a compromise

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25
Q

Economic models are…

A

used to explain economic concepts and relationships providing a simplified version of reality.

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26
Q

The PPC shows / demonstrates…

A
  • maximum possible production and various combinations of two goods with a given factor of production
  • scarcity, choice and opportunity cost
  • point that any nation’s economy reaches its greatest level of efficiency during specialisation
  • production of one commodity may increase only if the other decreases (law of opportunity cost)
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27
Q

Economic assumptions are…

A
  • initial conditions made before a micro or macroeconomic analysis is built
  • used for simplification and to isolate effects of changes in variables
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28
Q

Assumptions of the PPC are…

A
  • economy aims to use all resources fully and efficiently
  • only two goods produced in the economy
  • all resources used to make either goods, so there is perfect mobility between the production of the two goods
  • level of technology is fixed
  • resources are fixed
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29
Q

Interpretations of the PPC are… (points in the graph)

A
  • points on the curve show efficient use of resources - maximum output. Full employment and productive efficiency
  • points beyond the curve are unattainable given the resource constraint - only after economic growth.
  • points below the curve are feasible, but inefficient. Unemployment and productive inefficiency
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30
Q

Why is the PPC curved?

A

a reflection of the law of diminishing returns, the addition of a production factor has no impact

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31
Q

Shifts in the PPC are…

A

inward - economic shrinkage due to resource allocation failure, high unemployment, rising inflation
outward - economic growth, increase in highly trained workers, improved technology, greater access to capital funds

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32
Q

Comparative advantage is…

A

ability to produce a particular good or service at a lower opportunity cost than its trading partners.

33
Q

Aggregate demand is…

A

total expenditure and the good and services produced in an economy in a period of time.

34
Q

Law of demand is…

A

higher prices results in lower purchases / demand and vice versa

35
Q

Aggregate supply is…

A

total values of goods and services available in an economy in a period of time.

36
Q

Law of supply…

A

ceteris paribus - price of good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa

37
Q

GDP is…

A

monetary value of all final goods and services produced in a country’s border by its citizens and foreigners in a specific time period

38
Q

Real GDP is…

A

market value gdp adjusted for price changes may occur

39
Q

Trade deficit is…

A

when a country imports more than it exports.

40
Q

Price level is…

A

average of current prices across the entire spectrum of goods and services produced in an economy.

41
Q

AD downwards slope curve effects include…

A

wealth effect, interest rate effect, net exports effect.

42
Q

Right shifts in the AD curve mean…

A

at the same price levels, the quantity demanded of real GDP increased
the components of AD rise, and the equilibrium quantity of output and price level will rise

43
Q

Left shifts in the AD curve mean…

A

at the same price levels, the quantity demanded of real GDP decreased
the components of AD fall, and the equilibrium quantity of output and price level will fall

44
Q

Factors that cause the AD curve to shift are…

A
  • exchange rates
  • distribution of income
  • expectations
  • foreign income
  • monetary and fiscal policies
  • interest rates
  • employment
45
Q

Right shift in the AS curve mean…

A

increase in supply

46
Q

Left shift in the AS curve mean…

A

decrease in supply

47
Q

Factors that cause the AS curve to shift are…

A
  • resource or input costs
  • productivity / technology
  • producer expectations
  • actions of government, taxes and subsidies
  • prices of other goods
48
Q

Equilibrium price is…

A

where supply and demand intersect on the graph.
the price we would predict the market will operate.
where consumers and producers plans agree

49
Q

Surplus in the AD and AS graph is…

A

if the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus

50
Q

Shortage in the AD and AS graph is…

A

if the market price is below the equilibrium price, quantity supplied is less than the quantity demanded, creating a shortage

51
Q

Aggregate demand formula is…

A

C + I + G + ( x - m ) = AD

52
Q

The aggregate demand/aggregate supply model is…

A

model that shows what determines total supply or total demand for the economy and how total demand and total supply interact at the macroeconomic level.

53
Q

Short-term changes in aggregate supply are impacted most significantly by…

A

increases or decreases in demand

54
Q

Long-term changes in aggregate supply are impacted most significantly by…

A

new technology or other changes in an industry

55
Q

When prices increase, the aggregate real GDP output demanded…

A

decreases

56
Q

When prices decrease, the aggregate real GDP output demanded…

A

increases

57
Q

When prices increase, the aggregate real GDP output supplied…

A

increases

58
Q

When prices decrease, the aggregate real GDP output supplied…

A

decreases

59
Q

If equilibrium occurs in the flat range of the AS curve then…

A

the economy is not close to potential GDP and be experiencing unemployment, but stable price levels

60
Q

If equilibrium occurs in the steep range of the AS curve then…

A

the economy is close to or at potential GDP and be experiencing rising price levels or inflationary pressures, but will have a low unemployment rate

61
Q

What is the law of diminishing marginal return?

A

adding an international factor of production results in smaller increases in output

62
Q

What is marginal productivity?

A

extra output, return or profit yielded per unit by advantages from production units

63
Q

What is the law of diminishing marginal productivity?

A

advantage gained in a factor of production, the productivity gained from each subsequent unit produced will only increase marginally from one unit to the next

64
Q

What is economic equity?

A

fairness and distribution of economic wealth, tax liability, resources and assets in a society

65
Q

What are the sectors that make up the Circular Flow of Income model?

A
  • Household Sector
  • Firms Sector
  • Financial Sector
  • Government Sector
  • Overseas Sector
66
Q

What is the Circular Flow of Income model?

A

describes the flows of resources, goods and services, and income in parts of the economy - an endless loop and interdependence

67
Q

What are leakages?

A

a situation which occurs when some money withdrawn Savings, Taxation, Imports.

68
Q

What are injections?

A

inflow of income to the circular flow.
Investment, Government Expenditure, Exports

69
Q

How do we measure the economy?

A

by macroeconomic indicators
- GDP
- Per-Capita GDP
- GDP Growth Index
- Unemployment Rate
- CPI
- Inflation Rate

70
Q

Draw and label the business cycle

A

see notes

71
Q

Draw and label the circular flow of income

A

see notes

72
Q

What is monetary policy?

A

The use of interest rates to influence demand, employment and inflation in the economy.
Objectives: economic prosperity and welfare, stability of currency, full employment

73
Q

What is fiscal policy?

A

When the government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. Objectives: stability and reduction of gross and net debt, target budget balance, control expenditure growth, support revenue growth.

74
Q

Effect of increased interest rates…

A

personal:
- increased cost
- improved return for savers

economic:
- currency will appreciate making exports less competitive, imports cheaper
- inflation will tend to be lowered

75
Q

Effect of decreased interest rates…

A

personal:
- lower cost of borrowing
- cheaper mortgage payments

economic:
- currency will depreciate making exports more competitive, imports expensive
- inflationary pressure

76
Q

What is the cash rate?

A

interest rate which banks pay to borrow funds from other banks in the money market on a overnight basis

77
Q

What is the paradox of thrift?

A

An increase in savings during a recession, though logical, would actually worsen a recession

78
Q

How to measure fluctuations in output?

A

GDP

79
Q

How to measure price changes in economy?

A

price index, CPI

Year 11, 2023 (1 decks)

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