Unit 1 - 经济基础 - part 1 Flashcards
- economic problem is
Limited resources 与unlimited wants的矛盾
Resources are limited but people have unlimited wants, which causes scarity. The economic agents have to make choices (opporutnity cost).
The basic economic problem is concerned with 【how best to allocate scarce resources】 in order to satisfy people’s unlimited needs and wants.
OC definition
The opportunity cost is the cost expressed in terms of the next best alternative that is forgone.
OC的公式+中文理解
例如在PPC中
每多一个产品XXX，需要牺牲掉多少个YYY
因此 OC = △YYY / △XXX
例如 OC = -4 / 2 = -2
就代表了每多生产一个X产品，需要牺牲 2个Y产品
例如 OC = - 50/20 = -2.5
就代表了每多生产一个X产品，需要牺牲 2.5个Y产品
why do consumers face the economic problem
Most consumers are unable to buy everything that they want at the same time. They therefore have to make a choice.
For example, a family may decide to buy a new car rather than have a holiday.
The holiday forgone will be their opportunity cost.
why do workers face the economic problem
A worker may be able to work longer hours and earn more money, but this will involve making a choice and the sacrifice that is given up is leisure time, reduced as a result of working
longer hours.
The leisure forgone is the workers’ opportunity cost of working extra hours.
why do producers face the economic problem
Producers will only have so many resources at their disposal, for example, a fixed number of workers and machines, therefore if they produce more of one good, such as cars, they will have to produce less of another good, such as vans.
The production of vans the producers forgone is their opportunity cost of providing more cars.
how does the government face the economic problem
Governments have a limited amount of money to spend on essential services, therefore if they spend more on one service, such as education, they will have to spend less on another service, such as defence.
The reduced provision of national defence is the opportunity cost of greater spending on education
Land definition
the natural resources required in the production process, such as oil, coal, water, wood, metal ores and agricultural products.
Labour definition
the human resources required in the production process, including skilled and unskilled labour.
capital definition
the manufactured resources required in the production process, such as machinery, tools, equipment and vehicles.
Enterprise definition
the skills a business person requires to combine and manage the other three factors of production successfully. He/she also takes risks
role of enterprise
- Take risk
Business operation is risky. Revenue may decrease unexpectedly if market demand drops during economic downturn. Cost may increase unexpectedly if there is a production disruption. As a result, profits may become negative, which means the returns to enterprise is negative.
- Organize the other three fop to achieve goals such as profit maximisation
The higher the profits generated by a specific factor of production, resulted from either higher productivity or higher output price, the more enterprise will demand the factor to expand output.
what is income
returns to fop
Land — rent
Labour — wages and salaries
Capital — interest
Enterprise — profit
- OC的关键字是
Forgone OR 牺牲 OR 放弃
- ____________________导致了我们一定要做选择，做选择也就是_________________的概念
(Limited resources, unlimited wants)导致了我们一定要做选择，做选择也就是OC的概念
- Resources 近义词
fop
- Factors of production 是 input / output
input
- Goods and services 是input / output
output
PPC definition
The production possibility curve (PPC) represents the maximum combination of goods and services which can be produced in an economy at a particular time, using all of its available factors of production.
- It represents the productive capacity of the economy.
- It is usually concave because of increasing opportunity costs.
if an economy produces on the PPC
- full use of fop.
- All fop are used efficiently.
If production is within PPC:
underutilization of fop.
- Resources are not used efficiently. E.g. there is an insufficient use of labour, so that there is unemployment
- Do not exploit growth potential, output too low
- Less competitive
If production is outside of PPC:
unobtainable.
- The economy does not have sufficient resources to produce at this point.
PPC is downward sloping because
because of scarcity. To produce more of one good, another good has to be sacrificed as resourcesa limited. The other goods sacrificed represents the OC of producing one good
If PPC is straight, it means
constant OC
there is no loss of efficiency when the output of a good increases. The amount of sacrifice, in terms of other goods forgone, is constant
If PPC is concave, it means
increasing OC.
As more is being produced, resources that are less suitable for the production of the good are also used, such that productivity drops. This means the extra gain in output will be low, whereas the sacrifice in terms of the other goods keeps increasing.
In reality, different resources are suited for the production of different goods, therefore the PPC in real life is more likely to be concave rather than straight
Role of enterprise
- Enterprise is responsible for allocating the other three factors of production, including labour, land and capital.
- The rewards to enterprise are profits.
- He or she will try to allocate resources in the most efficient way in order to maximise profits. They will try to minimise costs.
- For example, the enterprise will use more labour if wages decrease relative to the interest rate, the cost of capital.
- Enterprise also bears risks.
- The second function of the enterprise is to bear risks.
- This is because unlike the other resources, whose income are certain, profits are not guaranteed.
Occupational mobility definition
Occupational mobility refers to the extent to which an fop is able to move between uses
e.g. labour occupational mobility refers to the extent to which labour is able to move between jobs. Retraining and upskilling help workers to improve occupational mobility.
- Geographical mobility就是_____________，可以由________________提高
easiness to move between different locations.
better transportation
- 如果PPC是牛奶和电脑，现在生产电脑的技术进步，PPC怎么走，画出来
movement along PPC tells us about
information regarding OC.
从A到B，多生产的consumer goods，其OC就是牺牲掉的capital goods，牺牲数量为C-D之间的距离
higher expenditure on capital goods EVALUATE pros and cons
- higher expenditure on capital goods means investment increases,
- more resources are being allocated to the production of producer goods SUCH AS machinery and tools
- Therefore there will be a movement towards more producer goods, if the country produces on its PPC
- At the same time, this means that less resources are being allocated to the production of consumer goods.
- Therefore in the short run, produces will benefit from more capital, whereas consumers will suffer from less consumption hence a lower standard of living
- However, in the long run, the economy enjoys a greater amount of capital. Also, the productivity of capital may also improve. This enhances a country’s productive capital so that the PPC curve shifts outwards, benefitting both consumers and producers.
However, it also depends on
- whether resources are fully utilised. If a country is producing within its PPC, then greater investment does not come at the cost of less consumption.
- the amount of capital goods a country already has. For example, if a country is already allocating a lot of resources on capital goods, the returns of more investment will be very low. The opportunity cost of producing extra capital goods will be sacrificing a lot of consumer goods. Consumers may have difficulties even feeding themselves and there may be famines, both the quantity and quality of labour will decrease, harming growth potential instead.
- whether investment is effective. Investment can be unsuccessful if the technology is still immature; alternatively, there may be corruption. If there is a lot of corruption and administrative costs, then higher expenditure on capital goods will not lead to more capital goods. This will be a waste of resources instead.
