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Economics SL (Year 1) - IB > Unit 1 - The Nature and Importance of Economics > Flashcards

Unit 1 - The Nature and Importance of Economics Flashcards

1
Q

Utility

A

The usefulness of a product

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1
Q

Economics

A

The study of choices made by individuals and societies in the use of scarce resources to satisfy wants and needs

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1
Q

Diminishing marginal utility (law)

A
  • As a product’s consumption is increased, the satisfaction from it per a certain amount is decreased.
  • Ex: a person’s first glass of water brings more satisfaction than a person’s seventh glass.
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1
Q

Economic Profit

A

The financial revenue of a business minus costs (including opportunity costs).

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1
Q

Productivity

A

The real output produced per unit of input over a given period of time

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1
Q

Positive Economics

A

The study of the behavior of economic units within an economic system (i.e. tries to explain what will happen under certain conditions).

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1
Q

Normative Economics

A

Proposes ideas on what an economic scenario should ideally be. [i.e. tries to judge whether economic outcomes are good or bad and how they can be improved].

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1
Q

Positive Statements

A
  • Facts expressed in a verifiable (or testable) manner [what is]
  • Ex: “An increase in the money supply will lead to a higher rate of inflation”
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1
Q

The three questions of economics

A
  • What gets produced (consumption)
  • How it gets produced (production)
  • For whom products are produced (distribution)
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1
Q

Factors of production

A
  • Land (natural resources)
  • Labor (human capital)
  • Capital (real)
  • Entrepreneurship (capitalist system only)
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2
Q

Financial compensation for factors of production

A
  • Land: Rent
  • Labor: Wages, Salaries and Benefits
  • Capital: Interest and Dividends
  • Entrepreneurship: Profit
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3
Q

Capital v. Consumer Goods

A
  • Capital: Produced and then used to produce other goods and services
  • Consumer: Goods produced for consumption
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4
Q

Production

A
  • Transforms resources into goods and services.
  • Factors of production are the inputs into production; goods and services of value are the outputs of production.
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5
Q

Opportunity cost

A

What we forego when we make a decision

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6
Q

Real Capital Goods

A

Used to produce other goods and services

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7
Q

Investment

A
  • Using resources to produce new capital.
  • Capital is the accumulation of previous investment.
  • The opportunity cost of every investment in capital is foregone present consumption.
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8
Q

The economic problem

A

Given scarce resources, how do complex societies answer the three economic questions?

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9
Q

Rationality

A
  • Individual take actions to achieve their objectives
  • Eg. If someone was offered a higher wage, it’s acceptance is expected
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10
Q

“Other Things Being Equal” (ceteris paribus)

A
  • Compensates the inability to control particular variables in the real world. For theories and models, economists assume that other things (eg. variables) are equal or unchanged
  • Eg. “As the price of a good increases, fewer units of the good will be demanded other things being equal”
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11
Q

Stock

A

The quantity that exists at any particular point in time [eg. There were 14.1 million persons in the labour force in August 1990]

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12
Q

Flow

A

The change in the quantity occurring during a period of time [eg. 157,000 persons were added to the labour force during the 12 months prior to August 1990]

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13
Q

Economic prediction

A

Prediction of events based on the fulfillment of certain conditions

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14
Q

Variables

A

Anything that can assume different values under different circumstances.

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15
Q

Endogenous variables

A

Variables that are explained within a model

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16
Q

Increasing opportunity cost

A

As the production/purchase of one product is raised, the amount of alternative products that are given up raises even higher, as resources are not equally efficient in all uses

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17
Q

Economic growth

A

An increase in real per capita output

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18
Q

Normative Statements

A

Value judgements of ideal scenarios in economics (ex: the money supply should be reduced)

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19
Q

Exogenous Variables

A

Variables determined by factors outside a model (exogenous variables are important in economics and affect endogenous variables)

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20
Q

Economic Forecast

A

Gives the specific value of a particular variable

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21
Q

Economic Policy

A

A course of actions to achieve economic objectives

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22
Q

Constant

A

Any value that does not vary.

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23
Q

Economic Goods

A

Goods which have an opportunity cost

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24
Q

Free goods

A

Goods that don’t have an opportunity cost and are not analyzed in economics

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25
Q

Production Possibilities Schedule

A

Table showing various combinations of goods that an economy can produce if it uses all of its resources

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26
Q

Shifts in PP curve:

A
  • Parallel: Both industries are affected equally
  • Non - parallel: Both industries are not affected equally
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27
Q

Factor Combination/Substitution

A

The combination/substitution of factors of production, typically to produce the most amount of goods at the lowest cost

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28
Q

Increasing opportunity cost

A

As the production of one product is raised, the amount of alternative products that are given up raises even higher, as resources are not equally efficient in all uses

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29
Q

Law of diminishing returns

A

As factors of production are switched from one good to another, the rise of output of the latter good decreases

30
Q

Reasons for imperfect mobility of factors of production

A
  • Capital (like factories and machinery) will need to be redesigned and re-organized
  • Labor will need to be re-trained
31
Q

Time Preferences

A

Whether individuals in an economy prefer immediate consumption or delayed consumption for investment.

32
Q

Potential growth

A

A growth in possible economic output (and thereby shifting the PPC) when resources are fully utilized

33
Q

Public Enterprise

A

Business activity owned by the government

34
Q

Public v. Private

A
  • Public: Owned by the government
  • Private: Owned by private (i.e. non-public) producers and institutions
35
Q

Marketplace

A

The interaction between consumers and producers

36
Q

Entrepreneur

A

An organizer of a business who takes a greater financial risk to do so (by identifying a demand and establishing businesses to produce goods/services in response)

37
Q

Capitalism

A

An economic system in which trade is privately organized for profit

38
Q

Labour market

A

The supply and need of employment [within one or more sectors]

39
Q

Economic Growth

A

An increase in real per capita output

40
Q

Economic Developments

A

An increase in living standards from economic output, such as literacy, healthcare and housing.

41
Q

Technological Changes/Development

A

The development of better production of goods and services

42
Q

Economic system

A
  • A system that transforms its resources into goods and services [i.e. set of institutions and practices that determine the production, consumption and distribution of scarce resources].
  • Economic systems should provide economic stability, growth and security.
43
Q

Command (Socialist) economy

A

A central government either directly or indirectly sets output targets, incomes, and prices

44
Q

Laissez - Faire (Free Enterprise) economy

A

Individuals and firms pursue their own self-interests without any central direction or regulation.

45
Q

Mixed economy

A

An economy mixing central oversight and private entrepreneurship

46
Q

The goals of government

A
  • Minimizing market inefficiencies
  • Providing public goods
  • Redistributing income in an equitable manner
  • Stabilizing the macroeconomy by reducing unemployment and inflation
  • Protecting personal freedom and private property
  • Enforcing signed contracts and agreements
47
Q

Free Enterprise

A

Individual producers must organize and distribute the production of products and services

48
Q

Price

A

The amount that a product sells for per unit (not the same as cost), reflecting what society is willing to pay for a good or service and is the coordinating mechanism in a free market

49
Q

Sustainability

A

The conservation of natural resources to safeguard the economic needs of future generations

50
Q

Equality

A

Economic outcomes are similar for different people/social groups

51
Q

Equity (a normative concept)

A

Economic outcomes where every person or social group receives a desirable economic outcome corresponding to each person’s need [the idea of fairness]

52
Q

Economic well-being

A

A multidimensional concept on living standards of members of an economy, including
- Present/future financial security
- Ability to acquire necessities
- Ability to make economic choices that permit satisfaction

53
Q

Consumer Sovereignty

A

Consumer Sovereignty: Consumers dictate what will be produced by choosing what to purchase.

54
Q

Production Possibilities Curve/Frontier (transformation curve):

A

Illustrates opportunity cost with two possible products as opposite axis, assuming all resources are utilized

55
Q

Production Possibilities Point

A

A combination of goods or services an economy can produce

56
Q

Actual growth

A

The annual rate (i.e. actual) change of national output

57
Q

Conditions for Economic Growth

A

The increase in the national income/GDP of a country OR the country’s productive capacity (being a country’s ability to generate national income.

58
Q

Conditions for Economic Development

A

Investment in capital rather than products intended for consumption drives economic growth → Allows the PP curve to shift to the top-right

59
Q

Producer Sovereignty

A

Producers dictate what to produce before convincing consumers to buy it

60
Q

Inequality

A

Unequal income distribution, wealth or human opportunity

61
Q

Economic security

A
  • The stability of income and resources for a standard of living in the present and future
  • Is ensured by minimum wage laws, social security, subsidies, welfare, and other means
62
Q

Consumer sector

A

Sell factor inputs and use money from selling inputs to purchase consumer goods

63
Q

Business sector

A

Purchases resources from consumers/other firms and uses them to create goods to sell for profit

64
Q

Government sector

A

Taxes money from businesses and consumers, provides goods and services through agencies and departments at three levels, and regulates economic activity

65
Q

Interdependence

A

The exchange of resources and goods to satisfy the needs of a person or group.

66
Q

Specialization

A

The concentration of labor from a broader set of less efficient outputs to fewer, more efficient outputs

67
Q

Market Mechanism

A

A network of markets and price systems based on supply and demand of goods

68
Q

Market Economy Elements

A
  • Private property
  • Freedom of enterprise
  • Profit maximization
  • Competition
69
Q

Mixed private enterprise economy

A

A free enterprise economic system with government intervention

70
Q

Price system

A

A system in which market forces determine prices

71
Q

Elements of a Price System

A
  • No. of consumers willing to pay
  • Quantities consumers willing to pay at particular price
  • Quantities sellers willing to supply at particular price
  • No. of producers creating a good
72
Q

Economic stability

A

A high rate of employment with little inflation

73
Q

Barter

A

The exchange of goods and services without a formal currency

74
Q

Crown land/corporation

A

Land/corporation owned by the federal or provincial government

75
Q

Hidden/Underground Economy

A

Economic activity not included in official statistics

76
Q

How govt affects distribution in a market economy

A
  • Subsidizing prices
  • Increasing incomes (ex: welfare)
  • Providing social services (ex: education)
77
Q

Consumption - Free Enterprise

A

Consumption is determined by what consumers are willing to pay for goods and services based on their income and wants

78
Q

Production - Free Enterprise

A

Production is determined by the most effective method of production in order to earn profit.

79
Q

Distribution - Free Enterprise

A

Distribution is determined by the income people receive for their contributions (mostly labor) to the production of goods (i.e. the income of an individual answers the for whom question)

80
Q

Consumption - Command Economy

A

Consumption is determined by what a central authority decides what to produce, and is therefore less personalized than in a market economy

81
Q

Production - Command Economy

A

Production is determined by the state’s goals and methods of production outlined by its plans

82
Q

Distribution - Command Economy

A

Distribution is determined by the state’s decision (such as a central committee) of the contributions a worker has made to the economy.

83
Q

Independence

A

The lack of control from outside economic factors or institutions

84
Q

Pros of Free Enterprise

A
  • Individuals enjoy freedom of choice in what they can produce and consume
  • It is very efficient and promotes innovation and development
85
Q

Pros of Command Economies

A
  • Can maintain full employment
  • Can shift resources from one use to another with ease

Economics SL (Year 1) - IB (5 decks)

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