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G9 + 10 IH > unit 4 - economic agents > Flashcards

unit 4 - economic agents Flashcards

1
Q

Factors of Production

A

Land
Labour
Capital - money
Entrepreneurship - skills required to start a business

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2
Q

what all is included in Capital in factors of production

A

Physical money and tools, machinery and factories

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3
Q

Demand in economics defination

A

Amount of product that consumers are willing and are able to purchase

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4
Q

Scarcity in economics defination

A

Lack of resources, Demand is greater than the resources available.

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5
Q

Resource allocation is done based on

A

level of scarcity

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6
Q

A market functions on

A

demand and supply

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7
Q

Free will

A

Consumers decide the product is worth more than its price hence they buy it

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8
Q

Law of demand and its line definition on graph

A

The lower the price of the product the more the demand, downwards on graph

Based on buyers’ perspective.

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9
Q

Law of supply its line definition on graph

A

The higher the price the higher the quantity supplied, upwards on graph

Based on seller’s perspective.

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10
Q

Equilibrium Market Price

A

Point of the graph of law of demand and supply where both lines intersect, it is the ideal selling price for a product with max supply and max profit

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11
Q

Surplus

A

When supply is more than demand because of the price

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12
Q

Shortage

A

When demand is more than supply because of the price

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13
Q

If the price is more than equilibrium,

A

Surplus

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14
Q

If the price is less than equilibrium,

A

Shortage

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15
Q

What can change the demand of a product without touching its price?

A

Quality
Change in situation
Adv. Campaign, Marketing
Population Demographic
The income situation of common people
Belief, Tradition and Festival
Trend, Style and Influence

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16
Q

What can change the supply of a product without touching its price?

A

Raw Material/Change in COP (cost of production)
Technology
Natural Condition/Weather
Taxes/Subsidies

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17
Q

Externality

A

A cost or benefit that affects a third party who is not directly involved in the activity and not directly involved in a transaction

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18
Q

Example of negative externalities with real life example

A

A factory dumping smoke into the air. The factory avoids the cost of cleaner production, but residents suffer from respiratory problems. This creates a burden not reflected in the market price.

Example = Beijing’s Air Pollution of 2013
Rapid industrialization and vehicle use in Beijing caused severe smog, leading to increased respiratory diseases, reduced life expectancy, and significant healthcare costs.

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19
Q

Example of positive externalities with real life example in India

A

Vaccinations. While you get protection from getting sick, those around you also benefit from reduced risk of infection. This positive impact isn’t captured by the price of an individual vaccination as it impacts lots of people.

Example = Polio Eradication in India
India’s immunization drive led to the eradication of polio in 2014, benefiting public health and productivity while reducing long-term medical costs.

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20
Q

Parts of an economy

A

People (households)
Businesses
Government
Banks

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21
Q

3 main questions to ask while production of something?

A
  • What to produce?
  • How to produce?
  • Who will produce?
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22
Q

Households role in an economy and circle of flow of income

A

decide What to buy from and where to buy from

They also give the factors of production to businesses and capital for the goods and services they use

Determine demand in the market.

Spend income, which keeps the economy active.

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23
Q

Businesses role in an economy and circle of flow of income

A

decide What to sell and at what price

They also provide goods and services alongside wages, rents, interests and profits back to the households

Influence prices based on supply.

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24
Q

Government role in an economy and circle of flow of income

A

Gain profit from tax given by business and households. They use this tax in welfare programs.

In circle of flow of income, government buys stuff to input money through gov expenditure and gets this money from Taxes

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25
examples of gov expenditure
Improving military Better roads and bridges Buildings schools and hospitals
26
Price ceilings
Gov sets a maximum price for a good/service in a specific market
27
Price Floors
Gov sets a minimum price for a good/service in a specific market
28
Types of economies
1. Traditional 2. Command 3. Market 4. Mixed
29
Traditional Economy
Households are responsible for production of product Only produce for family and you have full control over allocation of resources and production Eg - Hunter Gatherer Ancestor.
30
Command Economy
Production is determined by the government It dictates allocation of resources Eg - Slavery and Feudalism.
31
Why would a command economy not work?
Centralised control Lack of flexibility Hinder innovation and efficiency Gets boring (stagnant) over time
32
Market economy
Based on consumer and producer's voice and choice Price and allocation of resources is determined by supply and demand Based on the Idea of Laissez Faire Eg: economy in UK during the time of industrial revolution
33
Mixed economy
Mix of command and market economy Most common type of economy found in the world today. Price is still determined by supply and demand system but with little government intervention for regulation and stability of the economy
34
Why and how do governments intervene in market?
Governments intervene in markets to address inefficiencies, promote social well-being, and provide public goods. They use regulations, taxes, subsidies, and spending to achieve these goals.
35
Subsidies
A financial benefit or support given to individuals or institutions, usually by the government.
36
Role of banks in markets and in circle of flow of income
Act as middleman for depositors and borrowers. Provides financial services for economic stability. They also using savings from households to invest back into businesses They give funds to people with a shortage and take funds from people with a surplus They reward the money lenders by charging an interest rate which is added to their bank account in the form of growth rates
37
Interest Rate
A percentage of the loan that has to be paid in addition to the fulll amount borrowed
38
Injections in the circle of flow of income
Investments (done by banks), government expenditure, exports
39
Leakages in the circle of flow of income
Savings, Taxes and Imports
40
Recession
Period of economic decline characterized by a decrease in GDP, income, employment, trade because of drop in consumer demand, decrease levels of investments, financial crisis. During this time, there is a negative GDP growth rate Must last for atleast 2 quarters (6 months) for it to be called a recession
41
Inflation
Sustained increase in general price level of goods and services over time caused due to rising demands for goods exceeding supply. Hence it reduces the value of money/currency
42
sectors of an economy
Primary Sector Secondary Sector Tertiary Sector Quaternary Sector
43
Primary sector of economy
- Includes all industries that are involved in the extraction of natural resources or raw materials - Most strong in terms of employment in less developed or traditional economies - The number of workers in this sector decrease as economy develops to advancements in technologies - Eg - Forestry, mining, farming and fishing industries
44
Secondary sector of economy
Includes all industries that are involved in the production of finished goods Converts raw materials obtained by the primary sector into finished goods Further divided into two categories - Heavy Industries and Light industries - Heavy industries = steelmaking, construction, ship building and aerospace engineering - Light industries = clothing, food and beverages, sporting goods and home appliances
45
Tertiary sector of economy
- Includes all industries that provides services to other businesses or consumers - Eg - Retail, healthcare, insurance, financial and entertainment - Usually employs the majority of the workforce in developed economies due to need for human interaction which isn’t possible with automation
46
Quaternary sector of economy
- Includes all industries that are involved in the creation and distribution of knowledge - Eg = Research and development, education, information technology and consulting - This is an extension of the classical 3 sector model and a further distinction of the tertiary sector
47
The great recession
Happened in the US from 2007 to 2009 Many people had bought subprime mortgages, but due to the value of the housing sector going down, many people werent able to pay off these debts. Hence banks (those who gave the mortgages) and homeowners both lost a lot of money causing a recession People had less money and hence spent less money, leading to fewer demand from consumers and overall economic decline
48
How was the great recession solved?
Bank bailouts, government spending programs and aid from alliances
49
how do governments control inflation
Adjust interest rates on savings Reduce gov spending to reduce inflation Gov increse the taxes
50
characteristics of an LEDC
low access to safe drinking water poor vanitation + hygiene low education levels widespread absolute poverty corruption + poor governance infectious diseases prevail energy poverty
51
Price Elasticity
Measure of how much demand for something changes when its price changes
52
Price Elastic/Price Sensitive
A small change in the price of a product causes a more than proportional change in the demand of consumers
53
Eg of a Price sensitive/elastic product
Packaged drinking water bottles. If the price of one water bottle increases, people will look to buy cheaper alternatives, causing a huge change in the demand of the product with a change in price
54
Price Inelastic/Price insensitive
A change in price of a product does change, or very minutely changes the demand of a product (not proportional to the change in price) These goods can be sold at a price point which is a little more than the equilibrium as consumers will still buy the product, allowing companies to earn a little more revenue
55
Eg of price inelastic products
Necessary Goods like medicine or groceries Good with fewer competitions
56
Do companies want their product to be elastic or inelastic and why?
Inelastic so that they have full control over the price point knowing it wont affect their revenue
57
How do companies ensure their product is inelastic?
Aim to build stronger consumer loyalty (eg - apple) Reduce competition by adding more valuable features Increase brand value and make it seem superior to competing brands
58
Income elasticity of Demand
Measure of changes in demand with changes in income
59
Normal Goods
Positive income elasticity of demand As income increases, demand for these products also increases Most of our everyday items are normal goods Eg: Groceries, Car, Fridge
60
Luxury Goods
A type of normal good Very high positive income elasticity of demand (people buy more if they have very high amounts of money) However, they are more sensitive to income changes than normal goods Its products belong on top 2 tiers of Maslow's hierarchy of needs Eg: Vacations, Sports Cars, Multiple houses, etc
61
Luxury goods and recession/market failure
Luxury goods are the first things people cut out during times of market failure as they arent important to live and are more for self satisfaction
62
Inferior goods
Negative income elasticity of demand As income rises, demand for these goods decreases However, as income decreases, demand for these goods increases Eg: Local/Generic Brand groceries -> In times of lower income, you wouldnt want to spend a lot of money on high level brands and would go for cheaper alternatives instead.
63
Hyperinflation with eg
Hyperinflation is an extreme and rapid increase in prices, where the inflation rate exceeds 50% per month. It leads to a collapse in the value of money, making everyday goods incredibly expensive in a very short time. Eg: Hyperinflation in Germany post WW1, as it had to pay a lot of money (33 billion dollars) to countries as punishment, and hence the gov printed more money but this lead to a decrease in the value of the German currency and an inflation rate of roughly 323%

G9 + 10 IH (10 decks)

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