Unit 4- Economics Flashcards
Subsides
Financial support from the government to incentivise lower prices so people can afford them.
They provide subsides when there is a positive externalities to cover the cost of production.
Leakages (list 3)
- Taxes
- Savings
- Import
Money that is not spent and not contributing to the economy.
Injections (list 3)
- Investment
- Government spending
- Export revenues that add spending to the circular flow of income.
List the 4 factors of production
- Land
- Labor
- Capital
- Entrepreneurship
What are the three types of economies?
Market Economy, Command Economy and Mixed Economy
Market economy
Prices decided based on supply and demand
Command economy
The government decides what goods and services will be produced, how they will be produced, how they will be distributed and prices
Mixed economy
Mix of command and market to ensure regulation of prices while also meeting with supply and demand laws
Laws of supply
Price up, Supply up
Price down, Supply down
Laws of demand
Price up, Demand down
Price down, Demand Up
Externalities (positive and negative)
Unpriced costs/damages and benefits that exist within a transaction between a buyer and seller
Positive (benefits) and negative (unpriced costs/damages) externalities.
Government increases price when there are negative subsides.
Positive: Education (more community awareness, informed citizens)
Negative: Pollution
Inflation
A general increase in prices and fall in the purchasing value of money
Causes of inflation (3)
- Demand-pull inflation: Products or services not keeping up with the demand
- Cost-push inflation: Cost of products and service increase, forcing business to increase their price
- Built-in inflation: Workers demanding more wages to sustain livelihood to keep up with high prices.
Pros of Inflation
Higher resell values, encourage spending
Cons of Inflation
Pay more for products and services, people may not be able to afford basic things after some time
What might be the reason Inflation is high right now?
COVID-19 Pandemic, demand is increasing and supply cannot keep up
Deflation
When the average price of goods and services in an economy decreases over time
Cause of Deflation (1)
More goods produced than demand
Pros of Deflation
Reduct Debt burden, Increased profit for businesses because of low prices for raw goods.
Cons of Deflation
Deflationary Spiral, Discourage investment
Deflationary spiral
Reduced spending = reduced production = more unemployment = reduced spending = reduced production, etc
People keep waiting for prices to drop even further and prolong spending!
Difference between depression and recession
Depression is decline in GDP has a global reach and a much greater impact
While recession means decline in employment and production which lowers level of income and spending, mostly in a single country
Scarcity
Demand for goods and services is more than availability
Circular Flow of Economy
TBC
What do banks give businesses in the circular flow of income?
Loans
What is the role of a central bank in an economy
Manage flow of money in a country
How do central banks keep prices stable?
Changing interest rates.
High interest rate: Less spending: More purchasing power
Low interest rate: More spending, More growth: Less purchasing power
5 ways governments intervene to keep economy stable?
- Taxations
- Changing interest rate
- Price floors- MRP
- Trade policies
- Subsides
- Price Ceilings
Taxations
Low tax more spending, High tax less spending
Trade policy
A government policy that directly influences the quantity of goods and services that a country imports or exports
