1 Introduction to Economics
Study online at https://quizlet.com/_cv1sx4
1. Economics
The study of how our scarce/limited resources can best be
used in order to satisfy the unlimited needs and wants
of human beings.
2. The social nature Like other social sciences, economics is:
of economics
a science as it follows the scientific method
an academic discipline that studies human society and
behaviour
particularly how people organise and behave to satisfy
wants and needs.
3. Microeconomics The study of how individual decision-making units (consumers/households and firms) in the economy make decisions and how those decisions interact with the market.
4. Macroeconomics The study of the economy as a whole to obtain a broad
picture using aggregates (collections of many individual
units). It concerns interest rates, national productivity and
employment.
5. Scarcity
The idea that limited resources are insufficient to satisfy
unlimited human needs and wants.
6. Choice
The decision of what will be produced and what will be
forgone, given there are limited resources.
7. Efficiency
Making the best possible use of scarce resources to avoid
resource waste.
Using the fewest possible resources to produce maximum
goods and services to satisfy society's wants and needs.
8. Allocative Efficiency
When the mix of goods being produced represents the mix
that society most desires.
9. Equity
The idea of being fair or just, distinct from equality as it
makes adjustments to counter imbalances.
1/6
1 Introduction to Economics
Study online at https://quizlet.com/_cv1sx4
Equity is a normative concept, as individuals define it
differently.
10. Economic
Well-Being
Prosperity, economic satisfaction and standards of living
among the members of a society.
11. Sustainability
The long-term maintenance or
viability of any particular activity or policy.
Meeting the needs of the present generation without compromising the ability of future generations to meet their
own needs.
12. Change
A shift in structure, policy or growth in the economy.
13. Interdependence A mutual relationship between economic decision-makers
that interact with and depend on each other.
Individuals, communities and nations are not self-sufficient and are increasingly interdependent due to globalisation.
14. Intervention
Usually refers to government involvement in the workings
of markets (to achieve societal goals of equity, sustainability, economic well-being or efficiency!)
15. 4 Factors of Pro- Land
duction
Labour
Capital
Enterprise
16. Land
All natural resources used to produce goods and services.
Oil reserves, underground water, minerals, lakes etc.
17. Labour
All physical and mental human effort used in the production of goods and services.
2/6
1 Introduction to Economics
Study online at https://quizlet.com/_cv1sx4
Efforts of a teacher, a construction worker, a doctor, a
plumber etc.
18. Capital
A man-made factor of production used to produce goods
and services.
Machinery, tools, factories, telephone supply lines etc.
AKA Capital Good, Investment Good
19. Enterprise
A human skill that involves innovation, taking business
risks and seeking opportunities for a business. Entrepreneurship organises the other three factors of production
and takes on the risks of success or failure.
20. Opportunity Cost The value of the next best alternative that must be forgone
as a result of a decision to obtain something else.
21. Free Good
Any good that is not scarce, and therefore has zero opportunity cost (anything that can be obtained without sacrificing something else).
Creative ideas, web pages,
22. Economic Good Any good that is scarce, either because it is a naturally
occurring scarce resource (oil, gold, coal, forests), or because it is produced by scarce resources.
Common Pool Resources: clean air, forests, wildlife.
Gov Provided: education, parks, 'free' healthcare.
23. The Economic
Question(s)
What to produce?
How to produce?
For whom to produce?
24. Free Market
Economy
Households decide what goods to consume.
Firms decide what goods to produce and what resources
to use.
Then markets use prices to ensure that these decisions
are coordinated.
3/6
1 Introduction to Economics
Study online at https://quizlet.com/_cv1sx4
Characterised by private ownership of property and no
government intervention, so it relies on competition to
maintain consumer sovereignty.
25. Centrally-Planned
Command
Economy
Government decides what goods and services will be
produced.
Government decided how they will be produced.
Government decides how they will be distributed.
Characterised by public ownership of resources which
theoretically eradicates relative poverty, inequitable distribution and unemployment but has no price rationing to
indicate demand and minimal allocative efficiency.
26. Mixed Market
Economy
An economic system where the decisions concerning production and distribution are made by a combination of
market forces and government intervention.
27. PPC/PPF
Production Possibilities Curve/Frontier.
A curve that demonstrates opportunity cost given limited
resources.
Can move outward by either trade, a new source of a
resource, or technology.
28. Assumption of
the PPF
The economy only produces two goods
The state of technology is constant
The quantity of resources available remains unchanged
Al resources are full employed
29. Changes to the
PPF
Resources unused to their full potential produce a combination INSIDE the PPF.
New technology, increased productivity and new resources increase the whole PPF, pushing the curve
up/out.
30.
4/6
1 Introduction to Economics
Study online at https://quizlet.com/_cv1sx4
Marginal Rate of The rate at which a consumer is willing to trade one good
Substitution
for another (the gradient of the PPC).
31. Curve of the PPC The PPC forms a concave curve because productive capacity is lost as we move towards the extremities.
The cost of production is not constant. Producing more
and more of one good forces the economy to sacrifice
increasing amounts of the other good due to specialisation
of factors of production.
32. Capital Good
A good that will increase future productive capacity.
33. Consumer Good A good that satisfies current wants and needs.
34. Circular Flow of
Income
35. Leakages
Savings (S)
Tax (T)
Imports (M)
Cause contraction of the economy, and recessions
36. Injections
Investment (I)
Government Spending (G)
Exports (X)
Cause expansion of the economy, and inflation
37. Equilibrium
When leakages = injections
38. Disequilibrium
When leakages > or < injections
5/6
1 Introduction to Economics
Study online at https://quizlet.com/_cv1sx4
An economy is disequilibrium will naturally return to equilibrium
39. Paradox of Thrift When many people hoard/save due to loss of confidence
in financial institutes, they decrease consumer spending,
directly furthering economic contraction and worsening
the recession.
40. Government Intervention to Address Recessions
Countercyclical
Policies
1. Reducing taxes - Lessening leakages
2. Lowering interest - Increases borrowing (I) and lowers
the reward for saving (S)
3. Increase government spending (G)
41. Boom
An economic upswing of two consecutive quarters
42. Recession
An economic downturn of 2 consecutive quarters
43. Positive Economics
Economics based purely on factual evidence and logic.
Aims to describe, explain and predict.
44. Normative Economics
Economics that reflect the economists' opinions or values.
Aims to propose.
45. Newly Industri- The shift of an economy from agriculture to manufacturing.
alised Economy An industry that is starting to become 'high-value'.
46. Economy in Tran- An economy that is moving form a closed Communist
sition
economy to a more free-market one.
6/6