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51 Cards in this Set
- Front
- Back
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The factors of production |
Broad categories under which the resources used to create goods can be classified Land Labour Capital Enterprise |
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Land |
Rent Includes all naturally occurring resources |
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Capital |
Interest Assets, tools and vehicles that are used to increase the output of goods and services |
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Labour |
Wage All kinds of human effort both physical and mental |
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Enterprise |
Profit The ability to initiate and manage production process by combining and organizing other factors. |
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Wants vs needs |
Needs: Things that are essential for life in our society Wants: Things that we desire because it gives us satisfaction |
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Models |
Simplified version of reality used to explain concepts and economic relationships. Needs to have assumptions. |
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Assumptions |
Ceteris Paribus: Other things being equal One variable affects the other |
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Product possibility curve |
A model used to demonstrate the concept of opportunity cost. Simplifies the economy to only have two competing goods Resources and levels of technology are fixed Resources are fully used with perfect mobility |
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Technical efficiency |
Resources are being used in most effective way to produce max amount of goods and services for the lowest cost. |
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Allocative efficiency |
When resources are allocated in the most efficient way to generate max possible benefits for both consumer and nation. Equity |
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Underutilisation |
Misallocation of resources leading to less optimal levels of output |
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Economic growth |
A sustained increase in production capacity over a period of time. |
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Line of technical efficiency |
A-F Represents max production capabilities |
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Unemployed |
Out of work or paid employment |
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Underemployed |
Employment not being utilised to fullest capabilities |
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What causes economic growth? |
Technological advancement Increase in productivity Discovery of more efficient methods Luck |
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Opportunity Cost |
Based on value judgement(personal values) The potential forgone profit from a missed opportunity Switching from 9000:10 to 7000:20 Used to find out if switching form A to B is better in terms of cost |
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Fundamental economic problem |
Satisfying unlimited wants with limited resources |
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Economic Systems |
Systems where an economy makes decisions on ownership, allocation of, and production of resources |
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Efficiency vs equity |
Efficiency- How effectively are resources used to produce goods Equity- Fair distribution among population |
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Government intervention |
Actions by the government that affect economic activity, allocation of resources and market to reach a goal |
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Capitalism |
Based on the importance of the market , private ownership of most production with limited intervention |
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Pure capitalism |
All resources and production are owned by private individuals and market interactions |
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Mixed economy |
Relies on both the market and government to allocate resources |
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Socialism |
Most means of production should be publicly owned |
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Subsistence Economy |
Individuals make goods for themselves |
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Circular flow model |
Shows the flow of icome |
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GDP |
The total market value of goods and services produced in an economy in a period of time |
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GDP Key measurements |
Y=O=E Income=Output=Expenditure |
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Equilibrium |
Injections match leakages C+S+T+M=C+I+G+X |
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Aggregate demand |
Total expenditure on the goods and services produced in an economy in a period of time AD= C + I + G + (X-M) |
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Household Sector |
Sells factors of production in exchange for income |
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Financial Sector |
Saves money for household sector to defer consumption and improve access to future opportunities |
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Government Sector |
Money used goes to public services |
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Foreign Sector |
New/different markets where consumers can purchase imports |
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Aggregate supply |
Total available goods and services |
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Trade cycle |
General trend of contractions and expansions within an economy Generally goes up |
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Role of government in trade cycle |
To min. fluctuations in cycle and guide economy towards more efficient outcomes through implementation of fiscal policies |
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Paradox of thrift |
Consumers spend less during recessions which is bad |
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How to stabilise trade cycle |
Fiscal policies - Raising revenue through taxation and determine spending - Regulates Ag. Demand + More Monetary policies - Increases/decreases cash rate - Just regulates Ag. Demand |
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Marginal Utility |
Added satisfaction gained from using extra units of goods and services |
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Government Revenue |
3 States: Deficit- Spending is more than revenue Surplus- Revenue is more than spending Balance- Balance between two |
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Competitive Wants |
Goods and services that can be substituted for the other Rice and Porridge |
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Complementary wants |
Wants that go together Mouse and Keyboard |
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Recurring Wants
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Wants that need to be continually satisfied Clothing |
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3 questions of economics |
What to produce? How to produce? For whom are we producing it to? |
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Factors affecting Agg Demand |
- Consumer spending - Business and consumer confidence - Changes in environment - Value of dollar |
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Factors affecting investment
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- Interest rate - Business expectations - New policies |
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Factors affecting levels of Gov Expend |
- Changes in conditions - Disasters |
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Factors affecting exports |
- Seasons - The value of the dollar - Economic conditions |
