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Chp 1 Economics

As level eco

QuestionAnswer
what is the fundamental economic problem? scarce resources relative to unlimited wants
what is scarcity? a situation in which wants and needs are in excess of the resources available
what is choice? choice underpins the concept that scarce resources are available and consumers, firms and govts have to decide the allocation of these limited resources
are needs the same as wants? needs are not the same as wants, as satisfaction obtained from wants depends on limited income, where as needs are more important on a scale of priorities.
what are the factors of production? and rewards gained from each? 1) labour: wages and salary 2)land: income generated from it 3)capital: rate of returned earned 4)enterprise: profits generated from the outputs produced
what is production? production is the process of creating goods and services in an economy
what is consumption? consumption is the process by which consumers satisfy their wants
an understanding of unlimited wants? wants are continuously expanding, developing and changing and therefore not all wants can be fulfilled hence bringing in the concept of UNLIMITED WANTS. because of unlimited wants opportunity cost exists
what is opportunity cost? the cost expressed in terms of the best alternative forgone
what are the 3 main questions that all economies face because of the economic problem of scarcity 1) what to produce 2) how to produce 3) for whom to produce
what is making decision by the margin means? making decisions by the margin means that the consumption of a certain good will be determined by the level of utility the good or service provides.
what is ceteris paribus? ceteris paribus is the change in price of a good assuming that all other factors affecting quantity demanded remain constant.
whats the time dimension short run; 1 factor of production can be changed long run: all factors of productions can be changed very long run all factors of production and other key inputs can also be changed
what is a positive statement? based on empirical or actual evidence
what is a normative statement? when a value or opinion comes into analysis, it is then the realm of normative economics
what is specialization? specialization is the process by which individuals, firms and economies concentrate on producing some goods and services rather than others
explain what is meant by division of labor? division of labor is when the manufacturing process is split up into a sequence of individual tasks.
what is just in time? it is a management strategy that aligns raw material orders from suppliers directly with production schedules.
what is the purpose of an economic structure? an economic structure is the way in which an economy is organised in different sectors
how many sectors are there in an economic structure? there are 4 structures 1) primary 2)secondary 3)tertiary 4)quaternary
what does the primary sector consists of? 1)agriculture 2) fishing 3) mining 4)oil extraction
what does the secondary sector consists of? manufacturing activities. 1)food processing 2)textiles and clothing 3)iron and steel production 4)vehicle manufacturing 5)electronics
what does the Tertiary sector consists of? its know as the service sector 1)retailing 2)transport 3)logistics 4)banking 5)insurance 6)education
what is the Quaternary sector made of? its the knowledge based part of an economy, provision of info 1)ICT and computing 2)scientific research and product development
what are the 3 economic systems by which choices are made in an economy? 1) market economy 2)planned/command economy 3)mixed economy
what is a market economy? market economy is the one where decisions are taken by the market forces ( supply and demand) examples: hong kong, singapore, australia
what do we mean by a planned/command economy? a command or planned economy is where the government makes all the decisions examples: belarus, china, north korea
what is meant by the mixed economy? a mixed economy is a system that combines characteristics of market and command economies. examples: usa
whats a transition economy? a transition economy is one changing from command economy to free market economy
what is the role of an entrepreneur in the modern economy? 1)organise production and take risk 2)stimulate growth and economic development through innovation 3)provide competition in the market
what is a production possibility curve? a production possibility curve shows the maximum output combinations of two goods or services an economy can achieve when all resources are fully and efficiently put to use
what differentiates a micro ppc to a macro ppc? the labelling of the axis would be different for e.g if the axis is labelled as consumer goods and capital goods, that indicates that we are looking at an entire economy
what is reallocation of resources mean? where resources are deliberately moved from one product to another
what does factor mobility mean? the extent to which resources can be reallocated from one line to another is known as factor mobility and if we want resources to be swiftly allocated to the new use, we have to ensure that factors are as mobile as possible
what is capital consumption? the capital required to replace that which is worn out, also called depreciation
what is economic growth? economic growth is the process of increasing the economies abilities to produce goods and services. it is indicated on the ppc with an outward shift and as a rightward shift on the long run aggregate supply curve.
what are two primary methods of achieving economic growth? 1) resource quantity : labour, capital, natural resources 2) resource quality: education(quality of labor), technology(quality of production)
what are the four functions of money? 4 functions of money; 1)medium of exchange 2)store of value 3)measure of value 4)standard of deferred payments
what are private goods? consumed by someone and not available to anyone else 2 characteristics: 1) excludibility: preventing someone from using it eg cinema 2)rivalry: if someone uses it up the other cant eg petrol
what are free goods? a goof that is available in unlimited supply and has no restriction on access eg water, sun, rivers
what are public goods? one that is non exludable and non rival and for which it is usually difficult to charge a direct price eg street lighting
what is a quasi public good? goods that have some but not all characteristics of public goods eg roads, tunnels and bridges
what is the free rider problem? a situation where individuals are able to consume a good without paying eg wikipedia
list some solutions to the free rider problem 1) taxes 2)making a public good private 3)soliciting donations
what is a merit good? a commodity or service, such as education, that is regarded by society or government as deserving public finance examples: health care, museums, education
what is a demerit good? one that has adverse side effects when consumed example: smoking,drinking
what is information failure? it is when people do not have complete information regarding whats good and bad for them
what is paternalism? paternalism is the interference with the liberty or autonomy of another person with the intent of promoting their well being in other words we let society decide whats good and bad for us
whats moral hazard? the tendency for people who are insured or otherwise protected to take greater risks
what is adverse selection? when information failure results in someone who is unsuitable obtaining insurance
Created by: msqueenie