foundation of economics


key definitions and concepts considered in the foundation of economics
Flashcards by 09serukenyahol, updated more than 1 year ago
Created by 09serukenyahol almost 8 years ago

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Opportunity cost The next best alternative forgone when an economics decision is made. Basically what you give up in order to have something else.
Economics A social science. The study of people in society and how they interact with each other.
Scarcity All goods and services with a price are relatively scarce = scarce relative to people's demand for them.
key points in foundation of economics - scarcity - choice - opportunity cost
Factors of production (FOP) - land - labour - capital - entrepreneurship
Land - Everything that grows on the land or is found under it. e.g. coal, oil, wheat
Labour Physical and mental contribution of the existing workforce to production.
Capital Comes from investment in physical and human capital. physical - stock of manufactured resources e.g. factories, machinery, roads ( things used to produce goods and services) human - value of the workforce = infrastructure (large scale public systems)
Entrepreneurship The organising and risk taking FOP. Its about management
Production possibility curves/frontiers (PPC) Shows the maximum combinations of goods and services that can be produced by an economy in a given time.
Points lying inside the curve : - when an economy is not making sufficient use of their resources e.g Point X Can increase output of both goods by moving towards the production possibility frontier and reaching any of points C, A or B. Point D is unattainable and can only be achieved if PPC shifts outwards. This could happen if there was an increase in total resources or an improvement in technology.
Utility A measure of usefulness and pleasure.
Planned economies sometimes called centrally planned economies/ command economy Government decides what to produce, how to produce it and who to produce for.
Free market economies sometimes called enterprise economy / capitalism All production is in private hands and demand and supply are left to set free wages and prices in the economy.
How can we measure national income? Circular flow diagram By adding up all the activity from... - expenditure - goods and services - total incomes of the households for letting firms use their FOPs
Economic growth ( I still need to find an accurate definition of this)
Circular flow of income
Economics development A measure of welfare/ well-being. It can be measure in monetary terms (GDP) but also through indicators e.g health indicators.
Laissez faire 'Don't interfere' approach, leave consumers and producers to make their own decisions. This idea comes from 'father of economics' - Adam Smith
Ceteris Paribus Means 'all other things remaining equal' Important in economics because it is very difficult in the real world to isolate all the different variables. E.g if interest rates (IR) fall then assuming 'ceteris paribus', demand for loans also falls. So we assume that apart from IR falling everything still remains the same
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