Flashcards
Chapter 1 Economics
Cards in this deck (90)
- 1What is Economics?Economics is the study of human behaviour which involves analysing the ways businesses, individuals, governments and families (B.I.G FAMILIES) make decisions/choices about how to use their limited resources to satisfy their basic needs and unlimited wants. It also looks at how resources can be sustained and used to improve wellbeing.
- 2Identify the 2 branches of economicsMicroeconomics and Macroeconomics
- 3What is microeconomics?Microeconomics is concerned with the factors that influence the small units or various parts which constitute the overall economy, as well as the decisions made by individual consumers or single firms E.g. the salary of a particular individual
- 4What is macroeconomics?Macroeconomics is concerned with the whole economy and the flows affecting overall economic conditions in the country. It takes a bird's-eye view at the bigger picture E.g. inflation rates, GDP
- 5What is positive economics?A branch of economics where analysis of issues is based on facts and is free of personal opinions, feelings or values E.g. if phones become more expensive, their demand will decrease.
- 6What are characteristics of positive economics?- Free of personal opinion, feelings or values
- Based on facts or hard evidence
- Can be proved or disproved - 7What is normative economics?A branch of economics where analysis of issues is based on personal opinions, feelings or values about what should be done E.g. the government should increase its spending on defence and cut funds from maternity care
- 8What are characteristics of Normative Economics?- Based on personal opinions, feelings and values
- About the way things should be
- Cannot be proved or disproved - 9Explain the significance of positive and normative economics7
- 10Define the basic economic problemThe basic economic problem is recognised as relative scarcity which refers to the imbalance between our unlimited wants and the limited resources from which goods and services can be produced.
Thus, only some wants can be satisfied and people must choose upon which to satisfy first. - 11What is scarcity?The basic economic problem where the resources available for
production are limited and relative to society’s unlimited wants. Not all our wants can be satisfied; forcing society to make decisions or choices involving the three basic economic questions of what, how and for whom to produce. - 12What is relative scarcity?The basic economic problem where the resources available for
production are limited and proportionate to society’s unlimited wants. - 13What are Needs?Goods and services essential for life.
- 14What are wants?Unessential goods and services which we would like to have that make life more enjoyable e.g. books, phones
- 15Identify 5 reasons why it is said that wants are unlimited.1. As one want is satisfied, another appears (e.g.. latest mobile phone)
2. The more material things people have, the more they want and expect as a result of advertising,
fashions and the spread of materialism.
3. The growth of overall population multiplies the number of wants.
4. • Planned obsolescence by manufacturers ensures that things date, wear out quickly and cannot be
repaired. They need to be replaced with new items; creating more wants.
5. Pressure of 'keeping up' materially with friends. - 16What are needs?1. As one want is satisfied, another appears (e.g.. latest mobile phone)
2. The more material things people have, the more they want and expect as a result of advertising,
fashions and the spread of materialism.
3. The growth of overall population multiplies the number of wants.
4. • Planned obsolescence by manufacturers ensures that things date, wear out quickly and cannot be
repaired. They need to be replaced with new items; creating more wants.
5. Pressure of 'keeping up' materially with friends. - 17What is Planned Obsolescence?A strategy used by some firms to try to boost sales and profits by deliberately making
products that quickly become outdated or wear out, requiring replacement. - 18What are resources/factors of production?Productive inputs that are used by firms to make or supply goods and services.
- 19What types of resources are used to meet wants and needs?Natural, labour and capital resources.
- 20What are natural resourcesProductive inputs that occur in nature E.g. soil, oceans, rivers, snow, rainfall, forests etc.
- 21What are labour resources?The intellectual skills, knowledge and manual effort that people provide as members of the nation's labour force E.g. those of doctors, engineers, teachers etc.
- 22What are capital resources?Manufactured or produced goods that are used by a firm to help make other finished goods and services. They are seen as the stock of past production that is used to aid current and future production E.g. highways, mills, tractors, machinery etc.
- 23What is economic activity?A process which occurs when resources are used to produce goods and services by an economy. This also affects inflation and unemployment rates in an economy.
- 24What is meant by material and non-material living standards?Living standards is a concept used to describe the general wellbeing of people. This is affected by both material and non-material aspects. Material living standards are dictated by things like income level and the quantity of goods and services that we can purchase. Non-material standards relate to the quality of life such as freedom, happiness, crime rates etc.
- 25How does economic activity influence material and non-material living standards?When economic activity is high, GDP is also likely to be high. This usually means higher income and greater consumption of goods and services (improved material wellbeing). As more goods and services are purchase, more needs and wants are satisfied, which makes life more enjoyable and happy (improved non-material wellbeing).
- 26What are the limitations of the effects of rising economic activity on improving non-material living standards.- High income can alleviate economic hardship TO A POINT
- Having material goods do not always make someone happier.
- Buying more goods and services uses up resources, which can be harmful for the environment and thus for the standard of living.
- Freedom, democracy and culture are aspects of non-material living standards which are not heavily influenced by high income - caused by high economic activity - and can thus continue to hinder wellbeing. - 27What is Gross Domestic Product?The total market value of all finished goods and services produced within a country's borders in one year.
- 28What are relative prices?Compare the selling price of different goods and services that a business can produce, and consumers can consume.
- 29Describe the relative scarcity of a highly-priced itemIt is likely to be fairly scarce e.g. diamonds, water in the desert
- 30Describe the relative scarcity of a low-priced itemIt is likely to be found in abundance e.g. bananas after main harvest
- 31Describe the relative scarcity of an item priced at $0It is not scarce at all e.g. air
- 32Identify the 3 basic economic questions1. What and how much to produce?
2. How to produce?
3. For whom to produce? - 33Opportunity CostRelates to the value of production or consumption that is given up in one area when resources are allocated or diverted to their next best alternative use.
Value of the benefits you give up when you choose one thing over another. - 34Production Possibility DiagramA diagram used to illustrate the many production combinations of a country that is able to produce just two products and where all resources are used most efficiently. These combinations are illustrated as points on a production possibility frontier and can also illustrate the concept of opportunity cost.
- 35What is the production possibility frontier?A line which traces out the productive capacity or physical limits of a nation's total production or quantity of goods and services that could be supplied.
- 36Identify some things which a production possibility frontier does.- shows the country’s potential output combinations of goods and/or services
- marks the boundary between achievable and unachievable combinations of production - 37What 2 things influence Productive capacity of size of the PPF?- Volume/quantity of the resources available
How efficiently the available resources are employed - 38What is efficiency?The output gained from a unit of input or resource.
- 39Provide an example of how efficiency may increase over timeBusinesses applying new technology like robots on an assembly line
- 40How do production possibility diagrams illustrate concept of opportunity cost?They display how output of one type of production must be sacrificed or given up
in order to gain extra resources to lift production in another area. - 41How does efficiency related to production possibility diagrams?All points making up the PPF represent an efficient use of resources, where potential
production and employment are at their maximum. - 42What can we say about the efficiency of a point INSIDE the PPF?Can say that it's is using resources inefficiently and would CERTAINLY lower society’s satisfaction and wellbeing.
- 43What do points INSIDE the PPF indicate about employment?At any point inside PPF, production levels are below maximum level and potential capacity. This implies that some resources are not being full used, and there is unemployment of workers and unused capacity in businesses.
- 44What would we expect about living standards if point is inside the PPF?Fall income and living standards
potential rise in poverty - 45What does a point OUTSIDE the PPF signify?It is currently beyond the economy’s productive capacity because there are insufficient resources to enable such high levels of output. Any attempt to operate at this level of national production would be likely to cause inflation by causing a general shortage in resources.
- 46When does economic growth occur?when the total volume of goods and services produced by a nation rises between one year and the next.
- 47If a country is already on its PPF, how can it achieve economic growth?Can achieve economic growth if there is an increase in quantity and efficiency (productivity or output per unit of inputs) of resources that are available.
- 48In what ways could a country experience increase in quantity and efficiency (productivity or output per unit of inputs) of resources that are available?new discoveries of minerals
better technology
improved worker efficiency
higher levels of foreign investment, immigration of skilled workers
better education
increases in people’s skills. - 49What effect would increase in quantity and efficiency (productivity or output per unit of inputs) of resources that are available have on productive capacityproductive capacity would rise and PPF would also grow and shift outwards, creating a brand new frontier
- 50What is a trade off?An opportunity cost when to achieve one goal or outcome, another suffers.
- 51Distinguish between an opportunity cost and a trade off-
- 52What is the cost-benefit analysis?A matter of adding up the anticipated value of all the direct and indirect costs of a
particular decision (e.g. resource and monetary costs, time, opportunity costs) in both the short and long
terms, and comparing these against the total value of the anticipated benefits. Aim is to ensure that benefits of a decision outweigh the costs. - 53What is productive capacity?-
- 54Differentiate between relative scarcity and scarcityrelative scarcity is when resources exist, but they aren't accessible. scarcity is when the resources don't exist.
- 55What is economic decision making?The process of choosing which wants, among several options, will be satisfied.
- 56What is the two sector circular flow model?A diagram that shows the two key parts making up an economy (the household and business sectors) and the ways they interact with each other through four flows.
- 57Identify the four flows of the two sector circular flow.Flow 1: Households sell/supply resources to businesses
Flow 2: Businesses pay income to households
Flow 3: Households spend on goods and services produced by businesses using their income
Flow 4: Businesses produce a certain level of goods and services, determining the GDP - 58What are the main characteristics of the flows in the two sector circular flow model?- They are equal in dollar value
- They are interdependent
- move in a circular manner - 59What is the household sector?comprises all people in the country
- 60What is the business sector?comprises all produces or suppliers of goods and services in an economy
- 61What is the role of economics systems?An economic system (or economy) helps to organise the production and distribution of goods, services and incomes.
- 62What types of economy does Australia have?A market capitalist and capitalist economy
- 63What is a market capitalist economy?An economy in which key economic decisions are made by the market system and most businesses owned by profit-seeking individuals.
- 64What is a capitalist economy?A feature of some nations' economic systems and involves private ownership of most businesses where individuals generally seek to maximise their profits.
- 65How is the two circuit circular flow diagram unrealisticIt disregards the existence of trade, savings and other factors which influence the business cycle
- 66What is the business cycle?Refers to the expansion and contraction of the production of goods and services in an economy over time
- 67What is expansion?Refers to the growth of the economy, where national production and GDP levels rise.
- 68What is contraction?Where national production or GDP levels in the economy are falling.
- 69What would happen if households collectively decided to cut spending on goods and services (FLOW 3)?The quantity and thus the value of goods and services that firms produce would also decrease, meaning that GDP would be lower (FLOW 4). Businesses would also reduce their spending on resources (FLOW 1), and consequently, households would make less income (FLOW 2). This could lead to unemployment.
NOTICE HOW THE EFFECTS OF CHANGE IN ONE FLOW TRIGGER CHANGE IN OTHER FLOWS IN A CIRCULAR MANNER. - 70What would happen if households collectively decided to maximise spending on goods and services (FLOW 3)?Firms would lift production and GDP (FLOW 4). They would also purchase many more resource from households (FLOW 1) and households would receive more income (FLOW 2). However, this could lead to a period of expansion where spending, if too strong, would ultimately outstrip the economy's resources, resulting in inflation.
- 71What is consumer behaviour?A study which looks at how, when, where and why consumers choose to purchase or not purchase a good or service.
(attempting to understand what motivates consumers to spend or not spend). - 72Why may it be difficult to predict consumer behaviour?There are many types of consumers who make decisions based on different mindsets. This can make them quite unpredictable, so it is difficult to make generalisations about their behaviour.
- 73Identify the three traditional assumptions about consumer behaviourconsumers act rationally and in their self-interest
consumers have ordered preferences
consumers make informed and smart decisions - 74Explain the assumption that consumers make informed and smart decisionsGenerally assumed that before purchasing goods and services, consumers try to get factual information so they can weigh up their potential advantages and disadvantages and make the best decision possible.
- 75Explain the assumption that consumers have ordered preferencesGenerally assumed that consumers rank unconsciously rank their spending priorities and first purchase the things that result in greatest benefit.
- 76Explain the assumption that consumers act rationally and in their self-interestGenerally assumed to consumers act logically and in a calculated way. So when spending their limited income, they do so in ways that maximise their overall satisfaction and pleasure by selecting the best mix of goods and services or looking for the best deals so their money can go further and lead to greater satisfaction.
- 77Identify the four economic factors influencing consumer decisionsUtility maximisation by consumers
Budget constraints on consumers
Internal influences
External Influences - 78What is marginal utility?Refers to the increased satisfaction gained by individuals from the consumption of an extra unit of a product at a point in time.
- 79Explain how utility maximisation by consumers influences their behaviourThis is based around the idea of marginal utility and that consumers' choices are based on what will produce the greatest benefit/pleasure for them, with consideration for the unique situation they are in.
E.g. drinking multiple cans of soda on a hot day - whilst at first this would bring lots of satisfaction, the marginal utility of buying soda would diminish as it starts making you sick. - 80What are some exceptions to the theory of diminishing marginal utility?when buyers are addicted to products (like tobacco and alcohol), when they are compulsive shoppers or when they want to consume just to impress others.
- 81Explain how budget constraints of consumers influences their behaviourIncome levels affect consumers' pattern and type of spending as they aim to make choices and live within their means. E.g. if income rises, inferior goods may be placed above superior ones.
- 82Explain how internal influences affect consumers' behaviourPersonal internal factors, such as personality, marital status, lifestyle, occupation and values can affect the types and the nature of choices consumers make.
- 83Explain how external influences affect consumer's behaviourExternal influences are those outside of consumers' control, such as culture, family, peers and the law, but they might have an impact on what is purchased.
- 84What is behavioural economics?A field of study which has sought to better explain consumer behaviour than the simplistic theories traditionally used. It has found that individuals making decisions are guided by bounded rationality, where they take shortcuts (such as adopting herd behaviour) when making decisions as they have limited time to do research and limited brainpower to weigh up all the possibilities.
- 85What is bounded rationality?A modern notion that seeks to describe how consumers make decisions and proposes that with limited knowledge, brainpower and time for research, consumers often take shortcuts when making choices e.g. following status quo and herd behaviour.
- 86What is the nudge?A theory derived from behavioural economics which suggests that consumer decisions can be influenced in particular directions through various gentle reminders.
- 87List some examples of the nudge in real life- lollies placed at eye level near the checkout queue in supermarkets
- free waste disposal vouchers provided by councils - 88What are some effects of technological change on consumer behaviour?Technology has made buyers more informed (putting them in a stronger position to make informed choices) and greater product choices are available to them as a result of online shopping. It has also led to the development of new, exciting products like self-driving cars and the iphone which cause consumers to spend more money.
- 89What are incentives?Inducements which seek to change consumer/producer behaviour using rewards (positive incentives) or punishments (negative incentives). These can be financial or non-monetary.
- 90Identify some examples of incentives in our everyday lives- working hard in school to get a high ATAR
- changing jobs to get higher pay
- doing homework to avoid detention
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- Victorian Certificate of Education Economics Flashcards on Chapter 1 Economics , created by Anonymous Kangaroo on 02/12/2020.
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