Economics unit Humanities
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42 Terms
What is economics?
It’s the social science that examines the distribution, production and consumption of goods and how they affect each other. It analyses how to allocate resources for different companies and people or purposes.
What is scarcity?
Not having enough of something, a central economic problem: resources are finite while human needs/wishes are infinite. It can depend on location(abundance).
Examples of infinite wishes
Food, clothes, shelter, medicine, entertainment, children etc.
Examples of finite resources / 4 factors of production
Land, Labor, Capital and Entrepeneurship(enterprise)
Describe LAND
It refers to natural resources(on it or in it), such as minerals and forests etc.
Describe LABOR
It refers to the skill and effort humans put into the production
Describe CAPITAL
It refers to the man-made resources used in production eg. machinery and tools
Describe ENTREPENEURSHIP
It refers to the ideas and management of the production and of resources.
What is a labour-intensive economy? + example
The production relies on human work to produce the goods, such as farming by hand, sewing in large factories, cooking food manually etc.
What is a capital-intensive economy?
When the economies mainly rely on the tools and machinery to produce, such as agriculture.
opportunity cost
The benfits that are lost out on when one choice is made over the other.
Examples of opportunity cost
Choosing to drive to school instead of riding your bike. The opportunity cost might have been getting some fresh air in the morning, getting some exercise, doing something good for the environment, etc.
Define UTILITY
The satisfaction/value/benefit we get from a good.
Define MARGINAL UTILITY
The added satisfaction of having another of the same good.
Define TOTAL UTILITY
The total amount of value or satisfaction a consumer gets from the consumption of a good or service, calculated by adding together the marginal utility of each item.
Define DIMINISHING MARGINAL UTILITY
As every other factor is equal, the more you get a product the less satisfaction you will get. Products can differ in it, such as a haircut has a larger diminishing marginal utility than a coffee because you don’t need multiple on the same day.
Explain a diagram for diminishing marginal utility and total utility.
The product first has a lot of value but decreases as the numer bought increases.
Fill in the blanks (total utility, marginal utility, diminishing marginal utility and scarcity)
With no Starbucks near school, the introduction of one would fulfill a ______________ that is currently evident. Initially, the ______________________of having access to Starbucks beverages would be substantial for the students, and nearly all students would stop by in the first week of the café opening. However, as students get used to the Starbucks and their monthly allowance runs out, the ___________________________would set in, meaning that each additional visit would provide less additional satisfaction. Despite this, the _________________ derived from having a Starbucks nearby would remain significant, as it would cater to the desires and preferences of the students, enhancing their overall satisfaction
scarcity
marginal utility
diminishing marginal utility
total utility
What does the demand curve look like? (What happens to demand when the price goes up?) CONSUMER
As the price goes up the demand decreases. As a consumer, as a product becomes more expensive the value you would get from it decreases.
What does the supply curve look like? (What happens to supply when the price goes up?) PRODUCER
As the price goes up you are willing to produce more.
What is an equilibrium price?
The point where the demand curve and the supply curve intersect. This is the ideal point as the price is right for the consumers to buy all the goods they demand and all produced by the supplier
What is a Production Possibility Curve?
The curve is a negative slope but curved which means that there isn’t a regular relationship. As more of one product is produced, it “costs” in production of the other product. You can focus on producing one good but that means the tools can’t be used as much for the other good.
What does a production possibility curve do?
It presents the potential prospects for the production of a pair of products(different) where there are limited resources.
What 4 things does the Production Possibility Curve assume?
All resources are for only 2 goods
Quantities of Factors of Production don’t change
Technology remains constant
Resources are used efficiently
What does it mean if an economy produces inside the shaded area of a Production Possibility Curve?
The economy is wasting resources and not producing to their full abilities.
If 75 toys are made, how many calculators can be produced?
200 calculators
Is E ideal?
No, the resources are not used to the maximum ability.
Is F possible? How could it be?
It isn’t possible with the settings the graph is made for but if the 4 factors of production change, F is possible.
Why does the PPC in Brazil have a steeper curve than the PPC in the USA?
Wheat grows better in drier climates like the USA. Brazil has a tropical climate where sugar cane grows best. Each unit of wheat takes many more resources in Brazil than it takes to grow sugar cane. So, for the same amount of factors of production, less wheat is grown in Brazil. The opposite is true in the USA, where wheat takes fewer resources.
What is a command economy (central planning)?
All decisions are taken by a central authority (eg. the government)(decide what is made, how much of it, price and who gets them)
What are the advantages for a command economy?
Theoretically more equitable(lower wealth inequality) - everyone contributes and everyone has what they need.
As there is less competition and perhaps the use of resources, it may cause less destruction to the environment.
Prices are controlled so everyone can afford goods/services.
No product duplication, reducing waste.
Not a lot of unemployment since the government strives to employ all.
What are the disadvantages for a command economy?
The allocations of products is hard to plan out (even for 5 years) which can result in some people in the population having shortages/surpluses (everyone might not get what they need since it’s decided based on arbitrary needs).
There is less incentive to work and consequently, less innovation, making the quality of products decrease(bc no competition).
Personal liberty and freedom of choice are limited
What is a free market economy?
Decisions are taken by consumers and producers. Producers produce what they think the consumers want and as efficiently as possible, and the consumers buy what they can afford and what they prefer
What are the advantages of a free market economy?
High individual liberties. For those who work hard and have good ideas, it is possible to make a lot of money.
More incentive to work and innovate because there is competition, since profit is the only goal.
They produce only what the consumers want, and respond quickly to changes in the people’s wants.
A range of different services and products on the market to suit everybody’s wants and needs.
more freedom and personal choice
What are the disdvantages of a free market economy?
Often lower quality to get maximum profit.
Resources are often unmanaged and can be used up too quickly.
Large firms can grow very quickly and increase their prices because of that, exploit resources and make goods only available to those who can afford them.
Overproduction of demerit goods and underproduction of merit ones(eg. mass-produced medicine).
High inequality(theoretically too)
Unemployment since the market will only employ the factors of production that are profitable, also machinery can lead to less labour.
Ignores social costs
Members of society that cannot take care of themselves will not survive
Do 100% free market or command economies exist in a country?
No. All countries fall on the spectrum of mixed economies.
Name some countries that are like a command economy
North Korea, Saudi Arabia or Venezuela
Name some countries that are close to a free market economy
Israel, Hong Kong, and Japan.
Mixed economy
The best of both worlds, with some competition(private utilities) and regulation, the government produces some essential services(public utilities) and often redistributes income to achieve greater equity(eg. tax on what we buy).
What is a transitonal economy?
The transition process(speed and extent vary) of an economy transitioning from a centrally planned economy to another type of economy(free market or mixed), which means the government's role in the economy is shrinking and increasing economic freedom within the country as government assets are privatised.
Name some countries that have a transitional economy?
Many of the South Eastern European Countries(Serbia, Albania), and Ukraine.
Struggles of transitional economies
Huge losses of output(deep recession)
High unemployment
As control of prices is taken away, there is often a large rise in inflation
Behind the other competition because of a lack of technology, they often run into big trade deficit problems because of their lack of cost and no price competitiveness.
Corruption
The wealth and income gap widens
Depopulation effects- lose younger and more skilled workers.