Economics Resit Review

Flashcards for reviewing economics lecture notes.

Gross Domestic Product (GDP)

Measures the total monetary value of all final goods and services produced within a country.

GDP Per Capita

A measure of the market value of the output of the economy in a given period (GDP) divided by the population.

Purchasing Power Parity (PPP)

Adjusts for differences in services and goods between countries, compares relative value between countries.

Ratio Scale

A ratio scale uses graph distances to represent consistent ratios (Doubling values like 3 to 6 and 6 to 12 are shown with equal spacing. Unlike a linear scale (equal differences), ratio scales show equal ratios as equal distances).

Capitalism

An economic system characterized by private ownership of markets, property, and firms.

Features of Markets

Reciprocated: A transfer of goods or a service to another is directly reciprocated by a transfer of good or service, money or credit.

Voluntary: Both transfers are voluntary. Competitive: Seller compete against competitors by charging different prices.

What is opportunity cost?

The value of the next best alternative you give up when making a choice.

What is marginal product?

The additional amount of output that is produced if a particular input was increased by one unit, while holding all other inputs constant

What is a production function?

A function that represents the relationship between inputs (labor, materials) used in production and the output generated (goods, services).

What is a feasible frontier?

A graphical representation showing the maximum possible production levels of two goods that can be produced with available resources and technology, illustrating trade-offs.

Represents choice constraints

What is the income effect?

The change in demand for goods or services caused by a change in consumer income

Reflects how increases or decreases in income influence consumers' purchasing decisions.

What is the substitution effect?

The higher reward from working an extra hour has increased the opportunity cost of free time. This increases the incentive to work, and hence has the effect of reducing hours of free time.

What is an indifference curve?

A curve that shows all combinations of two goods that give a consumer the same level of satisfaction or utility.

What does it mean when one indifference curve is above another?

It indicates a higher level of utility, representing greater satisfaction from consuming combinations of the two goods.

What is the marginal rate of substitution (MRS)?

The rate at which a consumer can give up some amount of one good in exchange for another good while maintaining same utility.

The slope of an indifference curve

What is the Marginal Rate of Transformation (MRT)?

The rate at which one good must be sacrificed to produce an additional unit of another good, reflecting the opportunity cost in production.

What is the law of diminishing marginal utility?

As a person consumes more units of a good, the additional satisfaction (utility) from each extra unit decreases