EIT Prelims

ito ba ang economic book na tinutukoy ni maam

Microeconomics

Microeconomics

Study of small individual economic units

ex. households, firms and industries, making choices

Macroeconomics

Studies the aggregate behavior of the entire economy

ex. unemployment, inflation, GDP, international trade, etc

Land

Refers to all the free gifts of nature; some of these resources are renewable while others are non-renewable.

Labor

Refers to any human effort (manual or mental) which is directed to the production of goods or services.

Capital

Refers to those man-made resources that are used to produce goods or services in the future.

Fresh Talent Initiative

Has allowed many Eastern Europeans to live and work in Scotland.

Investment

When capital goods are bought, this is called __ ;spending by firms on capital goods.

Industrial

Type of Capital

Used by firms e.g. factories, offices, machineries

Social

Type of Capital

Belongs to the whole community e.g. schools, hospitals, roads

Private

Type of Capital

Belongs to individuals e.g. houses

Financial

Type of Capital

Money waiting to be used to buy capital goods

Enterprise

Refers to the decision making and risk taking of entrepreneurs.

Alpha Minds

Countries are concerned with the shortage of talented entrepreneurs or __

Individuals

Level

Must choose what to buy out of their limited incomes; decide how to spend their income in a way which gives them the greatest level of satisfaction.

Producers

Level

Must choose what to produce with their limited resources. They are motivated by the desire to maximise profits.

Governments

Level

Must choose what services to provide out of their limited tax revenues. They spend tax revenue in a way that they think will maximise society welfare.

Scale of Preference

For an individual consumer, the opportunity cost of choosing a product is the next item on his/her __

Firm

Agent

For a producer the opportunity cost of producing a good is the next most profitable product which could have been produced with the resourced used.

Government

Agent

The opportunity cost of providing a service is the next best service which it could have been provided with the resources used.

Economic Resources

Used in the production of goods (tangible) and services (Intangible); Classified as land (asset), labor(expenses), capital(equity), and enterprise

Factors of Production

Economic Resources are sometimes called as __

Asset

Resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Liability

Something a person or company owes, usually a sum of money.

Needs

Things necessary to human survival e.g. food, shelter

Wants

Goods/services desired by the consumer e.g. travel, luxury cards.

Scarcity

Economic resources are limited compared to wants which are unlimited. Wants always exceed the limited resources

Choice

Because of scarcity, we cannot fulfill all wants and must choose from the available alternatives.

Opportunity Cost

The second best alternative forgone after making a choice. Every choice involves a sacrifice or trade-off; real cost

What to Produce?

Means choosing the mix of goods & services to produce

How to Produce?

Who will do the production and which method of production will be used.

For Whom to Produce?

Means who will consume the goods & services after they have been produced; How will we decide who receive the output?

Planned Economic System

All decisions about resource allocation are made by the government. This system is based on the principle of equity.

Pure Command Economy

Little incentive for workers to raise productivity; poor quality control, and little innovation by firms as no profit motive existed.

All resources are government-owned. 

One person (dictator) or a group of officials decide WHAT products are needed. 

Free Economic System

In its purest form is only an economic model and as such, does not exist in the real world.

Private Enterprise

Resources are owned by private individuals. No barriers prevent people from owning private property.

Competition

Exists between producers and between consumers. A high degree represents the working of the free market system.

Consumer Sovereignty

AKA ruling the market

Price Mechanism

Resources are allocated by this; Acts as a signal to producers. Consumers buy particular goods, and are, in effect, casting a vote.

Production Possibilities Frontier

It is the point at which economy is most efficiently producing its goods and services in a given time period, and therefore allocating its resources in the best way possible.

Trade-Off

Is often expressed as opportunity cost.

Involves a sacrifice that must be made to obtain a desired product or experience.

Rational Choice

One that uses the available resources to most effectively satisfy the wants of the person making the choice.

Marginal Benefit

The benefit that a person receives from consuming one more unit of a good or service.

Marginal Cost

The opportunity cost of producing one more unit of a good or service.

Economic Growth

The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve

Comparative Advantage

The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.

Absolute Advantage

When one person is more productive than another person in several or even all activities.

Positive Economic Analysis

Describes what exist and how things work.

Descriptive

They make a claim how the world is

Normative Economic Analysis

Looks at the outcome of economic behavior through judgments and perceptions of courses of action. 

They claim how the world should be

Post Hoc Ergo Propter Hoc

Relates to two events as if the first event causes the second to happen.

Ceteris Paribus

Meaning all things being equal or held constant.

Each variables must be studied one at a time

Fallacy of Composition

States that what is true for a component is also true for the entire thing.

Sweeping Generalization Fallacy

Committed when a statement wraps up everything with no exemptions to the rule, as if making it a general statute.

Econometrics

Is the application of statistical and mathematical theories to economics for the purpose of testing hypotheses and forecasting future trends.

Adam Smith

Father of Econometrics

Invisible Hand

Means that what is produced, what quantity and at what price.

Pure Market Economy

NO government involvement in economic decisions. Private firms account for all production.

Consumers decide WHAT should be produced. They do this through the purchases they make.

Traditional Economy

Economy is shaped largely by custom or religion.

Customs and religion determine the WHO, WHAT, and HOW

Privatization

Is a common aspect of transition from a command economy to free enterprise system; state-owned industries are sold to private individuals and companies.

Mixed Economy

Most economies in the world today are __.

Both capitalism and socialist economies

Capitalism

Trade and industry are controlled by private owners for profit, rather than the govt.

Socialism

Economic and political system based on public of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs

Demand

• Relationship between quantity demanded and price within a specific period.

• The relationship between maximum willingness to pay in return for something of value.

• Emphasizes on the buyer or consumer.

Output Market

• Goods and services are exchanged.

• The finished product.

Input Market

Resources used to produce products are exchanged.

Market Demand

• The horizontal sum of individual demands.

• Commands our interest.

• This is the total demand from all households in a particular market.

Quantity Demanded

The amount (number of units) of a product that a household would buy in a given time period if it could buy all it wanted at the current market price.

Demand Schedule

A table showing how much of a given product a household would be willing to buy at different prices.

Demand Curve

• Usually derived from demand schedules.

• A graph illustrating how much of a given product would be willing to buy at different prices.

Diminishing Marginal Utility

• The more you consume a good or service, the more your satisfaction diminishes.

• Decrease in satisfaction.

Income

• The sum of all households’ wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time.

• It is a flow measure.

Wealth

• Also known as net worth.

• The total value of what a household owns minus what it owes; asset minus liability.

• It is a stock measure.

Normal Good

• Increased income leads to higher demand.

• Also called necessary goods.

• Causes a forward shift in the demand curve.

Inferior Good

• Increased income leads to fall in demand.

• When incomes are low, or the economy contracts, these goods become a more affordable substitute for a more expensive good.

Luxury Good

• Increased incomes leads to a bigger percentage increase in demand.

• They are not deemed essentials or necessities to live.

Substitutes

Goods that can serve as replacements for one another.

Complements

• Goods that “go together.”

• When the price of one increases, the demand for both goods decreases because people are less likely to buy them together.

Individual Household Demand

This is about what one household wants or needs.

Supply

The total amount of a specific good or service that is available to consumers.

Supplier

Anyone who offers an economic product for sale.

Supply Schedule

Table showing how much of a product firms will supply at different prices.

Quantity Supplied

Represents the number of units of a product that a firm would be willing and able to offer for sale at a particular price during a given time period.

Supply Curve

• Usually derived from supply schedules.

• Graph illustrating how much of a product a firm will supply at different prices.

Individual Supply

This is about how much 1 company can produce or sell.

Market Supply

• This is the total supply from all companies in a particular market.

• Adds up the quantities that each company can supply.

Market Equilibrium

Situation in which prices are relatively stable and the quantity of goods or services supplied is equal to the quantity demanded.

Equilibrium Price

• The price that “clears the market.”

• No shortage or surplus.

Surplus

Quantity demanded is less than quantity supplied.

Equilibrium

• Quantity demanded is equal to quantity supplied.

• There is no tendency for the market price to change.

Shortage

Quantity demanded is greater than quantity supplied.

Market Disequilibria

Happens when there is excess demand (shortage) and excess supply (surplus).

Price Ceiling

• If price is fixed below the market clearing price.

• Creates a shortage because Qd is greater than Qs.

Price Floor

• If price is fixed above the market clearing price.

• Creates a surplus because Qd is less than Qs.

Elasticity

• Economists use this to measure how much consumers respond to changes in these variables.

• Refers to the measure of the responsiveness of quantity demanded or quantity.

Elastic Demand

Occurs when a relatively small change in price causes a greater change in the quantity demanded.

Inelastic Demand

If the quantity demanded responds only slightly to changes in the price

Demand Elasticity

A term used to indicate the extent to which changes in price cause changes in quantity demanded.

Price Elasticity of Supply

Measures the responsiveness of quantity supplier to a change in price.