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Definition of opportunity cost
The cost of the next best option forgone when making an economic decision/choice.
The effects of opportunity cost on workers
specialization
The production possibility curve represents
the maximum amount of goods and services that can be produced in an economy, per period of time.
How can a country be on its PPC?
All resources are used; there is efficiency (in the use of resources)
A movement along the PPC results in
opportunity cost
in order for the PPC to shift outwards, there must be
economic growth
The two ways for economic growth are
When there is an increase in quality and quantity of factors of production.
The market system refers to
the method of allocating scarce resources through (the market forces of) demand and supply
Markets consist of
buyers and sellers
The market system is also known as
the price mechanism
the market system establishes
market equilibrium
market equilibrium is when
demand equals supply
market disequilibrium occurs when
the market price is either above or below the equilibrium price
if the price of a product is above the equilibrium price there will be a
surplus
if the price of a product is below the equilibrium price there will be a
shortage
The price mechanism refers to
the system of relying on (the market forces of) supply and demand to allocate resources
In the market system, (sector) decides on the fundamental questions regarding production
the private sector
Features of the market system include
There is no government interference in economic activities; Products are allocated on the basis of price; The allocation of resources is based on financial incentives; competition creates choice and opportunities for firms and private individuals
Definition of Micro-Economics
The study of particular markets and sections of the economy (rather than the economy as a whole)
Microeconomics is concerned with
the (economic) factors that affect choices and the effects of changes (in these factors) on decision makers
Microeconomics tends to use (something) rather than (something) to explain (something)
theory; empirical evidence; changes (in individual markets and industries)
Definition of Macro-Economics
The study of economic behavior and decision making in the whole economy (rather than individual segments of the economy)
Macroeconomics looks at
aggregate variables
Macroeconomics attempts to explain
what is likely to happen to the economy as a whole if certain economic factors change
Macroeconomics places greater emphasis on using (something)
empirical evidence
Microeconomics is concerned with decision making by
individuals, households, and firms
Macroeconomics is concerned with decision making
for the economy as a whole
Demand refers to
Demand refers to the willingness and the ability of customers to pay a given price to buy a good or service. The higher the price of a product, the lower its demand tends to be.
Demand is also referred to as
effective demand
The amount of a good or service demanded at each price level is called the
quantity demanded
The relationship between price and demand is
inverse
The rule about the relationship between price and demand is known as
the law of demand
determinants of demand can be remembered by the acronym
HIS AGE
What are the contents of HIS AGE?
Habits, fashions and tastes; Income; Substitutes and complements; Advertising; Government policies; Economy’s state
Substitutes are
products that can be used instead of each other
If the price of one product falls, then the demand for its substitute will
fall
Complements are
Products that are jointly demanded, e.g. cinema tickets, popcorn and drinks
If the price of one product falls, then the demand for its complement will
increase
A substitute's demand is (relationship) to the product's demand
inverse
A complement's demand is (relationship) to the product's demand
proportional
Other factors that can influence demand include
weather, demographics of the population
a change in price of a good can cause (in regards to demand)
a movement along the demand curve
A price rise will cause a decrease, known as a (what), in demand
contraction
A price fall will cause an increase, known as a (what), in demand
extension
a change in the factors of demand will cause
a shift in demand
a leftwards shift of the demand curve is
a decrease in demand
a rightwards shift of the demand curve is
an increase in demand
Supply is
the willingness and ability of firms to provide products at a given price level
the law of supply states that the relationship between price and supply is
proportional
market supply is the
The sum of all supply curves in the market at each given price level
Non-price factors that affect supply are
Time; Weather; Opportunity cost; Taxes; Innovation; Price and profitability of other products; Subsidies, TWOTIPS
the equilibrium price is also known as
the market-clearing price
The factors of production are (definition)
resources required to produce a product
The factors of production are (namely)
land; labour; capital; enterprise
Land is
the natural resources required in production
Labour is
the human resources required in production
Capital is
the manufactured resources required in production
Enterprise is
the skills a business person requires to combine and manage the other three factors (of production) successfully
The reward for land is
rent
The reward for labour is
wages and salaries
The reward for capital is
interest
The reward for enterprise is
profit
Collectively, the rewards for the factors of production are called
income
Geographical mobility refers to
the willingness and ability of a person to relocate from one area to another for employment purposes
What can effect geographical mobility of labour?
family and friends, the cost of living, the presence of a good transportation network, immigration and emigration policies
Occupational mobility refers to
The extent to which labour is able to move between jobs,
improved though upskilling and retraining
Generally, the greater the mobility, the (effect) the economy
better
The causes of changes in the quantity and quality of the factors of production are
costs of the factors; government policies; new technologies; net migration of labour; improvements in education and healthcare; unfavorable weather conditions
ceteris paribus means
all other variables remain constant
Examples of inputs
Raw materials, components
The nature of the economic problem is
the allocation of limited resources to satisfy unlimited wants
The three economic agents are
Households (private individuals in society), firms (businesses operating in the private sector) and the government (the public sector of an economy).
firms and individuals operate in the (sector name) of the economy
private sector
governments operate in the (sector name) of the economy
public sector
The three basic economic problems addressed by economic agents are
What to produce?; How to produce (it)?; For whom to produce (it)?
goods are
physical items (that are produced)
services are
non-physical items (that can be provided by firms and paid for by customers)
needs are
goods and services that are essential to human survival
wants are
Goods and services that are not necessary for survival but are desired by economic agents.
an economic good is (supply status)
limited in supply
free goods are (supply status)
unlimited in supply
Consumers want to
spend less to buy more
Workers want to
work less to earn more
Producers want to
use less to produce more
Governments want to
grant less to maximise social welfare
PED stands for
Price Elasticity of Demand
PES stands for
Price Elasticity of Supply
PED is either (sign)
negative or zero
PED is usually given as
an absolute value
When PED is 0, the product has
perfect price inelasticity
What does a demand-supply graph show when PED is 0
a vertical bar
When PED is zero, a change in price
does not affect demand
When PED is 1, the product has
unitary price elasticity
When PED is infinite, the product has
perfect price elasticity
When a product has perfect price elasticity
Demand only exists at a price level
A graph for PED = infinity shows
a horizontal line
What are the determinants of PED
Substitution; Income; Necessity; Habits, fashions, tastes, and addictions; Advertising and brand loyalty; Time; Durability; The cost of switching; The breadth of definition of a product
What are the key determinants of PED
Habits, tastes and fashions; Income levels; Substitutes and complements (price and availability); Advertising; Government policies (e.g. taxes, regulations and subsidies); and the state of the Economy (boom or recession).
What does Income stand for in PED
proportion of income taken up
Can PED change?
Yes
