Topic 1 - What is Economics

What are the nine fundamental economic concepts

equity, sustainability, intervention, economic wellbeing, choice, scarcity, interdepencence, efficiency, change

What does ceteris paribus mean

all other things being equal

What is the economic problem?

All humans have needs and wants that the world cannot provide all these things for everyone: scarcity

What are the factors of production

land, labour, capital, entrepreneurship

What are positive statements

can be supported, refuted with evidence

what are normative statements

opinion based

Three central economic questions

What to produce, who gets what, how to produce

What is opportunity cost

trade off of next best option (choice)

What are economic goods

resources needed to produce

What are free goods

does not need scarce resources to produce

What is a centrally-planned/command economy

all economic decisions made by gov, no private owndership

What is a free market economy

all resources privately owned, and decisions are made by consumers and producers through price mechanism

What does the point beyond the PPC represent

impossible, unsustainable to maintain

What does the point within the PPC represent

inefficiency

How can the PPC grow (economic growth)

immigration, better technology, better education

What are the factors of payment

wages, rent, interest, dividends/profit

How can the PPC contract (economic contraction)

war, natural disaster, unemployment, disease

What is absolute scarcity

physical limitation of goods and services

What is relative scarcity

unequal distribution of resources, can be replenished, not geographically split (has oil, can’t mine oil)

What are consumer goods

finished products ppl buy

What are capital goods

tools to produce

Draw the circular flow of income

What happens to the economy when injections > leakages

growing, ppl’s standards of living increases

What happens to the economy when injections < leakages

contracting, ppl’s standards of living decrease

When is it economic equilibrium

leakages = injections

What is microeconomics

how individuals, firms, households, industries, governments, make economic decisions through the behaviour of consumers and producers

What is macroeconomics

The economy as a whole, aggregate, all production & expenditures of goods at a certain moment in time

What are transfer payments, example?

permanent leakages, like welfare

Who is the founding father of modern economics

Adam Smith