ECO 121: Principles of Economics - Flashcards

These flashcards cover key concepts from the Principles of Economics course, ECO 121, including definitions of economics, market structures, supply and demand, and related principles.

What is the primary focus of ECO 121, Principles of Economics?

Introduction to Micro-economics and understanding economic problems, households and firms economic needs.

What are the main topics covered in this introductory Micro-economics course?

Subject matter of economics, basic economics problems, methodology of economics, resource allocation, market mechanism, consumer behavior, theory of production, and market structures.

What is the expected learning outcome from this principles of economics course according to the course guide?

Mastery of the subject matter, factual material concerning firms and households, and a rudimentary understanding of economic decision-making.

What is economics according to Adam Smith?

The science of wealth, inquiries into the factors that determine the wealth and growth of a nation.

According to Alfred Marshall, what is economics?

The study of mankind in the ordinary business of life, examining individual and social action relating to material attainment and wellbeing.

What is scarcity and which economist's definition includes it directly?

A situation where resources are limited but wants are unlimited/Robbins

What is the focus of Samuelson’s growth-oriented definition of economics?

How people and society choose to employ scarce productive resources to produce commodities and distribute them for consumption, now or in the future.

What are the key elements included in Samuelson's growth-oriented definition that improve upon earlier definitions?

Emphasizes consumption, distribution, cost-benefit analysis, and the inclusion of the time element.

Define positive economics.

A branch of economics that has an objective approach based on facts and analyzes casual relationships.

Define normative economics.

A branch of economics that uses value judgments, opinions, and beliefs to suggest how the economy ought to operate.

What are the three central economic problems that all modern economies must address?

What to produce, how to produce, and for whom to produce.

How do microeconomics and macroeconomics differ?

Microeconomics focuses on individual behaviors and small parts of the economy, while macroeconomics looks at the economy as a whole.

In economics, what fundamentally defines an economic system?

An economic system consists of individuals, government, and their interaction in the process of answering basic economic problems.

What are the primary characteristics of a traditional economy?

Economic decisions are based on beliefs, norms, religion, and customs of that society.

How does a capitalist economy operate?

Under the principle of the free market mechanism with limited government intervention.

What determines economic decisions in a socialist economy?

The government planners decide on what to produce, workers wages, the prices of goods and services and level of output.

Define a mixed economy.

The economic decision on what to produce; how and where to produce; for whom to produce; is made jointly by the government and the private sectors in the economy.

In economics, what are the basic economic principles?

Scarcity, Choices, and Scale of Preference, Opportunity cost, Rationality

Define opportunity cost

Whatever must be given up to obtain something.

Define what it means to have rational behavior regarding economics.

A decision-making process that is based on making choices that result in an optimal level of benefit or utility.

What are the major economic actors?

Households, Firms, and Government

How does a household function in the economy?

Households are primary consumer of the firms’ output.

What are the primary roles of a firm in an economy?

Primarily to produce.

Define input and output markets

Input market (or factor market) is a market where resources used to produce products are exchanged. Output market (or product market) is a market where goods and services are exchanged.

State the law of demand.

A rise in prices of goods and services will mean a fall in quantity demanded. Consequently, a fall in prices of goods and services will mean a rise in quantity demanded ceteris paribus.

Mention some other factos affecting the demand

Households’ income; Households’ preference and taste; Prices of related commodities; Number of consumers; Expectation of future price change.

State the law of supply.

All things being equal, the higher the price, the higher the quantity of good or service that will be supplied, and vice-versa.

List some factors affecting the supply

Cost of production, change in production techniques, change in price of factor of production, price of alternative goods, price and future expectation, number of buyers and sellers.

Define what happens when there is excess demand

When quantity demanded is greater than quantity supply

Define what happens when there is excess supply

When the quantity demanded by the households is less than the quantity supplied by the firm.

What is Market equilibrium?

When quantity supply is equal to quantity demanded.

Why do governments implement price ceilings?

To set a maximum price that can be charged for a product in the market.

Why do governments implement price floors?

To set a minimum price that can be charged on a particular product or services.

Define quantity demanded.

The amount of goods or commodities that consumers are willing and able to buy at a given price over a given period of time.

Define price.

Price is defined as the rate at which a commodity is exchanged for money or other units of exchange.

Define substitution effect.

The effect of a change in price on quantity demanded as a result of switching by consumers to alternative or from alternative products.

Define substitution effect.

The effect of a change in price on quantity demanded as a result of switching by consumers to alternative or from alternative products.

Define The Demand Function.

The relationship between the quantity demanded of a particular commodity and the factors influencing it.

How does the income of consumers affect the demand curve?

When there is a rise in households’ income, it is expected that their households’ demand will rise because increase in income means increase in their consumption power

When is a business considered to have what is termed Elastic demand?

Elastic demand occurs when the absolute value of percentage change in quantity demanded is larger than percentage change in price, and is generally greater than 1.

What are the three economic resources that are taken into account when determining scarcity?

Land, labor and capital.

State how Elasticity is calculated.

Elasticity = % change in quantity / % change in price

How do social institutions affect human behavior in answering basic economic problems?

Social institutions have its influence on human behavior which determines their decisions in answering basic economic problem.

Briefly explain the Market channel.

A marker channel is a description of the set of firms or activities that add place, time, form or possession utility to a product as it is transformed from a raw material or intermediate product into one that is purchased by another firm or final consumers.

How is a change in quantity supplied is represented?

A change in price causes a movement along the supply curve.

All modern economies have certain fundamental or basic economic problems to deal with; list the central economic problems.

What to produce, How to produce, For Whom to produce, What provision should be made for economic growth?.