Untitled Flashcards Set

public sector

the portion of the economy that consists of government controlled entities, such as public services and regulation. These entities are typically funded by taxes and provide essential services such as education, healthcare, and public transportation.

private sector

the part of the economy that isn't controlled by the state. It includes any for-profit businesses run by individuals or companies.

3 sectors of the flow model

household (consumer), business (producer), government (public)

positive statement

statements that are testable, verifiable through facts and statistics

normative statement

statements based on opinions or ethics, making value judgements about what ought to be

flow 1 - producer to consumer/ consumer to producer

the nations flow all resources

microeconomics

the operations of a particular industry as well as the level of output in particular markets and price setting strategies for a business

macroeconomics

observes the total value of national spending on goods and services as wall as the level of production, as outlined by GDP and national employment levels.

relative scarcity

unlimited wants but limited resources

natural resources

raw materials e.g. minerals, water, plants

labour resources

mental or physical skills required to produce goods and services. e.g. teaching skills, carpentry skills

capital resources

processed and man made items used in the manufacturing of goods and services

opportunity cost

the value of production or consumption that is forgone when resources are allocated to their next best alternative use.

three basic economic questions

what and how much to produce?
how to produce?
for whom to produce?

main types of economic systems

traditional economy, pure market economy, pure planned economy, contemporary mixed economy (hybrid of market and planned)

flow 2 - producer to consumer

the nations flow of all incomes paid

flow 3 - consumer/government to producer

the nations flow of total spending on goods and services

living standards

measured by material and non material living, and GDP

Microeconomics

The branch of economics that studies individual markets, consumers, and businesses.

Macroeconomics

The branch of economics that examines the overall economy, including inflation, unemployment, and national income.

Positive Economics

A fact-based approach that describes 'what is' in the economy without value judgments.

Normative Economics

An opinion-based approach that evaluates 'what ought to be' in the economy based on personal or societal values.

Factors of Production

The resources used to produce goods and services: land (natural resources), labour (human effort), and capital (man-made tools and equipment).

Trade-off

The process of giving up one option in order to gain another.

Three Basic Economic Questions

The fundamental questions all economies must answer: What and how much to produce? How to produce? For whom to produce?

Market Economy

An economic system where decisions are made by individuals and businesses based on supply and demand with minimal government intervention.

Planned Economy

An economic system where the government controls resources and makes production and distribution decisions.

Mixed Economy

A system that combines elements of both market and planned economies, with government intervention to correct market failures.

Traditional Economy

An economic system based on customs, traditions, and bartering, with minimal use of money or technology.

Circular Flow Model

A diagram that illustrates the movement of money, resources, and goods and services between households, businesses, and the government.

Households (Consumers)

Individuals who provide labour and consume goods and services.

Businesses (Producers)

Firms that produce goods and services using resources from households.

Government

The sector that collects taxes, provides public services, and regulates economic activity.

Material Living Standards

The level of access to goods and services, measured by income and wealth.

Non-Material Living Standards

The quality of life factors such as health, environment, and work-life balance.

Economic Agents

Individuals, businesses, and governments that make decisions affecting the economy.

Traditional Economic View of Consumer Behavior

The assumption that consumers act rationally, are self-interested, seek to maximise utility, and make informed decisions.

Incentives

Factors that encourage certain economic behavior, such as lower prices, subsidies, or tax rebates.

Disincentives

Factors that discourage certain economic behavior, such as higher taxes, regulations, or penalties.

Traditional Economic View of Businesses

The assumption that businesses seek to maximise profit by efficiently using resources.

Business Incentives & Disincentives

Taxes, subsidies, and regulations that influence business decisions on production and pricing.

Traditional Economic View of Government

The assumption that governments aim to maximise overall living standards through economic policies.

Economic Stabilisation

Managing inflation, unemployment, and economic growth.

Resource Allocation

Ensuring resources are used efficiently.

Income Redistribution

Reducing income inequality through welfare and taxation.

flow 4 - producer to consumer

the nations flow of all finished goods and services produced (gdp)

injection

Additions to the economy that boost spending and income. They include investment, government spending, and exports.

leakage

Withdrawals from the economy that reduce spending and income. They include savings, taxes, and imports.

recession

National output or GDP falls and causes a rise in unemployment, and hence a drop in average incomes and consumption per person. Overall material and non-material standards are down

contraction

When a drop in economic activity occurs as spending starts to fall

expansion

Occurs when spending starts to expand again

boom

National output is stretched beyond the economy's productive capacity. Shortages of goods and services appear because output can't keep up with spending. Rapid inflation occurs and purchasing power of wages and family incomes decrease.

government intervention - stabilisation of economic activity during recession

Countercyclically boost spending by cutting taxes and/or raising government spending
Helps reduce the severity of a recession and keep unemployment lower than otherwise

government intervention - resource allocation

Some businesses attempt to limit competition and collude with rival firms to grow their market power and increase profit for themselves. Leads to a decrease in allocation efficiency and there is no incentive to reduce costs, improve products and try to maximise competition between rival businesses.

government intervention - redistributing income

Taxing the rich more than the poor

government intervention - stabilisation of economic activity during boom

Countercyclically slow total spending by increasing tazes and/or cutting government spending
This would help prevent and inflationary boom

consumer incentives

designed to encourage behaviour that would otherwise not occur at the same extent . e.g. using childcare subsidy to increase consumption of childcare services
Disincentives aim to discourage certain behaviours and are directed towards reducing socially undesirable consumption of certain goods and services. e.g. heavily taxing cigarettes to discourage consumption.

consumer disincentive

The imposition of an indirect tax on products like cigarettes or fuel and alcohol)

consumer disincentive

Regulations and laws employed by the government e.g. cig packaging laws prohibit tobacco companies from adorning cigarette packets with appealing graphics.