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Flashcards in BASIC Microeconomics IDEAS Deck (26)
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1

Factors of production

The resources used in the production of goods and services

2

Resources

The natural occurring and human-made items in an economy

3

Economic Problem

Resources are scarce but wants are infinite

4

scarcity

when resources are limited in supply

5

wants

desires, not needed for survival

6

needs

essential for living

7

Ceteris Paribus

all other things being equal / other things held constant / all else unchanged

8

Factor income

the reward to the factors of production

9

land

natural resources in production - oil, livestock
factor income: rent

10

labour

workers and their skills
factor income: wages

11

enterprise

a project or undertaking, typically one that is difficult or requires effort.
- entrepreneur: the person that organises production and is willing to take risks
- factor income: profit

12

capital

human-made aids to production

13

renewable resources

replaced at a rate equal to or quicker than consumption

14

non-renewable resources

cannot be replaced at a rate equal to its consumption

15

primary sector + secondary + tertiary

extraction of natural resources

manufactoring and assembly

services

16

short run

at least one FOP does not change

17

long run

all FOPs can change

18

very long run

change in technology

19

free goods

A free good is a good with zero opportunity cost. This means it can be consumed in as much quantity as needed without reducing its availability to others
- Not scarce
- No opportunity cost
- No market price
- etc. air, sunlight

20

economic goods

goods and services are produced which satisfy consumers needs and wants directly
- Scarce
- Opportunity cost
- Market price
- etc. food, clothing

21

public goods

good or service that is provided without profit to all members of a society, either by government or a private individual or organisation
- Non-rivalry (non-diminishing) - consumption by one person does not reduce availability for others.
- Non-excludable - non-paying consumers cannot be prevented from consuming the product.
- Non-rejectable - everyone consumes, whether they want to or not.
- etc. street lighting, lighthouses, fireworks display, national defence.

22

merit goods

- private good
- external benefits
- one that has positive side effects when consumed
- underproduced and under-consumed due to information failure (consumers are not fully aware of the effects).
- better for a person than the person that may consume the good realises
- etc. education, healthcare.
- Government intervention: subsidies, laws & regulations, provide information.

23

demerit goods

- private good
- external costs
- one that has negative side effects when consumed
- habit-forming, relatively cheap and readily avaliable
- due to information failure (consumers are not fully aware of the effects).
- etc. alcohol, cigarettes.
- Government intervention: tax, laws & regulations, provide information.

24

private goods

an item that yields positive benefits to people
- Rivalry (diminishing) - consumption by one person reduces availability for others.
- Excludable - can prevent people who have not paid from consuming the product.
- Rejectable - people do not have to consume if they don’t want to.
- etc. clothing, food

25

public goods are provided by

the government due to the free-rider problem:
- Due to non-excludability, consumers have no incentive to pay.
- Private firms cannot charge a price and therefore can not make revenue or profit.
- Therefore, private sector will not provide the public good.

26

quasi-public good

Semi-rivalry and semi-excludable.