Economics Chapter 1 & 2
Define Surplus
When the price is above equilibrium, quatnity supplied will exceed quantity demanded and therefore, creating a surplus. Price will fall to clear the market. Supply > Demand
Define Shortage
When the price is below equilibrium, quantity demanded will exceed quantity supplied and there will be a shortage. Price will rise to clear the market. Demand > Supply
Define Consumer Goods
Short-term products (< 12 months). Used by individuals
Define Economics
The social science which studies the allocation of resources to satisfy the wants of society
What is the reason that all economic issues and problems occur?
Human wants exceed the resource available to satisfy them.
Define Microeconomics
Microeconomics is concerned with explaining behaviour of individual consumers and producers.
When more of one product is produced in a fully employed economy, why is less of another economy being produced?
Less of another economy is being produced as our resources are limited.
Define Capital goods
Long-term products (>12 months). Used by society such as education
What do unfavourable conditions in supple conditions cause?
Unfavourable conditions cause a decrease in supply ans the supply curve moves to the left.
Describe a positive statement
Positive statements can be tested objectively, they can be quantified and analysed but are not based on value judgements.
Define Law of Increasing Cost
The reason why the Production Possibility curve is bowed outwards to form a curve. It allows for a price in a market or industry to increase in either capital or consumer goods.
Define a shift in the demand curve.
A shift of the entire curve, either left or right. It is a physical movement. It is caused by non-price factors. Movement to the right is an increase and a movement to the left in a decrease. It is a change in demand.
Define a movement in the supply curve.
A movement from point to point along the curve. It is focused on price factors. Movement down the curve (right) is an expansion, movement up the curve (left) is a contraction. It is a change in quantity demanded.
If the price for a product rises, what will happen to the quantity supplied?
The quantity supplied would rise.
Define supply
Supply is the amount of goods and services producers are willing and able to produce at a particular price and point in time.
What is equilibrium?
Equilibrium is when both supply and demand are equal
Define a normative statement
Normative statements cannot be tested, they are based on value judgements and assumptions but are not based on hard facts of figures.
In allocating scarce resources, when will net resources be maximised?
Net resources will be maximised when the marginal benefits is equal to the marginal cost
On what level does microeconomics deal with the economic problem?
Microeconomics deals with the economic problem on a individual level.
Define Scarcity
Scarcity exists when resources are limited relative to wants. Scarcity is seen as the economic problem
If both demand and supply of a good increased, what would happen to the equilibrium?
Equilibrium quantity will increase, but equilibrium price may rise or fall.
Define the production possibility frontier.
A model which illustrates the economic problem.
What causes the market price of a good to rise?
Demand increases, while supply decreases.
How would an increase in quantity supplied be shown on a graph?
It would be shown as a movement along the supply curve
What would the discovery of an improved production technique result in?
A shift to the right to a new supply curve.
What would a shift to the left of a demand curve be due to?
A rise in the price of the compliment good.
What is the Law of Demand?
The law of demand refers to the fact that, other things remaining he same, when the price of a good rises, there is movement up along the demand curve to a smaller quantity demanded.
What kind of things will cause a shift in the demand curve for a good?
A change in income, the price of a closely related good and preferences
Define the economic model
The simplification of reality designed to make the study of the real world more manageable
What does a demand curve reflect?
A demand curve reflects the price consumers are willing to pay and the quantity consumers are willing to buy
What is the economic problem?
There are unlimited wants but limited resources.
How is the economic concept of scarcity expressed?
The economic concept of scarcity is expressed as productive resources are limited relative to human wants.
What is the primary focus of microeconomics?
The primary focus is on supply and demand
What labels do the vertical and horizontal lines have on a demand curve?
The vertical line is labelled as price and the horizontal as the quantity number
When is there a concentration in quantity demanded?
When the price is high, demand goes down
Define Capital
Man-made resources used in the production of other goods.
What is disequilibrium?
Disequilibrium is when supply and demand are not equal and there is a market pressure on both prices
In economics what is cost?
Cost is what you must give to get something
What is the difference between a supply curve and a demand curve?
The supply curve focuses on producers whereas the demand curve focuses on consumers
What is ceteris paribus?
Ceteris Paribus is when all other factors are held constant. When you are focusing on just one factor.
Define Demand
Demand is the quantity of a good or service consumers are willing to buy, at a particular price at a particular point in time.
What is the primary focus of macroeconomics?
The primary focus is on the economic system as a whole.
What economic questions must every society address?
What, how and for whom the product is being produced.
Define a normal good
A good for which demand increases as the income of consumers increases.
Define a free good.
A good which is not relatively scarce.
What happens if quantity demanded exceeds quantity supplied?
Price will rise.
Define opportunity cost
The value of the next best alternative
What assumption is a demand curve usually drawn on?
That the factors influencing other that price are held constant
What is change in equilibrium referred to?
A change in equilibrium is referred to as the ‘invisible hand’
Define enterprise
The resource which represents the ideas and skill necessary to create products.
In economics what is benefit?
Benefit is what you are willing to give up to get something
When is market equilibrium achieved?
Market equilibrium is achieved at a price at which quantity demanded equals quantity supplied.
On what level does macroeconomics deal with the economic problem?
Macroeconomics deals with the economic problem on a societal level.
What are the four types of a resource?
Land, Labour, Capital, Enterprise
Define market economy
The type of economic system in which the price system allocates resources.
Define macroeconomics
Macroeconomics is concerned with the whole economy, it analyses the business cycle.
Define Labour
The human effort required to produce goods and service.
What do favourable changes in supply conditions cause?
Favourable conditions cause an increase in supply and the supply curve moves right
Where is there an expansion in quantity demanded?
When the price is low, demand goes up.