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Economics Exam Revision

Terms in this set (48)

The action of manufacturing the components or raw materials, or the process of being so manufactured
Production
The amount of money a business or individual earns by providing a good or service or by investing capital into different markets
Income
Positive economics is objective and fact based, while normative economics is subjective and value based.
Positive and Normative Economics
The idea that there are unlimited wants and limited needs with limited resources.
Relative Scarcity
There are 4 types of Economic Resources; Capital (Anything man made to help with the production of goods and service), Land (Natural resources such as wood, fish, minerals, plants etc.), Labour (any part of the workforce that helps with the production of goods and services) and entrepreneurship (the person behind the idea/company making the product)
Economic Resources
Determining the best way to combine resources in order to best satisfy consumers and therefore make the most profit
How relative scarcity affects decision making
The next best alternative foregone after an economic decision is made
Opportunity Cost
a graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently
Production-Possibility Frontier (PPF)
What to produce? How to produce? For whom to produce?
The 3 economic questions
Households give Labor, land, capital and entrepreneurship to businesses, businesses give wages, salaries and rents to households, then households give spending and expenditure to businesses, where business give goods and services to households
Circular Flow Diagram
Material living standards are described as tangible goods i.e. cars, health coverage etc. where as non-material living standards are described as intangible things like the environment, freedom of speech, free elections, crime rates and time off work
Material and non-material living standards
A systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving while preserving savings
Cost-benefit analysis
Consumer motivated by self-in carefully weigh up the expected cost and benefits of each and every decision with the objective of maximizing their utility
Traditional view of consumer behavior
The proposal that people make decisions by selecting the option that has the greatest utility.
Utility maximization
the limited amount of income available to consumers to spend on goods and services
Budget constraint
Traditions, customs and beliefs help shape the goods and services the economy produces
Traditional economics
Understanding the common mistakes that people make and why they make them
Behavioral economics
Positive incentives are used to give someone what they want and usually carry 'rewards' like bonuses, candy or a gold star where as Negative incentives are used to give some
Positive and negative incentives
With the ability of online transactions now available, consumers are now starting to buy online.
Tech change impact on consumer behavior
When a firm may determine the price, input, and output levels of different resources to lead to the greatest possible profit
Profit maximization
A situation where the desires and needs of consumers control the output from producers
Consumer Sovereignty
Different types of incentives for businesses, includes Tax Incentives, Financial incentives, Subsidies, Tax Rebates and Negative Incentives
Businesses incentives
With the ability of online transactions now available, businesses could promote online advertising to buy products from their online website and offer delivery to their location.
Tech change impact on business behavior and outcomes
the business practice of selling the same good at different prices to different customers
Price discrimination
selling a product below cost to drive competitors out of the market
Predatory pricing
Used to restrict inter-firm competition to maintain or increase their relative market position and profits without necessarily providing goods and services at a lower cost or of higher quality.
Anti-competitive behavior
Stands for the Australian Competition and Consumer Commission, who oversees all market place activity.
ACCC
A place where goods can be exchanged for goods and services
Market
When the price of a product decreases, the demand for that product increase and vice versa.
Law of demand
Disposable income, price of substitutes, complements, preferences and tastes, interest rates, changes in population, consumer sentiment and government intervention
Non price factors affecting demand
Shift of demand curve to the right happens when an increase in quantity demanded where as the shift of the demand curve to the left happens when less quantity is demanded
Movements along and SHIFTS of the demand curve
When the price of a product increases, the supply for that product increases and vice versa
Law of Supply
A curve that shows how much product has been supplied at various price points
Supply Curve
Specific costs of production, technological change, productivity growth, climatic conditions and government intervention (taxes, costs of complying with government laws and regulations and government subsidies)
Non price factors affecting supply
When the quantity demanded, and the quantity supplied is at an equal point on the demand and supply curve
Equilibrium
The manner in which the profits of goods or services affect the supply and demand of goods and services, usually by the price elasticity of demand
Price Mechanism
When the product supplied doesn't meet the product's demand, resolved by the producer increasing the price of the product and increasing the supply of the product
Shortages
When the product supplied has excess amounts left over, resolved by lowering the price of the products
Surpluses
If the price of a resource rise relative to another, then companies will adjust the production of goods and in doing so change the allocation of resources for those and other goods they are producing
Impact of relative prices on allocation of resources
Large number of small firms that sell a homogeneous product, easy to get into the market as there are no barriers to entry or exit and there is perfect information (buyers and sellers know what products are available where, and for what price)
Perfect Competition
Many small sellers with differentiated product, relatively easy for new suppliers to enter and exit
Monopolistic Competition
A market type where there are 2 or slightly more companies in control
Oligopoly
A market type where only one company is in control, can make prices as high or as low as they like and with no relative competition in the market and difficulty to break into a market of this time, considered a price maker and sells a unique product, with no close substitutes
Monopoly
A company that has to accept the prevailing price in the market of its products, and transactions because they cannot change/affect the market price
Price Taker
A company with a monopoly that can give power to influence the price it charges as the good it produces does not have perfect substitutes
Price Maker
In a monopoly, the company can charge any price they like as there is no relevant competition in their market. However in Monopolistic competition, if the company has a high amount of competition and customer loyalty, then they will not rise the prices of their products as customers will notice the lower prices and buy from that company
Market Structures impact on prices
In a perfectly competitive market, resources will be allocated in the most effective way possible to ensure maximum profit is achieved, but in an Oligopoly or Monopoly, the businesses can abuse their power and put a restriction on the amount of resources that are allocated, causing prices for products to increase and an under-allocation of resources to occur
Resource Allocation
Depending on the market, if a Monopoly or Oligopoly are in power then the living standards will decrease as the cost of products will increase but if a monopolistic competition or perfect competition are in power than the standard of living will increase as the price of products will increase
Living Standards
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