Basic Concepts in Economics
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What is Macro-Economics?
This is the study of the performance of whole national economies and governments policies to improve their performance.
What is money?
It is the mode/medium of exchange for goods and services. Anything that is generally accepted in the settlement of debts
Putting a commodity, on the market for sale.
Increase in price will decrease demand and vise versa
Law of diminishing returns
Utility diminishes with extra unit consumption of a good or service. (Increases at decreasing rate)
Extra utility, from consumption of extra units, of a good or service.
The ability of a good or service to satisfy human wants and needs (increases at decreasing rate)
Total quantity demanded by consumers.
The amount bought by an individual over a period of time.
- Tabular representation of quantity demanded at varying price level.
- Or Numerical representation of inverse relationship between price and quantity demanded.
Graphical representation of quantity demanded at varying price level. (Normally slopes left to right)
Law of demand
The higher the price, the lower the demand and vise versa (Inverse relationship)
Desire for a good and the ability to pay.
When planned demand, equals planned supply.
Prices are determined by?
- Price leadership
- Demand and Supply
- Resale price maintenance
For goods and services to have value,
they must posses.
Value of a good in monetary terms.
Is concerned with economic decisions of individual consumers and producers, it explains allocation, consumption and pricing.Or flow of goods and services from producers to consumers.Looks at production, consumption, allocation and pricing.
Command (Centrally planned)
Economic (Fundamental) questions planned by central government.
Cross breed of command and free market economies.
Factors of production determined by community leaders or social or cultural norms
Pure capitalist (Free market economy)
Factors of production controlled by market forces of demand and supply.
Types of economic systems
- Pure capitalist (Free market economy)
- Traditional system
- Mixed economy
- Command (Centrally planned)
A means by which a society makes economic decisions.Or is way society decides on the five Ws.
Name two key economic assumptions.
People act in self interest.
People make informed decision. (Consumers are rational)
Ceteris paribus is?
“Other variables held fixed”
A measure of something that can take on a different value.
Effort used to coordinate and produce goods and services
Human capital is?
Human knowledge and skills used to produce goods and services.
Physical capital is?
Objects made by humans to produce goods and services. E.g machines, buildings
Human physical and mental effort used to produce goods and services.
What are natural resources?
These are naturally occurring things used to produce good sand services. E.g land, oil
What are factors of production?
These are resources needed to produce goods and services.
What is the Production Possibility Curve/Frontier?
Graphical curve which shows a combination of two or more goods that can be produced in a country when all its resources are fully utilized.
The alternative choice forgone when making a choice. (The opportunity cost of something is what you sacrifice to get it)
The right decision one makes when purchasing using a preference scale.
Limit or shortage of resources in proportion to demand(population)
Fundamental questions in economics
- What to produce?
- How to produce?
- For whom, to produce?
- When to produce?
- Where to produce?
- This involves recommendations based on personal value judgment.
- It does not involve scientific proof or research.
Refers to objective economic statements that explain if certain conditions hold them, things can be expected to happen.It deals with issues that can be observed and explained scientifically. E.g. research
Name two branches of Economics
Functions of money
- Medium of exchange
- Store of wealth
- Standard of deferred payment
- Measure of value
- Enables specilisation
- Unity of account
Qualities of Money
- Security (against forgery)
What is micro-Economics?
This is the study of economic activities of individuals and small groups of economic agents(consumers, resource owners and producers).
What is Economics?
- This is the study of human behaviors and how we relate to the
- scarcity of resources.
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