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Flashcards · J205 · Topic 1

Introduction to economics flashcards

19 cards on Topic 1, subtopics 1.1 to 1.2. Pick a subtopic or study them all.

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1.1 Main economic groups and factors of production

Consumer, producer and government: the role of each economic group
Consumers buy goods and services to meet wants (and supply labour). Producers make goods or provide services using factors of production. Government taxes, spends, regulates and provides public services.
Explain how consumers, producers and government are interdependent
Households supply labour; firms pay wages; households spend on firms' output; both pay tax; government spends on services both use. Each group both gives to and receives from the others: a two-way flow.
A higher tax on businesses: trace the knock-on effects through the economic groups
Lower profit → less investment and fewer jobs → lower household spending → lower sales and lower tax receipts. Evaluate: it depends on how long it lasts and what the tax funds.
Land and labour, with their rewards
Land: natural resources, and space (reward: rent). Labour: people's physical and mental work (reward: wages).
Capital and enterprise, with their rewards
Capital: man-made equipment used to produce (reward: interest). Enterprise: organising factors and taking risks (reward: profit).
A bakery rents a shop unit, hires two staff, buys an oven and is run by an owner who takes the risk. Classify each factor.
Shop unit: land (rent). Staff: labour (wages). Oven: capital (interest), a man-made resource, not money. Owner: enterprise (profit).
Labour-intensive and capital-intensive production
Labour-intensive: uses a high proportion of labour. Capital-intensive: uses a high proportion of machinery and equipment.
8 workers make 400 units. After buying a machine, 6 workers make 720. What happens to output per worker?
Before: 400 ÷ 8 = 50 units each. After: 720 ÷ 6 = 120 each. Then compare cost per unit and comment on jobs, risk and demand.
What does the choice between labour-intensive and capital-intensive methods depend on?
The relative prices of the factors, the type of product, the scale of production, the skills available and the level of demand.

1.2 The basic economic problem

Scarcity
Resources are limited relative to wants.
Unlimited wants
People always want more; satisfying one want creates others.
Opportunity cost
The gain from the best use you passed up: the next best alternative, not the total of all alternatives.
Scarcity versus shortage
Scarcity is permanent and applies to every economy. A shortage is temporary and affects one product.
The four questions of the basic economic problem
Allocation: how to share limited resources between uses, and who decides. What to produce. How to produce (labour- or capital-intensive). For whom (who receives the output).
A hairdresser has 480 minutes a day. A haircut takes 30 minutes and a colouring 120. What is the opportunity cost of one colouring?
120 ÷ 30 = 4 haircuts. A full day gives either 16 haircuts or 4 colourings.
A student gives up a 6-hour shift at £9 an hour for a trip. If the shift was her best alternative, what is the opportunity cost?
6 × £9 = £54 of earnings given up.
Economic, social and environmental sustainability: the question to ask for each
Economic: can it keep generating income and jobs? Social: does it support well-being and fairness over time? Environmental: does it protect natural resources?
A framework for evaluating an economic choice
List money and non-money costs and benefits; group them as economic, social and environmental; say who gains and who loses; compare size and timing (short against long term); reach a judgement and say what it depends on.
Why does every economic group face scarcity?
Consumers have limited income and time, producers have limited factors, and the government has limited tax revenue. So each group must choose, and each choice has an opportunity cost.

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