Fundamentals of Economics
Scarcity in economics is what?
Limited resources and unlimited wants.
What is the law of demand?
When price increases, quantity demanded decreases.
What is equilibrium in a market?
The point where quantity demanded equals quantity supplied.
What are the four factors of production?
Land, labour, capital and enterprise.
A product that can replace another product is called what?
A substitute good.
What is opportunity cost?
The value of the next best alternative forgone.
What happens to demand if the price of a product increases?
Quantity demanded falls.
What occurs when price is above equilibrium?
A surplus (excess supply).
What does a point inside a Production Possibility Frontier represent?
Underemployed or inefficient use of resources.
If consumers become more health conscious, what happens to demand for healthy food?
Demand increases (shift right).
Give an example of a factor of production and explain it.
Labour – human effort used to produce goods and services.
Land - Trees required to create cricket bats
Capital - Machinery required for mining
Enterprise/Entrepreneurship - Elon Musk
If streaming services become more popular during a sports tournament, what happens to demand?
Demand increases (shift right).
What happens if price is below equilibrium?
A shortage occurs (excess demand).
What does the Production Possibility Frontier show?
The maximum output combinations an economy can produce with limited resources.
If fertiliser prices increase for farmers, what happens to supply of vegetables?
Supply decreases (shift left).
Explain why scarcity forces individuals and societies to make choices.
Because resources are limited, choices must be made about how they are allocated.
List and explain each non-price determinant of supply.
PRESENTS
If demand increases but supply stays the same, what happens to equilibrium price?
Price increases.
What is the opportunity cost of moving along a PPF curve?
The amount of one good sacrificed to produce more of another.
Floods damaging watermelon crops would affect which curve and how in the market for watermelons? Explain the non-price determinant.
Supply decreases (shift left).
Negative Supply Shock.
Explain the relationship between price and demand.
It is inverse – when price rises demand falls, and when price falls demand rises.
Explain why a demand curve slopes downward and the supply curve slopes upward.
Because consumers buy more at lower prices and less at higher prices.
Because producers supply more at higher prices and less at lower prices - profit.
A severe drought reduces wheat harvests across Australia at the same time that global demand for wheat increases due to population growth and higher bread consumption. Using supply and demand theory, explain what will most likely happen to the equilibrium price and equilibrium quantity in the wheat market.
Supply decreases due to the drought (shift left) and demand increases due to higher global demand (shift right). The equilibrium price will increase. The change in equilibrium quantity is uncertain because it depends on whether the demand increase or the supply decrease is larger.
Explain what the circular flow of income shows. Adress each component.
The movement of money, goods and services between households, businesses, government, Banks, and the overseas market. It also shows where leakages and injections occur.
List and explain each non-price determinant of Demand
PIRATES