Les bases de l'économie (document en anglais)

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Basic Economic Concepts

1. What are the 3 basic economic questions

 What to produce:

To produce one thing requires giving up another: . Economic products are goods or services that are useful, relatively scarce and transferable to others

 How to produce it: assembly line (little labor) or more people, small company or multinational

 For whom to produce: who will get it (not available to someone else)

2. Define a good and a service

A good is a tangible commodity. A service is intangible: work performed for someone else

3. Difference between consumer goods and capital goods

A consumer good is intended for final use for individuals

A capital good is a manufactured good used to produce other goods and services

4. The 4 factors of production

 Land: all natural resources not created by humans

 Capital or capital goods: tools, equipment, and factories used to produce goods and services

 Labor: people’s physical and mental talents, receives a wage.

 Entrepreneurs: risk takers in search of profit.

5. Define Opportunity cost

the opportunity cost=value of the next best alternative use of money, time or resources when one choice is made rather than another (what is given up)

6. Analyse the Production Possibilities Curve

7. Define value and wealth

Value: Monetary worth of a good or service as determined by the market. A good has monetary value if it is scarce and has utility.

Wealth It is the accumulation of products that are tangible, scarce, useful and transferable from one person to another.

The wealth that a nation produces is measured by the GDP(gross domestic product):the national output during a year.

8. Difference between the factor market and the product market

factor markets: where factors of productions are bought and sold: entrepreneur hire labor, acquire land, borrow money

product market: where individuals spend their income they got form the factor market.

Efficiency achieved: a, b, c

Inefficiency: all resources not used point e

Unaitainable: not enough resources

Point d

Opportunity cost to move from a to b: to produce 100 more clothing, the production of 30 has to be given up.

How can the economy move to point d: economic growth

=) more resources: population, stock of capital more land

=) more productivity: more can be produced with the same amount of resources.

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y

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9. The circular Flow of economic activity

You must be able to label the different flows.

10. How are the 3 basic economic question answered in the 3 economic systems

 Traditional Economy: The allocation of scarce resources and nearly all other economic activities stems from ritual, habit or custom

 Command Economy: The economy relies on a central authority makes most of the what, how and for whom decisions.

 Market Economy: Consumers decide WHAT, businesses decide HOW and FOR WHOM according to who is willing and able to pay.

11. Difference between Communism, Socialism and Capitalism

Demand and Supply

12. Define demand

Demand is the different quantities of goods that consumers are willing and able to buy at different prices.

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13. The law of demand

The law of demand states: there is an INVERSE relationship between price and quantity demanded.

P Quantity demanded As price falls, quantity demanded goes up

P Quantity demanded As price rises, Quantity demanded falls

14. Change in demand and change in quantity demanded

Change in quantity demanded Change in demand

Only a change in price can cause a change in People decide to buy ≠ amount of product at the same

Quantity demanded. Movement along the curve. price. The entire curve shifts.

15. Define the inelastic demand

Inelastic = Insensitive to a change in price , people will continue to buy the product even if the price changes.

Characteristics of the goods: Few substitutes, necessities, small portion of income or required now Ex Salt, gasoline, medical care

16. Define the elastic demand

Elastic = very sensitive to a change in price. A relatively small change in price causes a relatively large change in the Quantity demanded.

Characteristics of the goods: Many substitutes, luxuries, large portion of income or plenty of time to decide.

Ex: sodas, boots, beef, real estate, luxury goods

17. Define supply and the law of supply

Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.

Law of supply: t here is a DIRECT relationship between prices and quantity supplied. Why? At higher price, profit seeking firms have an incentive to produce more.

P Quantity demanded As price falls, the quantity

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