section 2

• what is microeconomics?

  Study of the behavior and decisions of households and firms, and the performance of individual markets
• what is macroeconomics?

  The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
• who are the economic agents?

  households, firms and government
• what are the macroeconomic objectives?

  economic growth, full employment, low inflation, payments stability and redistribution of income
• what are the 3 key allocation decisions?

  1. What to produce 2. How to produce 3. For whom to produce
• what is and economic system?

  the institutions, organisations and mechanisms that influence economic behavior and determine how resources are allocated
• 3 economic systems?

  planned, mixed and market
• what is the planned economic system?

  A system where the government makes crucial decisions, land and capital are state owned and resources are allocated by directives
• what is mixed economic system?

  A mixed economic system combines elements of both planned and market economies.
• what is market economic system?

  economy where there is no government intervention, consumers determine what is produced, resources are allocated by the price mechanism, land and capital are privately owned
• what is price mechanism?

  The interaction of supply and demand to determine prices in a market economy.
• demand is the willingness and ability to buy a product
• supply is the amount of a good or service that is available to buyers at a given price
• market equilibrium is when the supply curve and the demand curve intersect at a point where the price is equal to the equilibrium price
• what are the conditions of demand?

  changes in income, changes in price of related products, advertising campaigns, changes in fashion and changes in population
• there is a positive relationship between supply and price
• causes of change in supply?

  cost of production, improvements in technology, taxes (direct and indirect), subsidies, weather conditions, prices of other products, war and new discoveries
• what is capital intensive?

  use of high proportion of capital relative to labour
• what is labour intensive?

  use of high proportion of Labour relative to capital
• what is market disequilibrium?

  a situation where demand and supply are not equal at the current price
• what is market disequilibrium?

  when supply and demand are not equal at the current price because there is excess in demand (shortage) or excess in supply (surplus)
• demand and price are inversely related
• what is extension in demand?

  a rise in the quantity demanded caused by a fall in the price of the product itself
• what is a contraction in demand?

  a fall in quantity demanded caused by a rise in the price of a product itself
• an increase in demand causes the demand curve to shift to the right
• what are normal goods?

  a product whose demand increases when income increases and decreases when income falls
• what are inferior goods?

  a product whose demand decreases when income increases and increases when income falls
• a decrease in demand shifts demand curve to the left
• what is an extension in supply?

  aa rise in the quantity supplied caused by a rise of a product itself
• what is a contraction in supply?

  a fall in the quantity supplied caused by a fall in the price of a product itself
• when there is an increase in supply, the supply curve shifts to the right
• when there is a decrease in supply, the supply curve shifts to the left
• what is a subsidy?

  a payment by a government to encourage the production or consumption of a product
• what are direct taxes?

  taxes on the income and wealth of individuals and firms
• what are indirect taxes?

  taxes imposed on goods and services