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AS Economics AQA > 1-Economic methodology and the economic problem > Flashcards

1-Economic methodology and the economic problem Flashcards

1.1-Economic methodology 1.2 The nature and purpose of econmoic activity 1.3-Economic resources 1.4 Scarcity, choice and the allocation of resources 1.5-Production possibility diagrams

1
Q

Value judgement

A

Statement or opinions expressed that are not testable or cannot be verified and depend very much on the views of the individual and the values they hold

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2
Q

Normative statement

A

Opinions that require value judgement to be made

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3
Q

Positive statement

A

Statements that can be tested against real world data

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4
Q

What is the central purpose of economic activity?

A

The production of good and services to satsify need and wants and therby to improve economic welfare

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5
Q

captial

A

the stock of goods used to make other goods and services

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6
Q

Rewards for land is…

A

rent

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7
Q

Rewards for labour is…

A

wage

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8
Q

Rewards for capital is…

A

interest

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9
Q

Rewards for enterprise is…

A

profit

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10
Q

Production possibility frontier

A

Indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period

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11
Q

What factor shift the PPB to the right?

A

-investment in new technology
-introduction of new resources (minerals)
-increased supply of labour through increase in population and migration
-improvement in human capital and through education and training
-increased productivity
-encouraging entrepreneurship
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12
Q

Human capital

A

The skill, abilities, motivation and knowledge of labour. Improvements in human capital raise productivity and shift PPB to the right.

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13
Q

Productivity

A

Output per unit captal

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14
Q

What factors shift PPB to the left?

A 
Emmigration
Decline in investment in capital
Disease leading to a decline in human capital
War
Disaster
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15
Q

Productive efficency

A

This is achieved in an economy when it is not possible to make anyone better off without making someone worse off, or you cannot produce more of one good without makin less of another.

when its operating at its lowest point on its avg cost curve

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16
Q

Allocative efficency

A

Occurs when the available economic resources are used to produce the the combination of goods and services that best matches people’s taste and preferences.

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17
Q

Market failure

A

Occurs when the free market, left alone, fails to deliver an efficient allocation of resources

  • The result is loss of economic welfare
  • Results in economic inefficiency
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18
Q

Consumer surplus

A

Difference between how much a consumer is willing to pay and how much they do pay (in the market)
It’s a measure of welfare

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19
Q

Producer surpus

A

Difference between how much a producer is willing to sell the good at and how much they actually get from the free market
It’s a measure of welfare

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20
Q

missing market

A

Situation in which there is no market because the functions of price have broken down

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21
Q

Complete market failure

A

Results in a missing market

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22
Q

Partial market failure

A

Where a market exists but contributes to resource misallocation

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23
Q

What are the main causes of market failure

A

-Positive and negative externalities
-merit and demerit goods
-public goods
-monopoly and other market imperfections
-inequalities in the distribution of income and wealth
-factor immobility causing unemployment
-import information
PMPMIFI

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24
Q

Public good

A

A good that posses the characteristics of non excludability, non rivalry in consumption and it is non rejectable
In a free market public goods would exist m=but not at an optimal level

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25
Q

Non excluability

A

Once provided, no person can be excluded from benefiting
Non players can enjoy the benefits of consumption at no financial cost to them
These people are know as free riders

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26
Q

Free rider

A

A person or organisation which receives benefits that others have paid without making any contribution themselves

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27
Q

Non rivalry

A

Consumption of the good by one person does not reduce the amount of available for consumption by another person

28
Q

Non rejectable

A

If a public good is produced we cannot reject it

29
Q

Quasi public good

A

A good that has some of the qualities of a public good but does not fully possess the three required characteristics of non rivalry, non excluability, and non rejectability

30
Q

Private good

A

A good that is excludable, rival and rejectable in consumption

31
Q

Why does the state provide public goods?

A
  • Grounds of equity
  • grounds of efficiency
  • Overcome the free rider problem
  • because the market won’t
32
Q

Free market

A

Has no government intervention

33
Q

Externalities

A

Cost or benefits that spillover to third parties external to a market transaction

34
Q

Positive externalities

A

A positive spillover to third parties of a market transaction; social benefits exceed private benefits

35
Q

Negative externalities

A

A negative spillover effect to third parties of a market transaction; social costs exceed private cost

36
Q

MPC

A

The cost to an individual or firm of an economic transaction

37
Q

MEC

A

The spill over cost to third parties of an economic transaction

38
Q

MSC

A

The full cost to society of an economic transaction, including private and external cost

39
Q

MSC=

A

MPC + MEC

40
Q

Greater the price the lower the…

A

Consumer surplus

41
Q

more inelastic, more less consumer surplus

A

more inelastic -> more consumer surplus

42
Q

Marginal Private benefit

A

the benefit to an individual or firm of an economics transaction

43
Q

marginal external benefit

A

The spillover benefit to third parties of an economics transaction

44
Q

marginal social benefit

A

the full benefit of an economics transaction, includes private and external benefits

45
Q

marginal social benefit=

A

marginal private benefit + marginal external benefit

46
Q

Merit good

A

generates positive externalities, would be under consumed in a free market, as individuals do not fully perceive the benefits obtained from consumption

47
Q

Demerit good

A

consumption can lead to negative externalities, a good that would be over consumed in a free market, as it brings less overall benefit to consumers than they realise

48
Q

imperfect information

A

occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‘wrong’ choices

49
Q

asymmetric information

A

This is a situation where there is imperfect knowledge. In particular, it occurs where one party has different information to another

50
Q

Monopoly

A

A market structure dominated by a single seller of a good, a pure monopoly exists where only one firm supplies the market

51
Q

Evaluate monopolies

Bad and good things

A

competition is generally good for market

monopolies generally viewed as market failure

benefits: international competition, benefit from economies of scale

52
Q

Geographical immobility

A

workers find it difficult to move to where employment opportunities maybe due to family ties and differences in housing costs

53
Q

Why do we need factor mobility?

A
  • Evolving consumer tastes
  • can stifle productivity and lead to unemployment
  • cannot otherwise adapt to changing process of production brought about by R & D innovation
54
Q

A free good has 0 opportunity cost. T OR F

A

T

55
Q

why is competition desirable?

A

quality, choice, encourage innovation, lower price increase consumer surplus, should lead to allocative efficency

56
Q

What is state provision good for?

A
  • Public/quasi goods
  • Merit goods
  • Externalities, economic welfare, free rider problem
  • missing market
57
Q

What are the problems with state provision?

A 
Expensive
Opportunity costs
Pressure on the government budget
Burden on taxes
Already deficit
Conflicting objectives
58
Q

What would be some analysis and evaluation for advertising?

A

Analysis: Closes the information gap

Evaluation:Costs,
effectiveness,
best combined with other interventions,
prevention rather then quitting

59
Q

Government failure

A

When government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation.

-The costs of government intervention ma therefore exceed benefit

60
Q

What are some causes of government failure?

A
  • Imperfect information–> Amount of tax/subsidy (cant quantify externality), Regulation, government provision of goods
  • Conflicting objectives–> Political self interest, can lead to policy myopia (tenedency to look for st solution), disincentives
  • administrative costs–> Or value for money
  • Unintended consequences
61
Q

What 3 things must you include in 25 mark essay introduction?

A

2 definitions
Write the question
quote the extract

62
Q

What things could you include in 25 mark essay conclusion?

A
  • combinations of the interventions
  • In the ST, LT
  • It depends rule
63
Q

division of labour

A

Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks

64
Q

What does division of labour lead to?

A

Specialisation, increased productivity, lowering average costs and introduction of specialised machinery

65
Q

Specialisation

A

Worker only performing one task of a narrow range of tasks. Also different firms specialising different goods or services.

AS Economics AQA (8 decks)

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