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Microeconomics > 1.0 > Flashcards

1.0 Flashcards

1
Q

Positive statement

A

Statements that are objective and can be tested using evidence

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2
Q

Normative statement

A

Subjective statements which contain a value judgement

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3
Q

The economic problem

A

How can the available scarce resources be used to satisfy the infinite wants and needs of people as effectively as possible?

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4
Q

Economic problem solutions

A

What to produce
How to produce it
For whom to produce/ how to best allocate the produced goods and services

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5
Q

Opportunity cost

A

Th next best alternative forgone when an economic decision is made

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6
Q

Factors of production ( these are owned by households)

A

Capital
Enterprise
Labour
Land

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7
Q

Capital

A

Man made good used in the production of goods and services e.g. factories and schools

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8
Q

Enterprise

A

Willingness to make a risk to make a profit. Refers to the people (entrepreneurs) who take risk and create things from the other three factors of production.

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9
Q

Labour

A

The physical and mental effort that goes into producing a good or service

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10
Q

Labour force

A

The population who are able to work are called the labour force

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11
Q

Land

A

As well as actual territory land includes all of the earths natural resources :
1) non renewable (natural gas, oil, coal)
2) renewable (wind, tidal power)
3)materials (diamond, gold)
4)Water
5)animals

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12
Q

Payment of capital

A

Interest

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13
Q

Payment for enterprise

A

Profit

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14
Q

Payment of labour

A

Wages

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15
Q

Payment of land

A

Rent

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16
Q

Expenditure

A

Spending of income

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17
Q

Goods

A

Physical products you can touch

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18
Q

Economic systems

A

Network of organisations and institutions engaged within a society to allocate scarce resources in an attempt to maximise social welfare

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19
Q

Spectrum of economic systems defined by allocation

A

Pure command economy
Mixed economy
Pure market economy

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20
Q

Pure command economy

A

Resources are allocated outside/without markets via a planning mechanism

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21
Q

Mixed economy

A

Contains large market and non market sectors

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22
Q

Pure market economy

A

The price mechanism allocates resources in markets

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23
Q

Spectrum of economic systems defined by ownership

A

Communist economy
Mixed
Capitalist economy

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24
Q

Communist economy

A

The means of production are publicly owned

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25
Q

Mixed ownership economy

A

Mixed ownership of the means of production. Therefore it has large private sectors and public sectors

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26
Q

Capitalist economy

A

The means of production are privately owned

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27
Q

Market

A

A market is where buyers and sellers interact to trade (exchange) goods and services

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28
Q

Market operating freely

A
  1. Individual buyers and sellers decide; what, how, how much, where and when to trade
  2. Individual buyers and seller trade in reference to their own self interest
  3. Prices convey to the market participants information about self interest and opportunities.
29
Q

Three functions of market prices

A

1) signalling function: provides Clean information to buyers (consumers) and sellers (producers) about the market conditions
2) incentive function: creates incentives for households and firms that allows them to meet objectives based on their own self interest
3) rationing (allocating) function: The price mechanism allocates and rations scarce resources to households and firms who are most willing and able to pay in pursuit of self interest

30
Q

Production possibility curve (PPC)

A

Shows the maximum output combinations of two goods and services that can be produced utilising current resources’ and technology in a given period of time

31
Q

What is economic efficiency?

A

Allocative efficiency plus productive efficiency

32
Q

Definition of supply

A

The quantity that sellers are willing to and able to supply at a given price over a given period of time

33
Q

Definition of individual supply

A

Is the supply of one seller

34
Q

Definition of market supply

A

Is the total supply of all sellers in the market. Market supply is the sum of all the individual supply by sellers in a market

35
Q

What is the law of supply

A

Quantity supplied will usually increase as price increases, and quantity supplied will usually fall as price falls, ceteris paribus.

36
Q

Equation for price elasticity of supply

A

PES = %change in quantity supplied/ % change in price

37
Q

Contraction of supply curve

A

A contraction of supply occurs when there is a fall in quantity supplied due to a fall in price

38
Q

Extension of supply curve

A

An extension of supply occurs when there is an increase in quantity supplied due to an increase in the price of the product

39
Q

Economic efficiency

A

Allocative efficiency plus productive efficiency

40
Q

Allocative efficiency

A

Maximise social welfare
Consumer surplus + producer surplus

41
Q

Productive efficiency

A

Using all resources
Operating on the ppc

42
Q

Shift of ppc

A

Caused by a change in the quantity and/or quality of resources available in the economy, improvement in technology

43
Q

How does ppc show potential economic growth

A

An increase in a county’s potential productive capacity

44
Q

How does ppc show actual economic growth (short run economic growth )

A

The country experiences an actual output of goods and services produced

45
Q

Demand

A

The quantity that buyers are willing and able to buy at a given price in a given period of time

46
Q

What is the law of demand ?

A

The quantity demanded will usually increase as price falls, and vice versa ceteris paribus

47
Q

Demand function

A

I demand function is an equation that shows the mathematical relationship between the quantity demanded of a good and the various determinants of demand

48
Q

Determinants of demand

A

Price of product
Income of buyers
Price of substitute goods
Price of complimentary goods
Tastes and preferences of buyers
Expectations of future price

49
Q

Price elasticity of demand

A

PED = percentage change in quantity demanded/ percentage change in price level
PED =%deltaQd/%deltaP

50
Q

Contraction of demand

A

A contraction of demand occurs when there is a fall in quantity demanded due to an increase in the price level of a product. Shown by movement to the left

51
Q

An extension of demand

A

Occurs when there is an increase in quantity demanded due to a fall in the price of the product. Show by a movement to a right

52
Q

Income (wealth) effect

A

An increase in price leads to buyers being worse off. Their income is unchanged and therefore their income buys less of the given goods/service. This is likely to lead to an extension in demand.

53
Q

What is the substitution effect?

A

In increase in price leads to consumers/buyers being more likely to switch to buying an alternative product and is likely to lead to a contraction of demand. Vise versa

54
Q

What is division of labour

A

Where the production process is broken down into stages and workers are assigned different tasks

55
Q

What is specialisation

A

Where an individual, worker, firm, region or country produces a limited range of goods or services

56
Q

What is bartering

A

Is trade/exchange of goods or services for other goods or services without using a medium of exchange (such as money)

57
Q

Income elasticity of demand

A

%change in quantity demand/ %change in income
YED = %changeQd/%changeY

58
Q

Positive YED

A

Indicates a normal good

59
Q

Negative YED

A

Indicates an inferior good

60
Q

YED magnitude greater than 1

A

Indicates that a good or service is income elastic

61
Q

YED magnitude less than 1

A

Demand for good or service is income inelastic

62
Q

YED close to 0

A

Demand for good or service is relatively unresponsive to a change in income

63
Q

XED

A

%DeltaQd of good x/%deltaP y

64
Q

Positive XED

A

if there is a positive relationship the two goods are substitutes

65
Q

Negative XED

A

The two products are considered compliments

66
Q

XED > 1

A

Cross price elastic

67
Q

XED < 1

A

Cross price inelastic

68
Q

Movement of supply curve

A

Caused by a change in price

69
Q

Shifts in the supply curve

A

1) cost of raw materials
2)costs of labour
3) productivity
4) technology
5) interest payments ( cost of finance)
6) indirect taxes
All cost related

Microeconomics (2 decks)

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