1.1 Micro Economics Flashcards
What is the basic economic problem?
There is a infinite number of wants and needs but a limited number of resources
What is the economic system?
3 questions designed to solve the economic problem:
What to produce?
How to produce?
For whom to produce for?
What is economic growth?
An increase in quality or output in a nation, which usually shown on a PPC
What are the factors that affect a PPC?
New technology
Improved efficiency
Increase in education and training
New resources
Resource depletion
What are some factors that lead to resource depletion?
Natural disasters
War
Finite resources ran out
Workers emigrate
When would a consumer most likely not make a rational decision when buying?
Lack of information
Brand loyalty
Influence of others
Influence of substances
When would a company most likely not make a rational decision when buying?
People are working off commission
Alternative objectives (E.G charity)
Lack of information
What are some factors that may shift the demand curve?
Marketing
Income
Fashion & tastes
Price of substitutes
Price of compliments
Demographic changes
What are some factors that may shift the supply curve?
Production cost
New technology
Indirect taxes
Subsidies
Natural factors
What is Price elasticity of demand
Level of responsiveness of demand when there is a change in price
What is Price elasticity of supply
Level of responsiveness of supply when there is a change in price
What is income elasticity
Level of responsiveness of demand when there is a change in income
Also displays what type of good a product is:
Necessity
Luxury
Normal
Inferior good
What does price elastic mean
People are responsive to a change in the price of the product
What does price inelastic mean
People aren’t responsive to a change in the price of the product
What is the formula for P.E.D
%change in demand / %change in price
What is the formula for P.E.S
%Change in supply / %change in price
What is the formula for income elasticity
%change in demand / &change in income
What is P.E.D / P.E.S / Income elasticity if:
=1
>1
<1
= Infinity
= 0
If = 1 it’s unitary elastic
if > 1 it’s elastic
if < 1 its inelastic
if = infinity it’s perfectly elastic
if = 0 it’s perfectly inelastic
What are some factors affecting P.E.D
- Availability of substitutes
- Degree of income
- Proportion of income spent on product
- Time
What are some factors affecting P.E.S
- Availability of stocks
- Space capacity
- Time
What is the reason a business would look at income elasticity?
To plan ahead, making sure there’s enough space for an inelastic product when income rises
What is privatisation
The act of selling a government-controlled company to private investors
What is a mixed economy?
An economy where goods and services are provided by both the public and private sector
What is a planned economy
An economy that relies heavily on the public sector
