1.1 The Market System Flashcards
Finite
Having an end or a limit
Infinite
Without limits
Basic economic problem
Allocation of a nation’s scarce resources between competing uses that represent infinite wants
Scarce resources
Amount of resources available when supply is limited
Opportunity cost
Cost of the next best alternative given up (when making a choice)
Expenditure
Spending by a government, usually a national government
Capital goods
Those purchased by firms and used to produce other goods such as factories machinery, tools and equipment
Consumer goods
Those purchased by households (food, confectionery, cars, tablets and furniture)
Production possibility curve (PPC)
Line that shows the different combination of two goods an economy can produce if all resources are used up
Economic growth
Increase in the level of output by a nation
Maximise
To increase something such as profit, satisfaction or income as much as possible
Revenue
Money that a business receives over a period of time especially from selling goods or services
Enterprise
Companies, organisations or businesses
Administration
Activities involved with managing and organising the work of a company or organisation
Demand curve
Line drawn a graph that shows how much of a good will be bought at different prices
Demand schedule
Table of the quantity demanded of a good at different price levels - can be used to calculated the expected quantity demand
Effective demand
Amount of goods people are willing to buy at given price over a given period of time supported by the ability to pay
Inverse relationship
(between price and quantity demanded) when price goes up, quantity demand falls and when price does down the quantity demand rises.
Shift in demand curve
Movement to the left or right of the entire demand curve when there is a change in any factor affecting demand expect the price
Factors that shift the demand curve
ATRIBE
Advertising
Taste and Preferences
Related goods prices (substitutes and compliments)
Income distribution (changes in income, normal/ inferior goods)
Buyers (population, number of consumers)
Expectations (future prices, seasonal)
Disposable income
Income that is available to someone over a period of time to spend; it includes state benefits but excludes direct taxes
Inferior goods
Goods for which demand will fall if income rises or rise if income falls
Normal goods
Goods for which demand will increase if income increases or falls if income falls
Substitute goods
Goods bought as an alternative to another but perform the same function
Complementary goods
Goods purchased together because they are consumed together
Supply
Amount that producers are willing to offer for sale at different prices in a given period of time
Supply curve
Line drawn on a group which shows how much of a good sellers are willing to supply at different prices
Proportionate relationship
(between price and the quantity supplied) when price goes up, the quantity supplied also goes up and when price goes down, quantity supplied also goes down
Shift in the supply curve
Movement to the left or right of the entire supply curve when there is any change in the conditions of supply expect for price
Factors that shift the supply curve
STORES
Subsides and Taxes
Technology
Other related goods prices (joint or competitive)
Expectations of producers (future prices)
Size of the market
Indirect taxes
Taxes levied on spending such as VAT
Consumption
Amount of goods, services, energy, or natural materials used in a particular period of time
Subsidy
Money that is paid by a government or organisation to make prices lower, reduce the cost of producing goods or providing a service, usually to encourage production of certain goods
Equilibrium price
Price at which supply and demand are equal
Market clearing price (equilibrium price)
Price at which the amount supplied in a market matches exactly the amount demanded
Total revenue
Amount of money generated from the sales of goods calculated by multiplying price by quantity (TR = P x Q)
Excess demand
Where demand is greater than supply and there are shortages in the market
Excess supply
Where supply is greater than demand and there are unsold goods in the market.
Price elasticity of demand (PED)
The responsiveness of demand to a change in price
Inelastic demand
Change in price results in a proportionally smaller change in quantity demanded (price inelastic)
Elastic demand
Change in price results in a proportionally greater change in the quantity demanded (price elastic)
Price elasticity of demand (PED)
PED = % change in quantity demanded / % change in price
Perfectly elastic
Demand where PED = infinite (an increase in price will result in zero demand)
Perfectly inelastic
Demand where PED = 0 (a change in price will result in no change in the quantity demanded)
Unitary elasticity
Where PED = -1 (the responsiveness of demand is proportionally equal to the change in price)
Factor of PED (price elasticity of demand)
SPLAT-B
Substitues
Perfect angle of income
Luxury/Necessity
Addictiveness
Time
Brand loyalty
Price elasticity of supply (PES)
Responsiveness of supply to a change in price
Inelastic supply
Change in price results in a proportionally smaller change in quantity supplied (price inelastic)
Elastic supply
Change in price results in a proportionally greater change in quantity supplied (price elastic)
Price elasticity of supply (PES) calculate
PES = % change in quantity supplied / % change in price
Perfectly elastic
PES = infinite (producers will supply an infinite amount at the given price)
Perfectly inelastic
PES = 0 (the quantity supplied is fixed and cannot be adjusted whatever the price)
Unitary elasticity
PES = 1 (a change in price will be matched by an identical change in the quantity supplied)
Factors of PES (price elasticity of supply)
FAST
Factor of production
Availability in stocks
Spare capacity
Time
Income elasticity of demand (YED)
Responsiveness of demand to a change in income
Income elasticity of demand (YED)
% change in quantity demanded / % change in income
Interpreting value (YED)
Normal Necessity (between 0 - 1) (positive)
Normal Luxury (more than 1)
Inferior (less than 0) (negative)
Excise duty
Government tax on certain goods (such as cigarettes), alcoholic drinks and petroleum that are sold in the country
Valued-added tax (VAT)
Tax on some goods and services - business pay valued-added tax on most goods and service they buy and if they are VAT registered, charge value-added tax on the goods and services they sell.
Economy
system that attempts to solve the basic economic problem
Private Sector
provision of goods and services by businesses that are owned by individuals or groups of individuals
Public Sector
government organisations that provide goods and services in the economy.
Shareholders
people or organisations that owns shares in a company
Dividend
part of a company’s profit that is divided among with the people with shares in the company
Assets
things or resources belonging to an individual or business that has value or power to earn money
Liabilities
amount of debt that is owed or must be paid.
Market failure
where market leads to inefficiency
Mixed economy
economy where goods and services are provided by both the private and public sectors.
Merit goods
goods that are under-provided by the private sector
Public goods
goods that are not likely to be provided by the private sector. (non-excludability) (non-rivalry)
Free-rider
individual who enjoys the benefits of a good but allows others to pay for it.
Privatisation
act or selling a company or activity controlled by the government to private investors.
Monopolies
situation where a business activity controlled by only one company or by the government, and other companies do not compete with it,
Nationalised industries
public corroborations previously part of the private sector that were taken into state ownership
Natural monopolies
situation that occurs when one firm in a industry can serve the entire market at a lower cost than would be possible if the insured were composed of many smaller firms
Diversified
if a company or economy diversifies, it increases the range of goods or services it produces
Hostile takeover
Takeover that the company being taken over does not want or agree to
Takeovers
Act of getting control of a company by buying over 50% of its shares
Spillover effect
Effect that one situation or problem has on another situatiom
External costs
Negative spillover effect of consumption / production that negatively affect third parties
