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Economics > 2 The allocation of resources > Flashcards

2 The allocation of resources Flashcards

1
Q

Microeconomics

A

The study of individual consumers, individual firms and households in making decisions about resource allocation. It applies to different markets of goods and services.

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2
Q

Consumer

A

Any individual who has the ability and willingness to purchase goods and services for personal use.

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3
Q

Producer

A

An individual, firm or country that produces, allocates resources and supplies goods or services for sale.

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4
Q

Subsidies

A

A per-unit amount of money given by governments to firms to reduce their cost of production and increase the supply of goods and services.

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5
Q

Micro Decision maker

A

Household, firm, individuals

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6
Q

Macro Decision maker

A

Government

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7
Q

Macroeconomics

A

The study of the economy as a whole considers economic decisions and economic policies taken by the government to achieve overall economic growth.

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8
Q

Economy

A

Where goods and services are produced by firms and consumed by people.

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9
Q

Market system

A

A system that works to allocate scarce resources efficiently through the forces of demand and supply.

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10
Q

Price mechanism

A

The interaction of demand and supply that determines the prices of goods and services.

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11
Q

Market equilibrium

A

A situation in the market where at a given market price, demand for a product is equal to the supply of the product.

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12
Q

Surplus

A

When the quantity supplied of a good is larger than the quantity demanded in the market. The difference between the two is the surplus.

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13
Q

Shortage

A

When the quantity supplied of a good is smaller than the quantity demanded in the market. The difference between the two is the shortage.

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14
Q

Market disequilibrium

A

A situation in the market where the market demand for a product is not equal to the market supply of the product.

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15
Q

The three economic decisions

A

What to produce?
How to produce it?
For whom to produce?

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16
Q

Economic system

A

A system in which governments allocate resources towards the production and distribution of goods and services within a society or its geographical area.

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17
Q

Free market economy

A

A system in which all decisions on resource allocation are taken by private firms and individuals. There is little or no government involvement.

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18
Q

Public sector

A

A country’s economic sector is run and controlled by the government. It does not include any private businesses and households.

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19
Q

Mixed economy

A

A combination of a free market economy and a planned economy. Decisions about resource allocation are taken by private and public sectors.

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20
Q

Planned economy

A

All decisions about resource allocation, prices as well as how goods and services are produced and allocated are taken by public sector organisations.

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21
Q

Price mechanism

A

The interaction of demand and supply that determines the prices of goods and services.

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22
Q

Market

A

A place where a buyer buys and a seller sells

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23
Q

Price

A

The amount of money a product is worth

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24
Q

Supply

A

Is the ability and willingness of firms to provide goods and services at given price levels.

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25
Q

Demand

A

Is the ability of a product that consumers are willing to buy, able to buy at a price over a period of time.

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26
Q

The law of demand

A

When goods are cheap, people buy more, when a good is expensive people buy less

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27
Q

Substitute good

A

A good that can be used instead of another for the same purpose. If the price of one good increases, the demand for this good will decrease, and the demand for its substitute will increase.

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28
Q

Complementary good

A

Goods that have a joint demand. If the price for one good increases, the demand for it will decrease, and the demand for its complement will also decrease.

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29
Q

The law of supply

A

As price increases quantity supplied increases

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30
Q

Production

A

The process of turning a range of input resources into an output of goods or services that are required in the market.

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31
Q

Equilibrium price

A

A market price for a product where quantity demanded is equal to quantity supplied. There is no shortage or surplus in the market.

32
Q

Elasticity

A

The responsiveness of a factor to the change in the price of a good or service or any other change in one of its determinants.

33
Q

Price elastic

A

If a product is price elastic then an increase in its price will lead to a decrease in demand.

34
Q

Price inelastic

A

When a change in the price of a product causes a very small or minor change in the quantity demanded or quantity supplied for that product, the demand or supply for the product is said to be price inelastic.

35
Q

Elasticity Coefficient
How to calculate Elasticity

A

% Change in Quantity ÷ % Change in Price

36
Q

Unitary elastic demand

A

When a change in price leads to a proportionately equal change in the quantity demanded.

37
Q

Perfectly inelastic demand

A

When a change in price leads to no change in the quantity demanded.

38
Q

Perfectly elastic demand

A

When a tiny change in price would lead to an infinite change in the quantity demanded.

39
Q

Determinants of PED

A

Substitute
Proportion of income
Luxury or necessity
Addictive
Time

40
Q

Necessities

A

Goods that are essential, and are demanded proportionately less as the income of a person increases.

41
Q

Total revenue

A

Price x income

42
Q

Price elasticity of demand

A

The responsiveness of quantity demanded to changes in the price of a product.

43
Q

Price elasticity of supply

A

The responsiveness of quantity supplied to changes in the price of a product.

44
Q

Unitary elastic supply/demand

A

When a change in price leads to a proportionately equal change in the quantity supplied/demanded.

45
Q

Perfectly inelastic supply/demanded

A

When a change in price leads to no change in the quantity supplied/demanded.

46
Q

Perfectly elastic supply

A

When a tiny change in price would lead to an infinite change in the quantity supplied.

47
Q

Normal good

A

The more money you earn the more of it you buy
e.g. fresh vegatables

48
Q

Inferior good

A

the more money you earn the less you buy
e.g. frozen vegetabless

49
Q

The determinants of PES

A

Production lag
Stocks
Spare capacity
Substitutability of F.P
Time

50
Q

Free riders

A

People who benefit without paying

51
Q

Stakeholders

A

Group of people that are interested in or have a stake in the activities of a company or an economy.

52
Q

Private costs

A

Costs borne by those who are directly involved in the production and consumption of goods and services.

53
Q

External costs

A

Costs imposed on those who are not directly involved in the production and consumption of goods and services.
External costs are the negative spill-over costs to the third party

54
Q

Social costs

A

The total costs to society due to economic activity. The social cost is the sum of private costs and external costs.

55
Q

Causes of market failure

A

Underconsumption of merit goods
Over consumption of demerit goods

56
Q

Tragedy of the commons

A

The idea that common goods that everyone has access to are often misused and exploited.

57
Q

Negative externalities

A

Too much is bad
e.g. factory creating TVs
The government will tax these

58
Q

Positive externalities

A

The more the better
e.g. school
The government will subside these

59
Q

Regulatory policies

A

rules Established by government decree

60
Q

Market-based policies

A

Policies designed to manipulate market, prices and incentives to correct market failure.

61
Q

Merit good

A

A good with positive externalities that is under consumed and underproduced in a free market.

62
Q

Demerit good

A

A good with negative externalities that is overconsumed and overproduced in a free market.

63
Q

Market failure

A

Ineffective distribution of goods and services in a free market.

64
Q

Causes of market failure

A
  1. The existence of costs and benefits that do not go through the price mechanism.
  2. A lack of financial incentive to produce certain important products.
  3. Under or over-consumption of products if left to market forces.
  4. Lack of information for consumers or suppliers
  5. Firms exploiting their market power
  6. Problems moving resources(e.g. labour) from one use to another.
65
Q

Price controls

A

Controls are imposed by the government in the form of a minimum and maximum prices that can be charged to consumers.

66
Q

Indirect tax

A

Taxes are imposed by the government on spending to buy goods and services.

67
Q

Factors that affect demand

A

Price
Consumer tastes/preferences
Consumer Income
Prices of substitute/ complementary goods
Interest rates (price of borrowing money)
Consumer population (population increase = demand increase)

68
Q

Factors that affect supply

A

Cost of factors of production
Prices of other goods/services
Global factors
Technology advances
Business optimism/expectations

69
Q

Excess Supply causes

A

If the price is set too high, excess supply will be created within the economy and there will be allocative inefficiency

70
Q

Excess Demand causes

A

When price is set below the equilibrium price. Creates demand that exceeds production due to the low price.

71
Q

Consequences of Price Changes

A

An inward shift of the supply curve will increase prices and vice versa

An inward shift of the demand curve will decrease prices and vice versa

72
Q

What has to be done to raise revenue?

When demand is price inelastic:
When demand is price elastic:

A

An increase in price would raise revenue

A decrease in price would raise revenue

73
Q

Consequences of price changes: demand curve shifts to the right

A

increase in the demand and increase in prices

74
Q

Consequences of price changes: demand curve shifts to the left

A

a decrease in the demand and a decrease in prices

75
Q

Consequences of price changes: supply shifts to the right

A

increase in supply and decrease in prices.

76
Q

Consequences of price changes: supply shifts to the left

A

a decrease in supply and an increase in prices

Economics (6 decks)

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