2022 Advance Information Flashcards
What is the basic economic problem?
Resources are finite but wants are infinite
What 5 things should the PPC be used to show?
Maximum productive potential of an economy Economic growth that shifts the PPF Fully employed or unemployed resources Possible and unobtainable production Opportunity cost
Name four reasons why producers may not/fail to maximise profit.
Business performance influenced by behaviour of others
Having other objectives
Operating as social enterprises
Set up as registered charities
What are the 2 ‘Golden Rules’ of demand?
Any movement along the demand curve is price-related
Everything non-price related causes a shift
What are the 7 factors affecting demand?
Population Advertising Substitutes Income Fashion/trend/preference Interest rates Complements
How does population affect demand?
Direct relationship - as population increases, so does the demand for goods and services
How does advertising affect demand?
It increases customer awareness, therefore increasing demand for the good/service
How do substitutes affect demand?
If the price of a good increases, its demand decreases as its substitutes will be cheaper.
How does income affect demand?
Normal goods - Direct relationship
Inferior goods - Inverse relationship
What are normal goods?
Goods for which demand will increase if income increases (eg. luxury goods)
What are inferior goods?
Goods for which demand will increase if income decreases
How does fashion/trends/preference affect demand?
If a good/service is fashionable, demand for it will increase.
How do interest rates affect demand?
Inverse relationship - as they increase, demand for goods/services decreases
How do complements affect demand?
When the demand of a good increases, so does the demand of its complementary good.
What is a substitute good?
A good bought as an alternative to another but performs the same function
What are complementary goods?
Goods purchased together as they are consumed together
What are the two ‘Golden Rules’ of supply?
Any movement along the supply curve is price-related.
Everything else causes a shift.
Name the seven factors affecting supply.
Productivity Indirect tax No. of firms Technology Subsidies Weather Cost of production
How does productivity affect supply?
Direct relationship - as it increases, so does supply
How does indirect tax affect supply?
Inverse relationship - indirect taxes increase costs of production, therefore reducing supply
How does the number of firms affect supply?
The more firms there are, the more supply is created
How does technology affect supply?
New technology can increase efficiency and reduce cost of production, therefore increasing supply
How do subsidies affect supply?
Subsidies reduce costs of production therefore increasing supply
How does weather affect supply?
Good weather can improve crop yields, increasing supply but bad weather can decrease supply
How does the cost of production affect supply?
If production costs rise, firms will reduce supply as their profits will be reduced
Define ‘excess demand’.
Where demand is greater than supply and there are shortages in the market
Define ‘excess supply’.
Where supply is greater than demand and there are unsold goods in the market
What is the equation for PED?
PED = %∆ in QD ➗ %∆ in Price
What is the formula for PES?
PES = %∆ in QS ➗ %∆ in Price
What are the numerical ranges for each of the 3 types of YED?
Luxury goods: > 1
Normal goods: Always positive
Inferior goods: Always negative
What is a mixed economy?
An economy where goods and services are provided by the public and private sector
What is the public sector?
Any organisations owned/controlled by the government
What is the private sector?
Any organisations owned/controlled by individuals and firms
What are the four types of public sector organisations? Name an example of each.
Central government departments (eg. Central Bank)
Public corporations (eg. DEWA)
Local authority services (eg. KHDA)
Other public service organisations (eg. police)
What are the four aims of the public sector?
Improving quality of services
Minimising costs
Allowing for social costs and benefits
Profit
What are the three types of private sector organisations?
Sole Traders
Partnerships
Companies
What is the aim of the private sector?
They are usually driven on self-interest or profit maximisation but can have other objectives.
What are public goods?
Goods and services provided by the public sector
What are the 2 characteristics of public goods?
Non-excludability - no individual consumer can be excluded from or refuse consumption
Non-rivalry - consumption by one individual cannot reduce amount available to others
What is the free rider problem?
Involves individuals who enjoy the benefit of goods but allow others to pay for them
What are private goods?
Goods and services that are provided by the private sector
What is the relative importance of the public sector and private sector in different economies?
Some countries rely on public sector - has large stake in large commercial organisations
Other countries rely more on private sector
Define ‘external benefits’.
Positive spillover effects of consumption or production that bring benefits to third parties
Name five positive externalities.
Job creation Infrastructure development Training and education Research & development Improved technology
What are the 4 factors of production?
Land
Labour
Capital
Enterprise
What does the primary sector involve?
Any activities that extract resources from the Earth to provide essential raw materials
What does the secondary sector involve?
Any activities that turn raw materials/semi-finished goods into finished goods