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.Economics - Nilay > AS Economics 2021 > Flashcards

AS Economics 2021 Flashcards

1
Q

What is the basic economic problem

A

Scarcity - Wants are unlimited and resources are finite, so choices must be made.

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2
Q

What is opportunity cost

A

The next best opportunity forgone when making a choice

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3
Q

What 3 things must be considered when producing goods

A

What to produce
How to produce it
For whom to produce

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4
Q

What term refers to all other things being held equal and constant

A

Ceteris Paribus

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5
Q

What is the Law of diminishing returns

A

The idea that each extra unit of a good or service consumed gives the consumer less utility

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6
Q

What does thinking at the margin refer to

A

To think about the what next step or action means for the consumer

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7
Q

What are the 3 periods of time

A

Short run,
long run,
very long run

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8
Q

What does short run mean for production

A

At least one factor of production is fixed, there is a limit on the extent at which it can respond to price changes

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9
Q

What does long run mean for production

A

All factors of production are variable, firms can increase production capacity by increasing factors of production.

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10
Q

What does very long run mean for production?

A

All factors are variable, and are out of the firm’s control.

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11
Q

What are positive statements

A

They are objective, can be tested with factual evidence and can be accepted or rejected.

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12
Q

What are normative statements

A

Statements based on value judgements. They are subjective and based on opinion rather than facts.

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13
Q

What are the factors of production - CELL

A

Capital
Entrepreneurship
Land
Labour

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14
Q

What are capital goods

A

Goods which can be used in the production of other goods.

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15
Q

What is meant by entreprenuership

A

Managerial ability - someone who takes risks and innovates.

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16
Q

What is meant by land

A

Natural resources such as oil, coal, wheat, water

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17
Q

What is meant by labour

A

Human capital - the workforce

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18
Q

What is specialisation

A

When each worker completes a specific task in the production process.

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19
Q

What is a free market economy

A

An economy where decisions are taken by private individuals and firms and private individuals own everything. No government intervention.

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20
Q

Advantages of a free market economy

A

Firms are likely to be efficient
Bureaucracy from govt intervention avoided
Some argue people have more freedom

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21
Q

Disadvantages of a free market economy

A

Ignores inequality
There could be monopolies
Demerit goods overconsumed, merit goods underprovided.

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22
Q

What is a planned economy

A

Where the government allocates all scarce resources to where they think its needed.

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23
Q

Advantages of a planned economy

A

Easier to coordinate resources in a crisis
Government can compensate for market failure
Inequality reduced

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24
Q

Disadvantages of planned economy

A

Governments fail - don’t know what to produce.
May not meet consumer preferences
Limits democracy and personal freedom

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25
Q

What is a mixed economy

A

A mix between planned and free market, where governments try to subsidise merit goods and tax demerit goods.

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26
Q

What is does a PPC show

A

The maximum productive potential of an economy, using a combination of 2 good or services, when resources are fully and efficiently employed.

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27
Q

What does a straight line PPC represent?

A

When the opportunity cost is constant. However this is not realistic.

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28
Q

What are 4 functions of money

A
  • A medium of exchange
  • A measure of value
  • A store of value
  • A method of deferred payment
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29
Q

What is a cheque

A

An order to pay a bank a certain amount from the drawer’s account

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30
Q

What is near money

A

An asset which can be converted into cash easily.

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31
Q

What is liquidity

A

The availability of liquid assets such as cash.

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32
Q

What is an excludable good.

A

A good which can only ne consumed by one consumer or the other.

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33
Q

What are public goods.

A

Goods missing from the free market, but are beneficial to society. E.g street lamps. They are NON Excludable

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34
Q

What are private goods.

A

Goods which are rival and excludable.

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35
Q

What are economic goods.

A

Goods which benefit society, but have the problem of scarcity and have an opportunity cost.

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36
Q

What are free goods.

A

Good which have no opporunity cost, because there is no scarcity of that good. E.g water and air.

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37
Q

What are merit goods.

A

Goods with positive externalities, e.g healthcare and education. Underprovided in the free market and are often subsidised by the government.

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38
Q

What are demerit goods.

A

Goods with negative externalities, e.g. tobacco, alcohol. Overprovided usually and sometimes taxed by government.

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39
Q

What is effective demand

A

The quantity consumers are willing to buy at the current market price.

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40
Q

What is individual demand

A

the demand of an individual or firm, measured by the quantity bought at a certain price at one point in time

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41
Q

What is market demand

A

The sum of all individual demands in a market.

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42
Q

What are the factors that shift the demand curve?

Hint: PIRATES

A
  • Population, higher population, higher demand
  • Income, higher income, higher demand
  • Related goods, Substitutes and Complements
  • Advertising
  • Tastes and Preferences
  • Expectations, of future price changes etc.
  • Seasons, e.g. Ice cream higher demand in summer
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43
Q

What is individual supply

A

The supply that a producer is willing and able to sell at a given price in a given period of time

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44
Q

What is market supply

A

The sum of all individual supplies in a market.

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45
Q

Why do supply curves slope up

A
  • If price increases, firms are more tempted to supply the good as it brings more profit.
  • With larger output, firms need to charge more to cover the additional costs.
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46
Q

What are the factors that shift the supply curve?

Hint: PINTSWC

A
  • Productivity
  • Indirect taxes
  • Number of firms
  • Technology
  • Subsidies
  • Weather
  • Cost of production.
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47
Q

What is the PED formula

A

PED = %ΔQD / %ΔP

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48
Q

What is a unitary elastic good

A

A good that has a change in demand which is equal to the change in price

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49
Q

What are 7 factors influencing PED

A
  • Necessity - more necessary, less elastic
  • Substitutes - more substitutes, more elastic
  • Addictiveness - more addictive, less elastic
  • Proportion of income spent on good
  • Durability of good - More durable, more elastic
  • Peak and off-peak demand - on peak, less elastic
50
Q

What is the formula for total revenue

A

TR = Average price x Quantity sold

51
Q

What is the formula for YED

A

YED = %ΔQD / %ΔY

52
Q

What is the formula for XED

A

XED = %ΔQD of good A / %ΔP of good B

53
Q

What is price elasticity of supply

A

The responsiveness of a change in supply to a change in price.

54
Q

What are 5 factors influencing PES

A
  • Time scale
  • Spare capacity
  • Level of stocks
  • How substitutable factors are
  • Barriers to entry in the market
55
Q

What is a market shortage

A

When the quantity demanded is greater than the quantity supplied.

56
Q

What is a market surplus

A

When the quantity supplied is greater than the quantity demanded

57
Q

What is joint supply

A

When the increasing supply of one good causes the increase or decrease of supply of another good.

58
Q

What does the price mechanism do

A

Determines the market price.

59
Q

What 3 functions does the price mechanism use to allocate resources

A
  • Rationing
  • Transmission of preferences
  • Signalling
60
Q

What is consumer surplus

A

The difference between the price the consumer is willing and able to pay and the price they actually pay.

61
Q

What is producer surplus

A

The difference between the price the producer is willing to charge and the price they actually charge.

62
Q

What is economic welfare.

A

The total benefit society receives from an economic transaction.

63
Q

What us a maximum price

A

A price set by the government where the consumption or production of a good is to be encouraged.

64
Q

What is a minimum price

A

A price set by the government where the consumption or production of a good is to be discouraged.

65
Q

What is an example of maximum price set

A

Price caps on data roaming in the EU

66
Q

What is an example of minimum price set

A

The minimum wage

67
Q

What are direct taxes

A

Taxes which are paid directly to the government from the tax payer.

68
Q

What are indirect taxes

A

Taxes which increase production costs for consumers, resulting in an increase in market price.

69
Q

What is ad valorem tax - give an example

A

Taxes which are percentages, such as GST.

70
Q

What are specific taxes - give an example

A

A set tax per unit, such as 15c per litre of petrol.

71
Q

What is a producer subsidy

A

A payment from the government to lower costs of production to increase supply.

72
Q

What is a consumer subsidy

A

A subsidy encouraging consumers to buy more of a particular good.

73
Q

What is state provision of public goods

A

When the government provides public goods which are underprovided in the free market.

74
Q

What is provision of information

A

When it is made mandatory to make information public so consumers and firms can make informed economic decisions.

75
Q

What is the equation that makes up aggregate demand

A

C + I + G + (X-M)

76
Q

What are the determinants of aggregate demand

A

Consumer spending
Investment
Government spending
Exports - Imports

77
Q

What are 3 influences on consumer spending

A

Interest rates
Consumer confidence
Wealth effects

78
Q

What is an example of wealth effect

A

If the price of a house rises, the owner consequently has more wealth

79
Q

What are 5 influences on investment

A 
Rate of economic growth
Business expectations/confidence
Demand for exports
Interest rates
Access to credit
80
Q

What is an example of government spending

A

Welfare benefit

81
Q

Define AS

A

The total supply of goods and services produced within an economy at a given overall price in a given period

82
Q

Define AD

A

The total amount of demand for all finished goods and services produced in an economy

83
Q

Why is the LRAS curve vertical

A

Price is assumed not to change as price changes in the long run

84
Q

3 factors influencing AS

A

Cost of labour
Cost of materials
Government intervention

85
Q

Define inflation

A

An increase in the general price level over time.

86
Q

Define deflation

A

A decrease in the general price level over time.

87
Q

Define disinflation

A

A period over which the rate of inflation decreases.

88
Q

What is real GDP

A

The value of GDP adjusted for inflation.

89
Q

What is nominal GDP

A

The value of GDP without being adjusted for inflation. Can sometimes be misleading.

90
Q

What is demand pull inflation

A

Inflation caused by a rise in AD which exceeds AS. Causes the general price level to increase.

91
Q

What are 3 triggers for demand pull inflation

A

Depreciation in exchange rate
Fiscal policies decreasing taxes, increases AD
Lower interest rates increase AD

92
Q

What is cost push inflation

A

A rise in the general price level caused by a decrease in AS, falling below AD.

93
Q

What are 3 triggers for cost push inflation

A

Increase in raw material prices
Increase in labour costs
Expectations of inflation
Indirect taxes

94
Q

Affect of inflation on consumers

A

Real value of debt decreases.

Real value of income decreases.

95
Q

Affect of inflation on firms

A

Interest rates are likely to be higher, so firms are less likely to invest.
Costs of production increase.
Less price competitive.

96
Q

What are 3 components of balance of payments

A

The current account
Capital account and financial account
Balancing item

97
Q

What is balance of payments equilibrium

A

The sum of accounts is zero - inflows match outflows. There are no current account deficits or surpluses.

98
Q

What are 5 causes of current account deficits or surpluses

A 
Appreciation of currency
Economic growth
Deindustrialisation
Membership of trade union
Attractiveness to foreign investors
99
Q

Define nominal exchange rate

A

The weight of one currency relative to another, NOT adjusted for inflation

100
Q

Define real exchange rate

A

Exchange rate which has been adjusted for inflation

101
Q

Define trade-weighted exchange rate

A

The weighted average exchange rate, of the domestic currency relative to foreign currencies. The more the domestic country trades with the foreign country, the greater the weight of their currency.

102
Q

Define floating exchange rate

A

The exchange rate which is determined by the forces of supply and demand.

103
Q

Define fixed exchange rate

A

An exchange rate with a value determined by the government

104
Q

Define managed float

A

A floating exchange rate which is influenced by the central bank buying or selling currencies.

105
Q

8 factors influencing changes in exchange rate

A 
Inflation
Interest rates
Speculation
Other currencies
Government finances
Balance of payments
International competitiveness
Government intervention
106
Q

What is the marshall-lerner condition

A

States that the devaluation in a currency only improves the balance of trade if the absolute sum of long run export and import demand elasticities is greater than or equal to 1.

107
Q

What is the J-curve effect

A

Occurs when a currency is devalued. This causes imports to become more expensive, which worsens the deficit. Eventually, the value of exports decreases, which leads to a reduction in the trade deficit.

108
Q

What is the effect of an appreciating exchange rate on AD

A

AD is likely to fall since imports become cheaper and exports become more expensive.

109
Q

Define absolute advantage

A

If a country can produce a good or service using fewer resources or at a lower cost than another country

110
Q

Define comparative advantage

A

If a country can produce a good or service at a lower opportunity cost than another country.

111
Q

What is an example of a free trade area

A

European union

112
Q

What is trade diversion

A

When trade shifts to a less efficient producer. usually due to external tarrifs.

113
Q

Define protectionism

A

The act of guarding a country’s domestic industries from foreign competition.

114
Q

What are 5 methods of protectionism

A 
Tariffs
Import duties/quotas
Export subsidies
Embargoes
Excessive administrative burdens
115
Q

Define fiscal policy

A

The use of government spending and revenues from taxation to influence AD.

116
Q

What is the aim of fiscal policy

A

To stimulate growth and stabilise the economy

117
Q

What is expansionary fiscal policy

A

Aims to increase AD. Governments increase spending or reduce taxes to do this.

118
Q

What is deflationary fiscal policy

A

Aims to decrease AD. Governments reduce spending or increase taxes to achieve this.

119
Q

What is monetary policy.

A

Policy used to control the money flow of the economy. This is done with interest rates and quantitative easing.

120
Q

What is quantitative easing

A

Asset purchase by the government to increase the money supply.

121
Q

What is the aim of supply side policies?

A

To improve the long run productive potential of the economy.

.Economics - Nilay (1 decks)

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