AS Unit 1: Basic Economic Ideas and Resource Allocation Flashcards

Question

The market economy

Answer 1

Resources are allocated by the forces of demand and supply through the price mechanism Allocation decision are made by individuals and firms (government has little or no direct involvement)

Answer 2

Excess supply from firms - fall in price - firms less willing to supply - increase in price - firms now willing to supply - increase in supply

Answer 3

Should not interfere in the operation of the price mechanism. They only interfere when it doesn't provide the best allocation of resources When the price mechanism doesn't work efficiently the market fails The government provides goods that would be under or not provided and price regulation

Answer 4

The government has a central role in all allocation decisions Production targets are set for the main sectors of the economy The ownership of productive resources and property is the state Some prices are controlled causing excess demand

Answer 5

Both the public and private sector make allocation decisions. Decisions involve an interaction between firms, labour and the government through the market mechanism Privatisation is the transfer of resources form public to private ownerships The reliability of market forces has caused unemployment in manufacturing for example when factories move.

Answer 6

In an economy, what is produced is determined by the quantity and quality of resources available. The PPC shows the maximum level of output of 2 goods and services that can be produced. Any point exactly on the curve represents a production situation where output is maximised The end point of the PPC represents the extreme possibilities of production Any point on the PPC indicates an efficient allocation of resources

Answer 7

On a straight line, the opportunity cost of switching production from one good to another is constant On a curve, the reduction in output of one good is matched by a greater increase in the other

Answer 8

When a PPC is curved and steep, in order to produce more of one good an increasing amount of productive capacity has to be given up from the other or vice vers When the PPC is a straight line, opportunity cost does not change as the economy shift production. Constant opportunity costs are due to factors of production being equally sioted to the production of both goods

Answer 9

The process of deciding whether to give up some of one good in order to obtain another

Answer 10

Over time there is technological advance in most forms of production so productivity increases. The curve for one good will change position

Answer 11

A shift means the productive capacity of the economy has changed: A shift to the right indicates an increase in productive capacity A shift to the left indicates a decrease in productive capacity

Answer 12

More resources become available. The productive capacity of an economy increases when more resources become available or they increase in quality There is technological change. Advances in technology continue over time which affects the position of the PPC. Where overall change is positive, more of both goods can be produced.

Answer 13

Scarce resources need to be allocated to meet present needs in low-income countries. By allocating more resources to capital, economic growth will increase in the long-run

Answer 14

A good is excludable if other consumers can be prevented from using or consuming it A good is rival if only one person can consume it and in doing so the good is not available for other consumers

Answer 15

The fundamental economic problem only arises when dealing with private goods. They are also called economic goods since the resources used to make them are scarce. Therefore a price is charged. They are bought and consumed for the consumers benefit. They have 2 main characteristics: Excludability: done through charging a price. If the price is not acceptable, the good won't be consumed Rivalry: the consumption by one person reduces the availability for others

Answer 16

Have no opportunity cost since consumption is not limited by scarcity. They have no prices and no factors of production are required to produce them

Answer 17

Have 2 main characteristics: Non-excludable: once the good has been provided form one consumer, it is impossible to stop anyone else from benefitting from the good Non-rival: as more people consume a good, the benefit to those already consuming the product is not reduced

Answer 18

Some goods appear to be public goods but do not meet both characteristics

Answer 19

The market in a market economy may not produce these goods. There may be a consumer demand fro them by the market doesn't have a mechanism for guaranteeing their production. The free-rider problem arises when people enjoy the benefits of a public good without having paid for it. This is due to their non-excludability Private firms seek profit so they would not produce these products The existence of public goods may mean scarce resources are not used properly People may wish for the provision of such goods but the demand wouldn't register

Answer 20

A good which is desirable but is underprovided by the market

Answer 21

A product which is undesirable and overprovided by the market

Answer 22

Arises when consumers don't recognise how good or bad a product is. Either they don't have the correct information or they lack some information. The internet and labelling helps consumers decide

Answer 23

When consumers aren't aware of the benefits or harmfulness of a particular product When persuasive advertising results in consumption levels that are not good When product packaging makes misleading or inaccurate claims When producers know more about a product than consumers

Answer 24

Consumers may recognise the benefits of merit goods but lack the disposable income to buy. All forms of education should benefit the individual and the economy. A healthy population benefits individuals and the economy. Consumers may be ignorant or indifferent to the harmful effects of demerit goods