Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Economics: MicroeconomicS > chapter 5 > Flashcards

chapter 5 Flashcards

1
Q

what are the types of goods

A

private goods
public goods
quasi public goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

define private good

A

a good, that’s excludable and rival

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what are the 2 characteristics that make goods private

A

excludability
diminshibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

example of excludability

A

a shopkeeper can prevent people from consuming the goods on display in her shop unless prepared to pay for them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

example of diminshibility

A

if you eat a chocolate bar, other people cannot eat that chocolate bar

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

define public good

A

a good that’s non-excludable and non-rivalry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what are the two characteristics that public goods display

A

non-excludable
non-diminshable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

define market failure

A

market mechanism leads to a misallocation of resources in the economy, either completely failing to provide a good or service or providing the wrong quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

define quasi-public good

A

a good which is not fully non rival and/or where its possible to exclude people from consuming the product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

example of pure public good

A

police and national defence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what makes a good a pure public good

A

mpossible to exclude free-riders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

examples of quasi public goods

A

street lightning, roads, television, radio programmes and lighthouses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

TRUE or FALSE quasi public goods can be provided by the market

A

TRUE
Quasi public goods can be provided by markets, but as they are non-rival and non-diminishable you must provide that good for free

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what are the 4 functions of price

A

The signalling function
The incentive function
The rationing function
The allocative function

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

define signalling function of price

A

prices provide information to buyers + sellers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what does signalling function of price help consumers do

A

Prices provide information that allows buyers and sellers in a market to plan and coordinate their economic activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

define incentive function of price

A

prices creates incentive for people to alter their economic behaviour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

example of the incentive function influencing a firm

A

A higher market price creates incentives for producers to supply more of a good or service because they that larger profits can be made

for example a higher price creates an incentive for firms to supply more of a good or service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

TRUE or FALSE is information influenced by relative prices

A

TRUE
The information signalled by relative prices e.g prices of strawberries relative to the price of raspberries creates incentive for people to alter their economic behaviour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

how is the incentive function shown on a diagram

A

The incentive function of a price rise is shown by an extension of supply along the market supply curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

TRUE OR FALSE a fall in price reduces price/supply

A

Falling prices reduce profits and hence the incentive to supply the product declines

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

define rationing function of price

A

rising prices ration demand for a product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what does the rationing function do to goods

A

The rationing function distributes scarce goods to those consumers who value them most highly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

how is the rationing function shown in a diagram

A

At p1 the prices rises to remove the excess demand, the rising price, reflects the strength of consumer preference and their ability to pay, the function rations demand for the good

The rationing function of prices is depicted by the movement up the right hand arrow in the diagram, shows a contraction of demand along demand curve

Demand contracts until excess demand is eliminated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
define allocative function of price
changing relative prices allocate scarce resources away from markets in which there's excess demand
26
explain the effect of the allocative function of price on the market
The allocative function directs resources between markets away from markets which are prices are too high and which there's excess supply towards those where there's excess demand with low prices
27
define externalities
Externalities are the spill-over effects from production and consumption for which no appropriate compensation is paid/received
28
what are the 4 type of externalities
Positive Production Externalities Negative Production Externalities Positive Consumption Externalities Negative Consumption Externalities
29
define positive externalities
Occurs when the consumption or production of a good causes a benefit to a third party, where the social benefit is greater than the private cost
30
define negative externalities
Occurs when the consumption or production of a good causes a cost to the third party, where the social cost is greater than the private cost
31
is positive production externality good or bad for supply
Good, in supply
32
is negative production good or bad for supply
bad, in supply
33
what does MPC stand for
marginal private cost
34
what does MSC stand for
marginal social cost
35
what does MPB stand for
marginal private benefit
36
what does MSB stand for
marginal social benefit
37
what is an example of a positive production externality
For example, the production of milk/dairy the manure can be used for fertiliser which leads to better crops
38
does positive production externality cause MPC or MPB to shift rightwards to MSC
MPC shifts rightwards to MSC
39
on a positive production externality diagram what does MPB = ?
MPB = MSB
40
does positive production externality show a fall or rise in price
fall
41
does a positive production externality diagram display over or under production
underproduction
42
what would occur if we knew the positive outcomes of production of a good/service
If we were aware of the positive outcomes of externalities the firm would supply more of the good/service
43
positive production externality creates a new equilibrium at P2 Q2 what does this mean?
a new equilibrium at P2 Q2, showing we should produce more than we currently do
44
what is an example of negative production externality
For example, a factory producing CO2, releasing into the atmosphere
45
does a negative production externality diagram display an inward shift of MPC or MPB to MSC
There is an inward shift of MPC to MSC
46
on a negative production externality diagram what does MPB = ?
MSB
47
does negative production externality diagram cause a fall or rise in price
rise in price
48
what would occur if we knew the negative impacts of negative production externality
If the firm knew the damage they were causing to third parties they would supply less
49
negative production externality creates a new equilibrium at P2 Q2 what does this mean?
This causes a new equilibrium at P2 Q2, meaning we currently overproduce.
50
example of positive consumption externality
For example, eating fruit and vegetables makes you healthy, less strain on the NHS
51
on a positive consumption externality diagram does MSC or MPB shift rightwards to MSB
MPB will shift rightwards to MSB
52
on a positive consumption externality diagram what does MPC = ?
MPC = MSC
53
does price rise or fall on a positive consumption externality diagram
rise
54
what would occur if we knew the positives of consuming a good/service with positive consumption externality
If we realised the benefits of eating healthier on the third party we would consume more.
55
are we under or over consuming goods/services with positive consumption externalities
under consuming
56
positive consumption externality creates a new equilibrium at P2 Q2 what does this mean?
This shifts demand rightwards and forms a new equilibrium P2 Q2 we currently under consume.
57
what is an example of negative consumption externality
For example, smoking/drinking causes great strain on the NHS
58
on a negative consumption externality diagram does the MPB or MSC shift inwards to MSB
MPB shifts inwards to MSB
59
what does MPC = ? on a negative externality diagram
MPC = MSC
60
what would occur if we knew the negatives of consuming a good/service with negative consumption externality
If we realised the damage we were causing to the third party they would consume less
61
do we over or under consume goods/services with negative consumption externalities
Over consume
62
negative consumption externality creates a new equilibrium at P2 Q2 what does this mean?
This shifts demand to the left and forms a new equilibrium at p2 Q2. We currently overconsume
63
define government intervention
occurs when the government put restriction in place to alter the amount of the good produced or consumed
64
examples of government intervention hint: S.T.R.I.P.S.M.M
Subsidies Taxation Regulation Information Pollution permit State provision Minimum price Maximum price
65
what are subsidies
Money given to firms by the government for merit goods (good for society)
66
example of subsidies
solar panels
67
do subsidies increase or decrease supply what does this cause price to do
increase supply and decrease prices causing more people to buy good/service
68
evaluation: positives of subsidies
merit goods become more accessible
69
evaluation: negatives of subsidies
Government revenue is used (could lead to a rise in tax) People potentially do not invest in subsidy
70
do subsidies cause a rightward OR inward shift of supply
71
define taxation
A fee paid to the government by a firm producing demerit goods (bad for society, goods with negative externalities)
72
example of taxation
alcohol
73
what does taxation cause a firm to do in terms of supply and price
Firms have less money so they supply less → prices will increase
74
does taxation cause a rightward or inward shift of supply on a diagram
inward
75
evaluation: positives of taxation
High tax revenue (used for subsidy / NHS) Controls demerit good consumption
76
evaluation: negatives of taxation
Doesn't always work as people will pay (inelastic good) Does Not affect the ‘rich’ so much
77
define regualtion
Rules about consumption of a good/service, toughest regulation = ban
78
example of regulation
E.g alcohol can only be purchased 18+ in the uk
79
what does regulation cause consumers to do and its effect on price
Regulation decreases demand, therefore price falls
80
does regulation cause demand to shift rightwards or inwards
demand shifts inwards
81
evaluation: positives of regulation
Long term health implication 18 allows for more informed decisions Fines, increase government revenue
82
evaluation: negatives of regulation
Doesn't always work due to lack of enforcement or lies
83
define information
Knowledge shared in a good or service
84
example of information
anti smoking poster, poster on healthy eating
85
evaluation: positives of information
Changes demand for the better Information is quick and cheap
86
evaluation: negatives of information
People don't always listen False information
87
define pollution permit
Purchasable permits/allowance of how much pollution you can produce.
88
example of pollution permits
E.g co2 trading permit → price increases every year to encourage less co2 production
89
evaluation: positives of pollution permits
In theory polluters should reduce how much they produce Government revenue for NHS/investment in renewable energy
90
evaluation: negatives of pollution permits
Larger companies can buy as many as they like whereas smaller companies can be exploited by large companies reselling them at a higher charge Difficult to measure the amount of pollution they produce
91
define state provision
Goods and services provided ‘free’ by the government
92
what is an example of state provision
schools, NHS and welfare systems in the UK
93
does state provision cause an inward or rightward shift in demand
a rightward shift in demand
94
evaluation: positives of state provision
Long term prospects Equality, same opportunities
95
evaluation: negatives of state provision
Very expensive for government People take advantage such as the NHS’s long waiting lists and being overused by the public
96
define minimum price
The lowest price a good can be sold for to discourage consumption (demerit goods)
97
example of minimum price
minimum price for alcohol in scotland
98
on a S/D diagram is minimum price above or below the equilibrium
above!
99
evaluation: positives of minimum price
controls/discourage demerit good consumption
100
evaluation: negatives of minimum price
People still buy the good (inelastic) addiction/rich Excess supply, causing a disequilibrium – could end up with a black market
101
does minimum price lead to a excess demand or supply
excess supply
102
define maximum price
The highest price a good can be sold for to encourage consumption of merit goods
103
examples of maximum price
E.g merit good, maximum price on heating cap/energy cap
104
on an S/D diagram is maximum price set above or below the equilibrium
below!
105
does maximum price lead to excess supply or demand
excess demand
106
evaluation: positives of maximum price intervention
Prices fall to help with costs
107
evaluation: negatives of maximum price intervention
Not enough supply, excess demand Who pays for the difference between P1 and max price
108
when does government failure occur
Occurs when an intervention leads to a deeper market failure or even worse a new market failure
109
what could government intervention cause impacting the economy negativly
Intervention causes further inefficiencies – misallocation of resources + loss of economic and social welfare
110
why does government failure occur?
Policies may have damaging long term consequences for the economy/society Policies may be ineffective in meeting their stated aims Policies may create more losers than winners
111
what are some of the causes of government failure
Political self interest Poor value for money Policy short-termism Regulatory capture Conflicting objectives Bureaucracy and red tape Unintended consequences

Economics: MicroeconomicS (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions