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gcse Economics > Demand and Supply > Flashcards

Demand and Supply Flashcards

1
Q

What is the fundamental economic problem

A

We have unlimited wants but only limited resources

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2
Q

Why are the factors of production

A

Land
Labour
Capital
Enterprise

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3
Q

Opportunity cost definition

A

The cost of the next best alternative foregone

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4
Q

What does a command economy involve (6)

A

All resources owned by government

No private sector

No incentives as failing at to succeed won’t be punished and there are no fruits of success

Equal distribution of goods/ service and income

Loss of freedom and choice

No unemployment

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5
Q

What does a pure market economy involve (6)

A

No government, resources are allocated to consumers and producers

No public sector

There is no safety net so failure is very bad and successful people prosper so there is incentive to work

Unequal distribution of incomes

Freedom and choice

Unemployment

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6
Q

Demand definition

A

Demand must be effective and supported by the money to purchase it

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7
Q

What is the law of demand

A

There is an inverse relationship between price and demand

if price rises, demand falls

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8
Q

What causes movement along the demand curve

A

Price

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9
Q

What causes the demand curve to shift, quantity to increase/ decrease (6)

A 
Tastes and preferences
Population
Advertising
Price of substitute products
Price of complementary products
Income
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10
Q

Supply definition

A

The quantities that producers are willing and able to offer for sale at different prices during a specified period of time.

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11
Q

What is the law of supply

A

There is a positive relationship between price and supply (if price rises, higher quantities will be supplied at lower prices)

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12
Q

What causes movement along the supply curve

A

Price

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13
Q

What causes the supply curve to shift

A 
Number of producers
Cost of production
Efficiency of labour
Costs of production increases/ decreases
Tax
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14
Q

Equilibrium definition

A

The price mechanism brings together opposing factors of demand and supply snd creates an equilibrium. At this point demand equals supply and an equilibrium price and quantity sold are made

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15
Q

What is indirect tax and example

A

Tax imposed on producers
The producers can pass the burden to the consumers

E.g. VAT (value added tax)

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16
Q

Elasticity of demand definition

A

PED measures the responsiveness of demand to a change in price

17
Q

What affects the elasticity of demand (5)

A 
Close substitutes
High % of income
Necessity
Brand loyalty
(Addictive)
18
Q

Equation for PED

A

% change in quantity demand
= ________________________________
% change in price

19
Q

If the demand is inelastic what is the value of % change in price in relation to the % change in quantity demand

A

% change in QD is less than % change in P

20
Q

If the demand is elastic what is the value of % change in price in relation to % change in quantity demand

A

% change in QD is more than % change in P

21
Q

Why are cigarettes inelastic in demand

What is the change in price in relation to change in quantity

Why does the government intervene and what do they do (third parties?)

A

Addictive
No substitute products

Raise in price by 10% would result in a decrease in demand by less than 10%

Costs for treating and preventing smoking related issues are high so tax revenue covers costs (non smokers pay nothing)

22
Q

What should firms do if their PED is inelastic

What should they not do

A

They should increase price as the % change of QD is less than % change in P so TR increases 😄

Should not reduce price as TR will decrease 😩

23
Q

What should firms do if their PED is elastic

What should they not do

A

They should decrease price as the % change of QD is more than % change of P so TR increases 😄

Should not increase price as TR will decrease 😩

24
Q

Why does Coca Cola have inelastic elements (2)

Why does Coca Cola have elastic elements (2)

A

Inelastic:
Lots of brand loyalty
Low percentage of income

Elastic:
Not a necessity
Not addictive
Substitute products

25
Q

What is the elasticity of the good if the PED/ PES is greater than 1

A

Elastic

26
Q

What is the elasticity of the good if the PED/ PES is between 0 to 1

A

Inelastic

27
Q

What is the elasticity of the good if the PED is 0

A

Perfectly inelastic

28
Q

What is the elasticity of the good if the PED is infinity

A

Perfectly elastic

29
Q

Elasticity of supply definition

A

PES measures the responsiveness of of quantity supplied to a change in price

30
Q

Equation for PES

A

% change in quantity supplied
= ________________________________
% change in price

31
Q

Why will PES always be positive

A

If price rises, so will supply and vice versa

32
Q

What is the elasticity of the good if the PES is 1

A

Unit elastic (change in price is an equal proportion to change in quantity supplied)

33
Q

Wha determines supply elasticity (4)

A

Time frame
Spare production capacity available
Sticks available to meet changes in demand
Factor substitution possibilities

gcse Economics (11 decks)

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