econ final year 10 Flashcards
(226 cards)
1
Q
what are factor rewards
A
payments different factors of production require to recieve in order to participate in productive activity.
2
Q
what is the factor rewards owners of land often require and who do they get it from. give an example
A
owners of land usually require payment of rent to supply resources to firms
eg- for the purpose of farming or extraction of oil
3
Q
what factor rewards do people who supply labour get
A
people will supply labour to firms in return for payments called wages
4
Q
list 2 factors which affect wages
A
the area where a person works and what work they do
5
Q
what factor rewards do banks get
A
banks give loans to firms for various purposes like investment in capital goods which is expensive and then the money lent is charged with interest.
6
Q
what factor rewards do firms get
A
profit is the reward for undertaking risk.
7
Q
what is profit
A
if a firm earns more revenue than costs, there is a surplus left called profit.
8
Q
what is a loss
A
if a firms costs are more than its revenue then it is called a loss
9
Q
what is factor mobility
A
factor mobility refers to the ease with which resources or factors of production can be moved from one productive activity to another without incurring significant costs or loss of output.
10
Q
what are the 2 types of factor mobility
A
occupational mobility, geographic mobility
11
Q
define occupational mobility
A
this refers to the ability to move factors between different productive tasks. this can be between different firms in the same industry or between different industries
12
Q
give an example of occupational mobility between different firms in the same industry and an example between different industries
A
different firms- selling equipment from one manufacturer to another
different industries- a worker moving from a car manufacturer to a clothing manufacturer
13
Q
what is geographic mobility
A
the ability to move factors of production to different locations
14
Q
give an example of geo. mobility
A
when labour moves between different countries
15
Q
why is labour immobile (2 points)
A
- many workers are geographically mobile, because many workers do not like to move away from their families to new job locations.
- many workers have specialized skills and may not be able to learn new skills due to reasons such as age and expenses.
16
Q
why is geo. immobility prominent in developed nations
A
- moving houses can be expensive
17
Q
why are many natural and human made resources immobile
A
because they cannot be used in different production activities so if they have no other use, they create a wastage of resources.
18
Q
why is land as a resource geographically immobile with example
A
this is because land in most cases cannot be moved physically to a new geographic location without significant costs. for example, certain areas have fertile land suitable for crops while some dont.
19
Q
why is capital geographically mobile with example (2 points)
A
this is because most capital goods are easy to transport. for example, tools and equipment can be transported in ships.
a lot tools and equipment like axes can be used for different purposes.
20
Q
how can labour be mobile
A
by investing in different skills which can be used in different areas.
21
Q
how can factor quantity of labour be increased (3 points)
A
- increase wages
- increase in population of working age
- improvements in healthcare will help people live longer and reduce the amount of days people are absent due to sickness
22
Q
how can labour factor quality be increased
A
training and education can improve skills of the worker as well as the amount and range of goods and services they can produce.
23
Q
how can factor quantity of capital be increased (2 points)
A
increased production of capital goods by producers
increase in interest payments will increase the amount of capital, investors are willing to supply
24
Q
how can capital quality be increased
A
advances in technology improve speed and accuracy of modern equipment
25
how can enterprise quantity be increased (2 points)
- an increase in prices consumers are willing to pay for goods and services may encourage more people to start firms
- a rise in unemployment and a fall in no. of paid jobs may result in more people starting businesses
26
how can enterprise quality be increased (2 points)
- more and better training courses on entrepreneurship
| - more and better support for new entrepreneurs.
27
what is an economy
an economy is an area where there is production and exchange of goods and services
28
what is production
using inputs (resources) to make outputs (goods and services) to satisfy the needs and wants of consumers.
29
what is consumption
the use of goods and services to satisfy human needs and wants
30
what is exchange
the purchase of goods and services by an entity not produced by it.
31
what is exchanged in a modern economy
money for goods and services
32
what are the 4 fop
land, enterprise, labour, capital
33
define land
land refers to all the natural resources on our planet
34
define labour
the physical and mental effort provided by people to design, make and sell economic goods and services.
35
define enterprise
the ability to organize production in a firm.
36
define capital
all the human made resources used to produce goods and services
37
who are entrepreneurs
a person who invests money into a business and has the risk taking ability to conduct his business.
38
what do entrepreneurs do
they identify a gap in the market for a product/service and use the fop to produce it. if they are succesfull, they make a profit.
39
what are consumer goods
an economic good that satisfies an immediate consumer need or want
40
what are capital goods
goods which do not satisfy any immediate human wants but they are used in the production of other goods and services.
41
what is the buying of capital goods called
investment
42
what are merit goods
goods and services that benefit people but they cannot afford to pay for them so the government pays for it
43
what are public goods
goods and services provided by the government.
44
what is self sufficiency
when each person or community produces all the goods and services they want for themselves
45
what is specialisation
when people concentrate on doing things that they are the best at.
46
what is division of labour
when the production process is broken down according to different tasks
47
define producers
the people and organizations which make and sell goods and services.
48
what is resource allocation
it involves deciding how best to use scarce resources to satisfy as many needs and wants as possible.
49
define opportunity cost
the benefits/value of the next best alternative forgone
50
what do ppcs show
the maximum combined output of two products a firm or an entire economy can produce with its available resources and technology
51
when are resources being used efficiently
when they are producing their maximum output.
52
at what point on a ppc is there said to be unattainable allocation
outside the curve
53
at what point on a ppc is there said to be inefficient allocation
inside the curve
54
what is the basic economic problem
human wants are unlimited but resources are scarce
55
what are the 3 fundamental economic questions, explain them in one sentence,
what to produce (what kind of goods and services should be produce)
how to produce (what productive resources are used to produce goods and services.)
for whom to produce (who gets to have the goods and services)
56
differentiate between human needs are wants`
human needs are needed to be satisfied to survive
human wants are not needed to be satisfied to survive.
human wants are unlimited.
57
what is consumer spending called
consumption expenditure
58
what are the two types of consumer goods
consumer durable goods, non durable goods
59
what are consumer durable goods
goods which last a long time like cars
60
what are non durable goods
goods which are perishable or used up quickly`
61
what are the 4 type of goods
capital goods, merit goods, consumer goods, public goods
62
what are economic goods
goods which have some degree of scarcity in relation to demand
63
what are free goods
a good that is not scarce and available without limit and thus people dont pay for them.
64
what does an outward shift of the ppc indicate
increase in the quantity or quality of resources available to an economy
65
what does an inward shift of the ppc indicate
a reduction in the quantity or quality of resources available to an economy
66
list 3 economic systems
market economy system, planned economy, mixed economy system
67
define a free market economic system
all decisions are taken by private sector organizations and individuals and there is no public sector.
68
define a planned economic system
all decisions are taken by the government and there is no private sector.
69
what is a monopoly
a firm that is able to dominate or control market supply of a product.
70
what are the 3 sectors in an economy
primary sector
secondary sector
tertiary sector
71
what does the primary sector include
it involves the use/extraction of natural resources
72
what does the secondary sector include
it involves the manufacture of goods using the resources from the primary sector
73
what does the tertiary sector incude
all services provided in an economy
74
what is supply
the amount of goods and services producers are willing and able to sell to consumers at any given price is known as quantity supplied
75
what is the law of supply
the law of supply states that ceteris paribus, a higher price leads to a higher quantity supplied and that a lower price leads to a lower quantity supplied
76
what is extension in supply
ceteris paribus, increase in quantity supplied due to the increase in prices which leads to upward movement along the supply curve
77
what is contraction of supply
ceteris paribus, decrease in quantity supplied due to decrease in prices leads to downward movement along the supply curve
78
when does a supply curve shift
whenever a non price factor influencing supply changes
79
what does a rightward shift in supply curve indicate
increase in supply
80
what does a leftward shift in supply curve indicate
decrease in supply
81
what is equilibrium
when quantity supplied and quantity demanded are equal, there is no surplus or shortage
82
what is surplus
when the supplied quantity exceeds the quantity demanded at a given price
83
what happens to price when there is excess supply
price falls until equilibrium is restored
84
what is excess demand
when the quantity demanded exceeds the quantity supplied at a given price
85
what happens to price when there is excess demand
price tends to rise until equilbirium is restored.
86
what happends to the demand curve when there is an increase in demand
it will cause the demand curve to shift to the right and create temporary shortage which will lead to increased price and increased q demanded
87
what happens to the demand curve if there is a decrease in demand
the demand curve will shift to the left which will create temporary surplus which causes lower price and decreased quantity demanded
88
what happens to the demand curve if there is an increase in supply
the supply curve will shift to the right creating temporary surplus causing lower prices and increased quantity supplied
89
what happens to the supply curve if there is a decrease in supply
shift in curve to the left creating temp. shortage causing increased prices and increased quantity demanded
90
what is demand
willingness and ability to purchase a good or service at any given price
91
what is individual demand
demand of just one customer
92
what is market demand
the total demand for that product from all its consumers
93
what is law of demand
ceteris paribus, if price of a good or a service increases, quantity demanded decreases and vice versa.
94
what is contraction in demand
ceteris paribus, when price increases quantity demand decreases. there is a upward movement along demand curve
95
what is extension in demand
ceteris paribus, when price decreases, quantity demanded increases. there is a downward movement along demand curve.
96
what is increase in demand
consumers now demand more of a product at each and every price than they did before and demand curve will shif to the right.
97
what is decrease in demand
consumers now demand less of a product at each and every price than they did before and the demand curve will shift to the left.
98
what is ped
measure of responsiveness of q demanded to a change in p
99
what is formula of ped
%change in q demanded/% change in price
100
what is elastic demand
when change in price leads to greater change in qty demanded, PED>1
101
what is inelastic demand
when change in price leads to smaller change in q demanded, PED<1
102
what is perfectly inelastic demand
rise or fall in the price causes no change in q demanded. PED = 0
103
what is perfectly
| elastic demand
demand at a certain price is infinite. ped = infinite
104
what is unitary elastic demand
when change in price = change in quantity demanded. ped=1
105
what is total revenue
the amount paid by buyers and received by sellers of a good
TR = P x Q
106
what should firms do if goods have elastic demand
reduce prices to increase profit
107
what should firms do if goods have inelastic demand
increase prices to increase profits
108
what is pes
measure of responsiveness of quantity supplied to a change in price
109
pes formula
%change in q supplied/%change in price
110
what is elastic supply
when changes in p lead to greater changes in q, PES>1
111
what is inelastic supply
change in price results in smaller change in qty supplied, PES<1
112
what is perfectly elastic supply
producers are prepared to supply any amount at a given price. pes = infinite
113
what is perfectly inelastic supply
a price change will not affect supply at all. pes = 0
114
what are indirect taxes
taxes placed on goods and services
115
what is the effect of indirect taxes
increasing market price and reducing the qty traded
116
what are income taxes
taxes levied on incomes of households and firms
117
list 3 purposes of indirect taxes
- generate tax revenue for a government
- discourage consumption of harmful products
- encourage consumption of good products
118
list 2 types of indirect tax
specific, ad valorem
119
how does a specific unit tax affect the supply curve
it shifts up the supply curve by the full amount of the tax so the new curve is parallel to the original one
120
how will a percentage tax affect the supply curve
the curve will be shifted up by a certain percentage meaning that the new supply curve will not be parallel to the original.
121
what are subsidies
an incentive given by the government to individuals or businesses in the form of cash, grants that improve the supply of certain goods and services.
122
how does a subsidy affect the firms supply curved
the supply curve shifts to the right as cop reduces.
123
what are social costs
social costs are the total costs borne by the society. social costs = private costs + external costs
124
what is private cost
the private cost is any cost that a person or firm pays in order to buy or produce goods and services.
125
how does private cost cause market failure
it doesnt take into account any negative effects or harm caused as a result of the product leading to overallocation.
126
what are external costs
a cost incurred by a third party not responsible for the harmful activity.
127
what are negative
| externalities
a negative externality imposes external costs on third parties who did not agree to the action.
128
what are social benefits
total benefits borne by the society. social benefits = private benefits + external benefits
129
what are private benefits
Private benefit is the benefit derived by parties directly involved in a transaction
130
what are external benefits
the benefits gained by third parties who are not involved in the economic transaction.
131
why is there underproduction and uncerconsumption of merit goods
individuals and firms only think of their benefit and not the benefit of the entire society.
132
what are the disadvantages of the market economic system caused by
market failure
133
what is market failure
inefficient allocation of resources
134
when does market failure happen
when free markets fail to produce outcomes in terms of prices and quantities that are socially or economically desirable.
135
what does market failure result in
misallocation of resources and a reduction in social and economic welfare
136
how can economic welfare be improved when total social benefit > social cost
by encouraging more production and consumption
137
how can economic welfare be improved if total social cost > total social benefit
by reducing production and consumptions
138
list 2 ways external costs can be reduced
- raising indirect taxes on firms with activities that create external costs
- use regulations to regulate the production or consumption of products (eg: smoking bans)
139
lists 3 ways to correct positive externalities
- ensure public sector provision of socially and economically desirable goods and services
- provide subsidies to private sector firms to reduce the cost of activities and products that have external benefits
- use regulation to encourage firms to change their production methods
140
what can government do if public goods arent supplied
it can pay for provision of public goods like street lighting, policing and flood defences using money from taxes
141
what can government do if few merit goods are supplied and consumed
it can directly employ fop to increase the supply of healthcare and education available to people. this provision can be paid from taxes so that its free and everyone can consume them.
142
what can governments do if demerit goods are oversupplied and consumed, 3 points
it can ban the production and sale of demerit goods
or raise their price using indirect taxes so that fewer people consume them.
it may also set high minimum prices in the market for demerit goods and other goods with significant external costs.
143
what can governments do if some firms exploit their consumers (2 points)
it can set maximum prices they cannot exceed to protect consumers.
it can also take over ownership and running of large powerful firms in a process known as nationalization
144
what can governments do if firms exploit their employees
it can introduce employment laws and minimum wage laws to improve wages and working conditions.
145
what can a government do to correct factor immobility obstructing firms (2 points)
it can provide education and retraining for workers who are occupationally immobile.
it can encourage private firms to move to areas of high unemployment by subsidizing their costs.
146
what can governments do if goods with significant external costs are overprovided
indirect taxes to raise market price which reduces demand.
147
what can government do it goods with significant external benefits are under provided
subsidies can be provided to reduce the cost of producing these goods and services, encouraging them to increase supply.
148
for whom is maximum price implemented
consumer
149
for whom is minimum price implemented
firm
150
what is the impact of maximum price on consumers
they wont have to pay largely inflated prices
151
what is the impact of max price on producers
they cant exploit consumers.
152
how can shortage be eliminated in max price
government regulates that suppliers must expand supply and accept lower profits
153
what is the impact of min price on consumers
people will be less inclined to purchase those products due to the increased price
154
what is the impact of min price on producers
it allows them to compete with firms who can make and therefore sell products for cheaper.
155
how can surplus be eliminated in min price
by supplying lesser to match the amount consumers are willing to buy.
156
what are the three types of industrial sectors
primary industry
secondary industry
tertiary industry
157
what is the tertiary industry divided into
direct service
| commercial service
158
what is the primary industry
extractive industry- extracting raw materials
159
what does the secondary industry involve
manufactured and construction industries, processing raw materials into finished goods
160
what does the tertiery industry involve
providing a direct commercial service
161
what are direct services
offered directly to the public
162
what are commercial services
offered to other businesses
163
what are the 2 types of firms
private sector firms
| state owned enterprises
164
what are private sector firms
firms owned and run by private individuals
165
list 4 legal forms of private sector firms
sole trader
joint-stock or limited company
cooperative
charity
166
who owns sole trader firms
owned by one person
167
who controls a sole trader
the owner is the main decision maker
168
what is a sole traders main source of finance
owners personal savings
169
how is profit distributed in a sole trader
the owner receives any profits but is also responsible for debt
170
who owns a joint stock company
one or more shareholders
171
who controls a joint stock company
it is controlled one more directors appointed by its shareholders
172
what is a limited company main source of finance
sale of shares to shareholders
173
to whom can private limited companies sell their shares
private individuals
174
where can public limited companies sell shares
stock exchange
175
how is profit distributed in a joint stock company
any profit belongs to its shareholders
| shareholders are not personally liable to repay any company debts
176
who owns a cooperative
its members
177
who controls a cooperative
its managed by a board of directors appointed by its members
178
how are cooperatives financed
from membership fees and drawing on reserves
179
how is profit distributed in a cooperative
members receive any surplus revenue that is not added to the reserves
180
who owns a charity
a charity can be set up and registered by a private individual or another organization to provide services for public benefit but it cannot be owned
181
who runs a charity
its board of trustees
182
whats a charity's main source of income
gifts and donations from people and organizations
183
how are profits distributed in a charity
they are reinvested in the charity to fund its services.
184
what is a state owned enterprise
a firm that is wholly or partially owned and operated by a government primarily to carry out commercial activities in order to earn revenues and sometimes profits.
185
what are the 2 ways in which a firm can grow
internal growth
| external growth
186
what is internal growth
when a firm expands its scale of production through the purchase of additional equipment, increasing the size of its premises, opening more branches, selling new products, employing more workers etc.
187
what is external growth
when 2 or more firms join together to form a larger enterprise. this is known as integration
188
what does integration involve
the merger of 2 or more firms or the takeover of one company by another.
189
explain a takeover with an example
a takeover or acquisition happens when a company buys enough shares of anothers that they can take full control. facebooks acquisition of whatsapp in 2014
190
does a takeover require the owners consent
no
191
what happens to a firm after it has been taken over
it loses its identity and becomes a part of what is known as the holding company
192
when does a merger happen
when owners of 2 or more companies agree to join together to form a firm
193
what are the 3 ways an integration can happen
horizontal integration
vertical integration
lateral/conglomerate integration
194
what are the two types of vertical integration
Forward vertical integration
| backward vertical integration
195
what is horizontal integration
integration of firms engaged in the production of the same type of good at the same level of production
196
what is vertical integration
integration of firms engaged in the production of the same type of good but at different levels of production.
197
what is forward vertical integration
when a firm integrates with a firm that is at a later stage of integration
198
what is backward vertical integration
when a firm integrates with a firm that is at an earlier stage of production
199
what is lateral integration
when firms producing different types of products integrates
200
what is another name for lateral integration
conglomerate integration
201
what are economies of scale
the unit cost advantages from expanding the scale of production in the long run. LRAC decreases
202
what are diseconomies of scale
the cost disadvantages that firms acrue due to an increase in organizational size or output. LRAC increases
203
what are internal economies of scale
LRAC is reduced as firms expand their scale of production
204
what are external economies of scale
cost savings enjoyed by firms in a large industry
205
what diseconomies of scale
disadvantages firms face when they grow too large and average costs start to rise.
206
how does production add value to resources
by turning them into goods and services consumers want and are able to buy
207
what is value added in production
the difference between the market price paid for a product by a consumer and the cost of the natural and man made materials, components and resources used to make it.
208
what is productivity
productivity measures the amount of output (goods and services) that can be produced from a given amount of input (land, labour and capital resources)
209
what is the most commonly used measure of factor productivity
labour productivity
210
how to calculate labour productivity (2 ways)
- average amount of output each employee produces per period of time
- average amount of revenue each employee contributes per period of time
211
average product of labour formula
total output per period/no. of employees
212
average revenue product of labour formula
total revenue per period/number of employees
213
average cost per unit formula
total cost/total output
214
list 3 types of firms, not aiming to make profit
charities, not for profit organizations, public sector organization
215
what are the 2 techniques of production
labour intensive
| capital intensive
216
what is labour intensive production
when ratio of labourers is higher than machinery
217
what is capital intensive production
when the ratio of machinery is higher than the labourers
218
list 3 things the relative demand for labour and capital by a firm will depend on
- how much output consumers demand
- the cost of labour relative to the cost of employing capital
- the productivity of labour relative to capital.
219
what is an economic system
is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area.
220
what is microeconomics
the study of smaller scale economies
221
what is macroeconomics
the study of the economic issues and actions that involve an entire economic system
222
what is an uneconomic use of resources
use of resources in which social costs exceed the social benefit
223
what is economic use of resources
use of resources in which social benefits exceed the social costs
224
what are industries
industries consist of firms that use similar production processes and specialize in the production of similar range of products.
225
what are the 2 problems with labour productivity
it does not take into account quality of work
| some work like teachers are not quantifiable
226
linear demand formula
y = 2x
