Economic resources

Question 1

what are the 4 factors of production?

Answer 1

-land
-labour
-capital
-enterprise

Question 2

what is the payment or reward for each of the factors of production?

Answer 2

-land: rent
-labour: wages
-capital: interest
-enterprise: profit

Question 3

what is the economic problem?

Answer 3

-resouces are scarce
-wants are infinite

Question 4

what is an opportunity cost?

Answer 4

the loss of the next best alterative

Question 5

what does a production possibility boundary?

Answer 5

the ppb indicates the maximum possible output that can be achieved given a fixed set of resources ad technology in a particular time period

Question 6

what are some factors that shift ppb to the right?

Answer 6

-investment into new technology
-introduction of new resources
-increased supply of labour
improvement in human capital through training
-encourages entrepreneurship
-increased productivity

Question 7

what are some factors that shift ppb to the left?

Answer 7

-emigration
-disease
-war
-disaster

Question 8

what is productive efficiency?

Answer 8

the ability of a firm to produce goods or services at the lowest possible cost, given the level of output and the available technology

Question 9

what is allocative efficiency?

Answer 9

occurs when the available economic resources are used to produce the combination of goods and services that best matches peoples tastes and preferences

Question 10

what does a ppb diagram show?

Answer 10

productive efficiency not allocative

Question 11

what is excess supply?

Answer 11

when quantity supplied at a particular price is greater then quantity demanded - there is disequilibrium.

Question 12

what is a minimum price?

Answer 12

a price floor below which the price of a good or service is not allowed to decrease (want people to buy less of it) e.g. minimum wage

Question 13

what are some evaluations on price floors?

Answer 13

-creates excess supply
-the excess is greater with elastic demand
-government has to buy up excess (leads to dumping)
-requires monitoring and implementation

Question 14

what is market failure?

Answer 14

when the free market, left alone fails to deliver an efficient allocation of resources

Question 15

what is partial market failure?

Answer 15

where a market exists but contributes to resource misallocation (education, health)

Question 16

what are the main types of market failure?

Answer 16

-positive and negative externalities
-merit and demerit goods
-public goods
-monopoly and other market imperfections
-inequalities in the distribution of income and wealth
-imperfect information
-factor immobility causing unemployment

Question 17

what is a monopoly?

Answer 17

a single seller in a market or sector with high barriers to entry, such as significant startup costs, whose product has no substitutes

Question 18

what is a pure public good?

Answer 18

a good that possesses the characteristics of non-excludable, non-rival, and non-rejectable

Question 19

what is a free rider?

Answer 19

a person or organization which receives benefits that others have paid for without making any contribution themselves

Question 20

what does non-rivalry mean?

Answer 20

consumption of the good by one person does not reduce the amount available for consumption by another person

Question 21

what is meant by externalities?

Answer 21

cost or benefits that spillover to a third party external to a market transaction

Question 22

what is meant by positive externalities?

Answer 22

a positive spillover to the third party, social benefits exceed private benefits

Question 23

what is meant by negative externalities?

Answer 23

a negative spillover to the third party, social costs exceed private costs

Question 24

what is a merit good?

Answer 24

a hood that would be under-consumed in a free market, as individuals do not fully perceive that benefits obtained from consumption , ought to be subsidised or provided for free

Question 25

what is a demerit good?

Answer 25

goods that are thought to be “bad” for you, consumption can lead to negative externality, social cost is higher than private cost

Question 26

what are some examples of merit goods?

Answer 26

recycling centre, healthcare, school

Question 27

what are some examples of demerit goods?

Answer 27

cigarettes, alcohol

Question 28

what are some evaluation points for taxation?

Answer 28

-effectiveness may be limited by PED
-difficult to quantify the externality, how to determine socially optimum level (imperfect info)
-costly to implement, monitor (opportunity cost)

Question 29

what is the incidence of tax?

Answer 29

the proportion of a tax that is passed to consumers

Question 30

what is a subsidy?

Answer 30

a form of any government support (financial) offered to producers and consumers so that they could purchase a good

Question 31

what are some evaluation points for a subsidy to producers?

Answer 31

-costly to implement, monitor (making sure consumers using it for the right things
-opportunity cost
-effectiveness is dependent upon PED
-may lead to firms to be inefficient
-imperfect information means difficult quantifying the externality (may lead to subsidising too much or little)

Question 32

what are some evaluation points for subsidy to consumers?

Answer 32

-costly to implement/monitor
-opportunity cost
-imperfect information
-may be more effective in long run but not short run (PES)
-raises price (unintentional)

Question 33

what is government failure

Answer 33

when government intervention to correct market failure does not improve the allocation of resources or worsens the situations

Question 34

what are the 4 types of government failures?

Answer 34

-imperfect information
-conflicting objectives
-administrative costs
-unintended consequences

Question 35

what is the structure for a “should the gov intervene” question

Answer 35

FM
2 interventions

Question 36

what is the structure for a “how should the gov intervene” question

Answer 36

3 interventions

Question 37

what is the structure for a “should the gov intervene more” question

Answer 37

FM
2 interventions

Question 38

what does state provision include + eval?

Answer 38

-has excess demand because it is free
eval:
-expensive
-opportunity cost
-pressures on gov budget

Question 39

what does regulations and legislation include + eval?

Answer 39

-legislation= laws
-regulation= organisations which make sure the industry complies with legislation
eval:
-expensive to implement & police
-legislation only effective if there is a consequence

Question 40

what does advertisement include + eval?

Answer 40

-one way is by closing the information gap
eval:
-cost of advertising
-effectiveness