Economic resources Flashcards
what are the 4 factors of production?
-land
-labour
-capital
-enterprise
what is the payment or reward for each of the factors of production?
-land: rent
-labour: wages
-capital: interest
-enterprise: profit
what is the economic problem?
-resouces are scarce
-wants are infinite
what is an opportunity cost?
the loss of the next best alterative
what does a production possibility boundary?
the ppb indicates the maximum possible output that can be achieved given a fixed set of resources ad technology in a particular time period
what are some factors that shift ppb to the right?
-investment into new technology
-introduction of new resources
-increased supply of labour
improvement in human capital through training
-encourages entrepreneurship
-increased productivity
what are some factors that shift ppb to the left?
-emigration
-disease
-war
-disaster
what is productive efficiency?
the ability of a firm to produce goods or services at the lowest possible cost, given the level of output and the available technology
what is allocative efficiency?
occurs when the available economic resources are used to produce the combination of goods and services that best matches peoples tastes and preferences
what does a ppb diagram show?
productive efficiency not allocative
what is excess supply?
when quantity supplied at a particular price is greater then quantity demanded - there is disequilibrium.
what is a minimum price?
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
what are some evaluations on price floors?
-creates excess supply
-the excess is greater with elastic demand
-government has to buy up excess (leads to dumping)
-requires monitoring and implementation
what is market failure?
when the free market, left alone fails to deliver an efficient allocation of resources
what is partial market failure?
where a market exists but contributes to resource misallocation (education, health)
what are the main types of market failure?
-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
what is a monopoly?
a single seller in a market or sector with high barriers to entry, such as significant startup costs, whose product has no substitutes
what is a pure public good?
a good that possesses the characteristics of non-excludable, non-rival, and non-rejectable
what is a free rider?
a person or organization which receives benefits that others have paid for without making any contribution themselves
what does non-rivalry mean?
consumption of the good by one person does not reduce the amount available for consumption by another person
what is meant by externalities?
cost or benefits that spillover to a third party external to a market transaction
what is meant by positive externalities?
a positive spillover to the third party, social benefits exceed private benefits
what is meant by negative externalities?
a negative spillover to the third party, social costs exceed private costs
what is a merit good?
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
what is a demerit good?
goods that are thought to be “bad” for you, consumption can lead to negative externality, social cost is higher than private cost
what are some examples of merit goods?
recycling centre, healthcare, school
what are some examples of demerit goods?
cigarettes, alcohol
what are some evaluation points for taxation?
-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)
what is the incidence of tax?
the proportion of a tax that is passed to consumers
what is a subsidy?
a form of any government support (financial) offered to producers and consumers so that they could purchase a good
what are some evaluation points for a subsidy to producers?
-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)
what are some evaluation points for subsidy to consumers?
-costly to implement/monitor
-opportunity cost
-imperfect information
-may be more effective in long run but not short run (PES)
-raises price (unintentional)
what is government failure
when government intervention to correct market failure does not improve the allocation of resources or worsens the situations
what are the 4 types of government failures?
-imperfect information
-conflicting objectives
-administrative costs
-unintended consequences
what is the structure for a “should the gov intervene” question
FM
2 interventions
what is the structure for a “how should the gov intervene” question
3 interventions
what is the structure for a “should the gov intervene more” question
FM
2 interventions
what does state provision include + eval?
-has excess demand because it is free
eval:
-expensive
-opportunity cost
-pressures on gov budget
what does regulations and legislation include + eval?
-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
what does advertisement include + eval?
-one way is by closing the information gap
eval:
-cost of advertising
-effectiveness
