Economics B Paper 1 Flashcards
Economics B Paper 1
Ceteris paribus
The assumption that all other variables within the model remain constant whilst one change is being considered.
Basic economic problem
Wants are infinite whilst resources are scarce so choices have to be made on how to allocate resources.
Scarcity
There are not enough resources to satisfy all wants.
Opportunity cost
The value of the next best alternative foregone (given up) when making a decision.
Trade off
What is given up when making a choice.
Business objectives
What a business is trying to achieve e.g. profit, growth, survival, helping the community etc.
Stakeholder
Anyone interested in the activities or success of a business.
Corporate Social Responsibility
Where a firm does ‘more’ than the basic minimal legal requirement e.g. uses recycled packaging, plants trees to replace those lost etc.
Entrepreneur
Someone who has the skills and traits required (in particular the willingness to take calculated risks) to set up a business.
Creative destruction
Occurs when businesses innovate (something new, better, cheaper) and introduce strong competition. This threatens existing producers that have failed to adapt.
Factors of production / resources
The inputs to the production process: Land, which is all natural resources; labour, which is the workforce; capital, which is the stock of manufactured resources used in the production of goods and services; entrepreneurs, individuals who seek out profitable opportunities for production and take risk in attempt to exploit these.
Non-renewable resources
Resources, such as coal or oil, which once exploited cannot be replaced.
Renewable resources
Resources, such as fish stocks or forests, which can be exploited over and over again because they have the potential to renew themselves.
Specialisation
When a firm asks workers to do a specific task repeatedly (division of labour) so workers become specialist. This means that for a given amount of input (labour) more is produced. This has close links to productivity.
Market
A place where buyers and sellers communicate to agree prices for goods and services.
Free market economy
An economic system which resolves the basic economic problem through the market mechanism aka the invisible hand. The outcome is that the market reaches the natural equilibrium where supply meets demand at a certain price.
Demand
The quantity that buyers are willing and able to purchase of a good at any given price over a period of time.
Consumer surplus
The difference between how much buyers are prepared to pay for a good and what they actually pay.
Supply
The quantity of goods that suppliers are willing and able to sell at any given price over a period of time.
Producer surplus
The difference between the market price which firms receive and the price which they are prepared to supply.
Complement
A good which is purchased with other goods to satisfy a want.
Substitute
A good which can be replaced by another to satisfy a want.
Price elasticity
The responsiveness of demand to a change in price.
Price inelastic demand
Where the price elasticity of demand is less than 0. The responsiveness of demand is proportionally less than the change in price. Demand is infinitely inelastic if price elasticity of demand is zero.
