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First Sem-1st year > Economics Chap 1-3 > Flashcards

Economics Chap 1-3 Flashcards

The economic problem

1
Q

Firms

A

Organization which buy these factors and use them to produce goods and services

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2
Q

Economy

A

All the production and exchange activities that take every day

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3
Q

Economic activity

A

Is how much buying and selling goes on in the economy over a period time

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4
Q

Scarcity

A

Mean that the society as limited resources and therefore cannot produce all the goods and services people wish to have

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5
Q

Economics

A

The study of how society manages its scarce resources

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6
Q

Efficiency vs Equity

A

Efficiency means society get the most that it can from its scarce resources
Equity means the benefits of those resources are distributed fairly amongst members of society

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7
Q

Market Economy

A

An economy allocates resources through the decentralized households and firms as they interact in markets for goods and services

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8
Q

Market failure

A

Occurs when the market fails to allocate resources efficiently

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9
Q

Market failure may be caused by:

A

Externality: Which is the impact of one person or firms actions on the well being of a bystander
Market power: The ability of a single person or firm to unduly influence market price

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10
Q

Economic growth

A

The increase in the amount of goods and services in an economy over a period of time

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11
Q

GDP per head

A

The market value of all final goods and services produced within a country in a given period of time divided by the population of the country, to give a per capita figure

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12
Q

Standard of living

A

A measure of welfare based on the amount of goods and services a person’s income can buy

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13
Q

Causes of inflation

A

The growth in the quantity of money
When the gov creates large quantities of money, the value of money falls
High inflation imposes various costs on society

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14
Q

Feminist economics
Marxist economics
Austrian school

A

Makes the cause for including unpaid work such as that carried out in the home
Not the control and power that some have over production
Say markets should be allowed to work without gov interference

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15
Q

Inductive reasoning

A

The process of observation from which patterns might be formed which evidence for a hypothesis which may lead to a theory

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16
Q

Deductive reasoning

A

Begins with a theory from which a hypothesis is drawn

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17
Q

Rationalism

A

Is where ‘truths’ are established through reason and intellectual deduction rather than appealing to emotion or the senses

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18
Q

Economists use which models to simplify reality in order to improve our understanding of the world?

A

Endogenous-a variable whose value is determined within the model
Exogenous-a variable whose value is determined outside the model

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19
Q

Positive vs Normative analysis

A

Positive statements are statements that attempt to describe the world as it is(descriptive analysis)

Normative statements are statements about how the world should be(prescriptive analysis)

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20
Q

Supply and demand

A

refer to the behavior of people as they interact with one another in markets

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21
Q

What is a market?

A

A group of sellers and buyers of a particular good or service

22
Q

Competitive market

A

A market in which there are many buyers and sellers so that each as a negligible impact on the market price

23
Q

Quantity demanded

A

is the amount of a good that buyers are willing and able to purchase

24
Q

Law of demand

A

Is the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

25
Market demand
Refers to the sum of all individual demands for a particular good or service
26
Shift vs Movement
Shift is caused by a factor affecting demand other than a change in price Movement is along the demand curve caused by a change in the price of the product
27
Substitutes vs Complements
Substitutes-increase of one good leads to an increase in the demand for the other Complements-Increase in the price of one good leads to a decrease in the demand for the other
28
Normal good vs Inferior good
Normal good-if the demand for a good falls when incomes falls or rises as income rises Inferior good-the demand for a good becomes less when the income rises
29
Shifts caused by the factors other than price
Tastes No. of buyers Advertising Expectations of consumers where demand is influenced by expectations of future income and future prices Promotions
30
Market supply
Refers to the sum of all individual supplies for all sellers of a particular good and/or service
31
Ceteris paribus
Other factors affecting demand are held constant so that we can analyze the effect of a change in price on the demand
32
Surplus vs Shortage
Price>equilibrium price, the quantity supplied>quantity demanded When pricequantity supplied
33
Law of supply and demand
The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
34
What is the main function of price
Price in a free market is to act as a signal to both buyers and sellers
35
Buyers vs seller
Buyers-the price tells them something about what they have to give up to acquire the benefits Sellers-Price acts as a signal in relation to the profitability of production
36
Perfectly competitive market
The goods being offered for sale are all the same The buyers and sellers are numerous that no single buyer/seller can influence the market price
37
Quantity Supplied
The amount that sellers are willing and able to sell
38
Law of supply
When the price of the product is more profitable to sell, the price and quantity is positively related to the price of good
39
Elasticity
A measure of how much buyers and sellers respond to changes in market conditions
40
Price elasticity of demand
A measure of how much the quantity demanded of a good responds to a change in the price of that good
41
The determinants of price elasticity of demand
1)Availability of close substitutes(elastic) 2)Necessities vs luxuries(elastic) 3)Definition of the market(inelastic) 4)Proportion of income devoted to the product(elastic) 5)Time horizon(short run-inelastic),(long-run elastic) 6)Productive capacity and the ability of sellers to change the amount of the good they produce 7)Size of the firm or industry 8)Ease of storing stock/inventories 9)Mobility of the factors of production
42
Demand tends to be more elastic:
The larger the number of lose substitutes If the good is a luxury The more narrowly defined the market The longer the time period
43
Price elasticity of demand formula
percentage change in quantity demanded/percentage change in price
44
Total expenditure
The amount paid by buyers, computed as the price of the good x the quantity purchased
45
Total revenue
The amount paid by buyers and received by sellers of a good. Computed as the price of the good x the quantity sold
46
Income elasticity of demand measures:
How much the quantity demanded of a good responds to a change in consumers income
47
Cross-price elasticity of demand measures:
Of how much the quantity demanded of one good responds to a change in the price of another good
48
Price elasticity of supply
A measure of how much the quantity supplied of a good responds to a change in the price of that good
49
Inelastic vs elastic
Elastic-Quantity demanded responds substantially to changes in the price Inelastic-Quantity demanded responds only slightly to changes in the price
50
How to tell inelastic and elastic on a graph
When demand is vertical-Perfectly inelastic When demand is horizontal-Perfectly elastic
51
Cross-price elasticity of demand formula
Percentage change in quantity demanded of G1/Percentage change in the price of G2

First Sem-1st year (13 decks)

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