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Economics-microeconomics Flashcards

1
Q

What is the basic economic problem?

A

There are limited resources and the government needs to make choices of how to use them to fulfil our infinite wants and needs.

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2
Q

Who are the economic agents?

A

.Individuals
.Households
.Firms
.Government

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3
Q

Explain the factors of production

A

.Capital- technology used to make products
.Enterprise- the people who bring the factors together
.Land- the natural resources used
.Labour- the human input into production

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4
Q

Define specialisation

A

When a firm is focused on producing a particular product

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5
Q

What are the advantages of specialisation?

A

.Allows countries/firms to focus on specific products and improve the quality and quantity of them
.Countries can trade with others

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6
Q

What are the disadvantages of specialisation?

A

.Over Specialisation can leave a country vulnerable to a change in demand
.If finite minerals are overused they can become exhausted

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7
Q

Define division of labour

A

Separating a task into many to create a continuous repeated line of work

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8
Q

What are the advantages of division of labour?

A

.Increased boredom could lead to lack of productivity and worsen quality and quantity of the products
.People could move jobs leaving other sectors scarce of workers also creating a lack of productivity

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9
Q

What are the disadvantages of division of labour?

A

.Decrease in the cost per unit which makes the products cheaper for consumers
.Increased productivity
.Workers can be trained faster and cheaper

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10
Q

What are economic goods?

A

Scarce goods which have an opportunity cost of use, e.g. gold, oil, tin

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11
Q

What are free goods?

A

Resources which are not scarce and have no opportunity cost of use, e.g. air

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12
Q

What are sustainable resources?

A

Resources which can be exploited over and over again because they renew themselves, e.g. fish stocks

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13
Q

What are non-sustainable resources?

A

Resources which are finite and cannot be replaced when used, e.g. coal

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14
Q

What are the functions of money?

A

.A means of exchange- money allows the buying and selling of goods
.A unit of account- money measures the worth of goods
.A store of value- money keeps its value over time
.A method of deferred payment- money allows goods and services to be acquired now and payed for later

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15
Q

What is a barter economy?

A

An economy where people exchange goods and services for others in return

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16
Q

What are the problems with a barter economy?

A

.Double coincidence of wants- people exchange goods without any monetary medium
.Indivisible goods- goods can’t be divided

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17
Q

What are the sectors of production in the economy?

A

.Primary- agriculture
.Secondary- manufacturing
.Tertiary- services
.Quaternary- technology, research

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18
Q

What are the characteristics of money?

A

.Durability- it lasts long
.Portable- easy to use
.Divisible- it can be broken down
.Can’t be counterfeited- hard to copy

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19
Q

Define ceteris paribus

A

All other things remain equal

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20
Q

What is a command economy?

A

An economy where only the government allocates resources deciding what, how and whom to produce.

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21
Q

Which economic thinker agrees with the command economy?

A

Karl Marx

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22
Q

What are the disadvantages of a command economy?

A

.People have less choice and freedom

.Government owned firms have less incentive to be efficient

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23
Q

What are the advantages of a command economy?

A

.Government may provide more equitable distribution of resources
.Shortages and surpluses

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24
Q

Define a free market

A

An economy where resources are allocated by the individual economic agents

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25
Q

What are the advantages of a free market economy?

A

.Consumers are free to choose what they buy(sovereignty)
.Producers are free to produce what they want
.Profit is the main motive of all businesses

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26
Q

What are the disadvantages of a free market economy?

A

.Inequality
.Market failure
.Monopolies

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27
Q

Which economic thinker agrees with a free market economy?

A

Adam Smith

Friedrich Hayek

28
Q

What is a mixed economy?

A

An economy where resources are allocated by the government and through the economic agents

29
Q

What are the advantages of a free market economy?

A

.The government provides things that businesses can’t, e.g. education, healthcare

30
Q

What does a PPF graph show?

A

.The maximum productive potential of an economy
.Opportunity cost
.Economic growth or decline
.Efficient or inefficient allocation of resources
.Possible and unattainable production

31
Q

What is opportunity cost?

A

The next best alternative that is foregone when making a choice

32
Q

What is the law of diminishing returns?

A

States that as you add more of one factor in production while others are constant, increasing output of product become smaller

33
Q

What are public sector goods?

A

Goods and services that are owned by the government

34
Q

What are private sector goods?

A

Goods and services owned privately by individuals and organisations

35
Q

What is the law of diminishing marginal utility?

A

States that as we consume more of a good the less we value the good

36
Q

What is the formula for diminishing marginal utility?

A

DMU = Change in utility

Change in quantity

37
Q

What is demand?

A

The quantity of a good/service that a consumer is willing and able to buy at a given time and price

38
Q

What factors affect demand?

A 
.Population
.Advertisement
.Substitutes
.Income
.Fashion/trend
.Interest
.Complementary goods
.External shocks
.Speculation
39
Q

What is the theory of demand?

A

States that as the price of a good increases, the demand for the good decreases, vice-versa

40
Q

What factors affect the theory of demand?

A

.Income effect- when the price of a good rises people can afford less so demand falls
.Substitution effect- when the price of a good rises people switch to cheaper alternative goods

41
Q

What is the price elasticity of demand?

A

Measures the responsiveness of demand to a change in price

42
Q

What is the formula for PED?

A

PED = Change in quantity demanded

Change in price

43
Q

What is the PED value for perfectly inelastic?

A

0

44
Q

What is the PED value for inelastic?

A

0-1

45
Q

What is the PED value for unitary elastic?

A

1

46
Q

What is the PED value for elastic?

A

1-infinity

47
Q

What is the PED value for perfectly elastic

A

Infinity

48
Q

What factors affect PED?

A 
.% of income spent
.Brand loyalty
.Addictiveness
.Necessity vs Luxury
.Time period
.Substitutes
49
Q

What is revenue?

A

Income earned from selling goods and services

50
Q

What is the formula for revenue?

A

R = P x Q

51
Q

How should firms react to a change in demand?

A

.Elastic- decreasing price increases revenue

.Inelastic- increasing price increases revenue

52
Q

What is a market?

A

The interaction between demand and supply

53
Q

What is the price elasticity of supply?

A

Measures the responsiveness of supply to a change in price

54
Q

What is the formula for PES?

A

PES = Change in quantity supplied

Change in price

55
Q

What factors affect PES?

A

.Capacity- no capacity = elastic
.Ease/cost of production- easy/low cost to move Fop = elastic
.Stocks- long shelf life = elastic
.Time period- Long run = elastic

56
Q

1

A

u

57
Q

j

A

b

58
Q

j

A

v

59
Q

k

A

b

60
Q

jk

A

.

61
Q

jb

A

.

62
Q

What is supply?

A

The quantity of goods and services that producers are willing and able to sell at a given time and price

63
Q

What is the theory of supply

A

States that as price rises the quantity supplied rises, vice-versa

64
Q

Why does the supply curve slope upwards?

A

The incentive of profits

65
Q

What factors affect supply?

A 
.Productivity
.Indirect tax
.Number of firms
.Technology
.Subsidies
.Weather
.Cost of production

Subjects (13 decks)

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