Economics P2 Flashcards
Perfectly competitive market
there are many buyers and sellers of the same product
Demand
The quantity of a good or service people are willing and able to buy
supply
the quantity of a good or service suppliers are willing and able to suplly
oligopoly
A state of limited competition in which he market is shared by a few producers and sellers of a product
utility
the satisfaction gained from consuming a good/service
(and the value of a product is determined by the utility derived from it)
substitute
product that can be used i place of another without lessening utility (price increase in one will lead to increse in demand for the other)
complements
goods that are often used together (price increase in one will decrease demand for the other)
determinants of demand
HIS AGE
determinants of supply
TWO TIPS (plus no. of suppliers)
difference between needs and wants
needs are necessary to live and function, wants improve quality of life
3 functions of markets
- Bringing supply and demand together: markets create contact between producers and cosumers
- Allocation of resources: profit maximisation and utility maximisation lead tom efficient allocation of products
- Self regulation: no external intervention should be needed as demand and supply control prices
PPC
diagram showing what combinations of two products can be produced if the limited, fixed supply of FOP is used efficiently
indifference curve (IC)
graph that shows combinations of two goods that give the consumer equal utility
Marginal rate of substitution (MRS)
The rate at which a consumer will forgoe one product for the addition of one unit of another (steep IC means high MRS)
budget line/budget constraint
all possible combinations of goods that can be bought with a consumer’s available income
market failure
market forces of demand and supply are unsuccessful in allocating resources efficiently, causing external costs or benefits
non-excludable and non-rivalrous
non-excludable: no cost involved for consuming the good
non-rivalrous: one person’s consumption does not decrease the amount available to the next person
5 reasons for market failure
- Missing markets (public goods)
- imperfect competition (high prices and limited goods)
- Lack of information (workers and entrepreneurs are not aware of the demand for certain products/labour)
- Immobility (geographical and occupational) of FOP meaning demand cannot be met
- Imperfect distribution of wealth
Those who earn more can buy more products; means that some people have an abundance of goods while others have too little - allocative inefficiency
disequilibrium
demand and supply are not balanced, leading to surpluses and shortages
employment
the engagement of the FOP called labour in a productive activity for which they receive a remuneration
Unemployed (official definition)
People between 15 and 64 who are willing and able to work but cannot find a job
5 Causes of unemployment
- Poplation growth > economic growth
- Mechanisastion as a result of competition (local and global)
- Past policies
- Business cycles
- Lack of information
3 effects of unemployment
- Poverty (UIF cannot support all those who are unemployed)
- Social problems
Crime rates increase as a result of boredom or having to provide for oneself or one’s family). This leads to an unsafe community
Cannot pay for rent/mortgage or food therefore people rely on friends and relatives
Cases people to feel bored, depressed, unmotivated. May lead to substance abuse/domestic violence
- Cost to taxpayers
Erodes the tax base, causing the government to charge taxpayers more in order to pay for grants. money is not used on essential infrastructure
GEAR
Growth, Employment And Redistribution policy to increase economic growth
