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Economics > Economics Test > Flashcards

Economics Test Flashcards

1
Q

What is the division of labour and why do firms use it?

A
  • When the production process is broken down into many separate tasks.
  • It raises the output per person, as people become pro-efficient through constant repetition of the task and learning by doing.
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2
Q

What is learning by doing?

A

Acquiring knowledge, skills and expertise through hands on experience

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3
Q

How does Adam smith relate to division of labour?

A
  • He proposed it took 10 workers to make a pin, but on their own they could make 20 pins a day.
  • 200 pins could be made if 10 workers worked the same way the lone workers did - but if the process was broken down into ten stages for each worker they could produce 48000 pins a day.
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4
Q

What are the disadvantages of division of labour?

A
  • Could create boredom which would lead to quicker staff turnover
  • Lack of responsibility between workers
  • Changes in taste may put workers out of work.
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5
Q

What is specialisation?

A

When individuals, firms or regions concentrate their efforts on producing a narrow range of services in which they have comparative advantage.

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6
Q

What is comparative advantage?

A

Production should be focused on the production of goods in which they are relatively more efficient or have lower opportunity costs compared to others.

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7
Q

What are the advantages of specialisation?

A
  • Mass production can occur
  • there is lower unit costs
  • reduced cost of training workers.
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8
Q

What are the disadvantages of division of labour?

A
  • workers will get bored
  • over reliance on one good or item
  • finite resources may become depleted
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9
Q

What is a barter system?

A

the trading of goods or services directly for other goods or services without the use of money

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10
Q

What are the issues with a barter system?

A
  • needs double coincidence of wants
  • it lacks a common measure of value
  • it is difficult to make deferred payments
  • goods cannot be divided
  • goods cannot store value
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11
Q

What is money?

A

a legal tender generally accepted as a method of payment when trading goods or services.

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12
Q

What is a legal tender?

A

Only central bank of country has authority to print it and it cannot be refused in transactions.

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13
Q

What are the uses of money?

A
  • a measure of value
  • a medium of exchange
  • a store of value
  • a standard for deferred payment
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14
Q

How is price determined?

A

where price intersects demand - this is market equilibrium

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15
Q

What is it if the price is where supply and demand intersect?

A

equilibrium price

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16
Q

What does it mean if the market is at equilibrium?

A

the market has been cleared and is in balance

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17
Q

What happens if there is excess supply?

A
  • surplus
  • the price is higher than equilibrium so firms supply more to earn more profit
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18
Q

What happens if there is excess demand?

A
  • shortage
  • price is lower than equilibrium so firms supply less so they don’t lose profit
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19
Q

What is elasticity of supply?

A

The degree of responsiveness of supply to a given price change.

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20
Q

What is the formula for PES?

A

%change of quantity supplied/%change in price

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21
Q

What does a relatively elastic supply curve look like?

A

flat

22
Q

What does a relatively inelastic supply curve look like?

A

steep

23
Q

What is the change in relative supply curves?

A

proportional

24
Q

What does a unitary elastic supply curve look like?

A

equal

25
Q

What does a perfectly inelastic supply curve look like?

A

vertical

26
Q

What does a perfectly inelastic supply curve look like?

A

horizontal

27
Q

What factors affect price elasticity of supply?

A
  • spare production capacity
  • stocks of finished products, components and perishability
  • ease and cost of factor substitution/ factor mobility
  • time period and production speed
28
Q

what is spare production capacity?

A
  • plenty of spare capacity means businesses can increase output without increased costs
  • supply will be elastic to change demand
29
Q

what is stocks of finished products, components and perishability?

A
  • if stocks of raw materials and finished goods are high, firms can respond quickly to change in demand - elastic supply
  • perishable goods wont store so supply is less elastic or inelastic
30
Q

what is ease and cost of factor substitution/factor mobility?

A
  • if capital and labour are occupitally mobile, elasticity is high as resources can be mobilized to supply extra output involving reallocation of workers to new tasks
31
Q

what does time period and production speed mean?

A
  • supply is more price elastic, the longer firms are given to adjust production levels.
32
Q

what is ped?

A

the responsiveness of the quantity demanded of a good or service in response to a change in its price

33
Q

what is the formula for ped?

A

%change in quantity demanded/%change in price

34
Q

what does the graph for relatively elastic demand look like?

A

flat

35
Q

what does the graph for relatively inelastic demand look like?

A

steep

36
Q

what does perfectly inelastic demand look like?

A

vertical

37
Q

what does perfectly elastic demand look like?

A

horizontal

38
Q

what does unitary elastic demand look like?

A

equal

39
Q

what factors influence ped?

A
  • no. of close substitutes
  • cost of switching between products
  • degree of necessity/whether the good is a luxury
  • peak and off peak demand
  • method of payment
40
Q

if the price of an elastic good decreases what happens to total revenue?

A

total revenue increases

41
Q

if price of inelastic good decreases what happens to total revenue?

A

total revenue decreases

42
Q

if price of inelastic good increases what happens to total revenue?

A

total revenue increases

43
Q

if price of elastic good increases what happens to total revenue?

A

total revenue decreases

44
Q

what is yed?

A

the responsiveness of the quantity demanded towards a change in consumers income

45
Q

what is the formula for yed?

A

%change in quantity demanded/%change in price

46
Q

what does a positive yed graph look like

A

up to down \

47
Q

what good increases on a positive yed graph?

A

normal goods

48
Q

what does negative yed graph look like?

A

down to up

49
Q

what good decreases on negative yed graph?

A

inferior goods

50
Q

what does elastic yed graph look like?

A

flat

51
Q

what does inelastic yed graph look like?

A

steep

Economics (2 decks)

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