economics (topic 1) chapter 20-30

Question 1

a concentration ratio

Answer 1

measures the combines market share of the largest firms in a particular market

Question 2

four firm concentration ratio

Answer 2

measures the combined market share of the four largest firms in a particular market

Question 3

what are three benfits from monopoly

Answer 3

internal economies of scale leading to lower prices
greater innovation
more choice

Question 4

the rationing function of price

Answer 4

arises because its not possible to satisfy unlimited wants of consumers with the scarce resources available
price acts as a rationing act as only consumers are prepared to pay the market price are able to purchase it, if a good becomes scarce then the price will rise discouraging buyers so preserving stocks

Question 5

the signalling function of price

Answer 5

referees to the importance of price in helping buyers and sellers make discussions about wether its worthwhile to buy or sell a product.

Question 6

the incentive function of price

Answer 6

refures to the way in which low prices act as an incentive for consumers to buy more of a product in order increase their satisfaction
while high prices act as an incentive for suppliers to supply more in order to maximise profit.

Question 7

market failure

Answer 7

occurs when a market economy does not achieve an efficient allocation of resources

Question 8

what are the three main ways an economy can be organised in?

Answer 8

market economy - all goods and services are provide through the interaction of demand and supply
- a planned or commanded economy - decisions are made by the government
-a mixed economy - some goods and services are provided through a market economy and some are provided through government planning.

Question 9

productive efficiency

Answer 9

firms producing at the lowest possible average costs

Question 10

allocative efficiency

Answer 10

goods produced by an economy finding their way to the consumers who get the greatest welfare from those goods.

Question 11

misallocation of resources

Answer 11

occurs when an economy fails to produce goods at the lowest average total costs and fails to achieve the goal of providing those goods to the consumers whom they provide the greatest welfare.

Question 12

complete market failure

Answer 12

occurs when a good or service is not supplied at all

Question 13

partial market failure

Answer 13

occurs when a market exists but where the level of production is too high or too low

Question 14

externalities

Answer 14

are the effect of economic activity on third parties who have no had any say in this activity taking place

Question 15

positive externality

Answer 15

benefits to a third party, can be passed on due to either the consumption or the production of a commodity by other members of society

Question 16

negative externality

Answer 16

problems experienced by a third party

Question 17

merit goods

Answer 17

a good that is underproduced in a pure market economy

Question 18

demerit good

Answer 18

decibes a good that is over produced in a pure market economy

Question 19

three main market imperfections that can cause market failure

Answer 19

-monopoly power
-imperfect information
-immobility of factors of production

Question 20

rivalry (diminishability)

Answer 20

feature of a good or service that if a person consumed a quantity of that then it would not be avaliable to others

Question 21

excludability

Answer 21

if an individual pays for that good or service its possible to prevent others from having access to it

Question 22

reject ability

Answer 22

any individual can choose not to consume that good

Question 23

private goods

Answer 23

are those which possess the three features described above - rivalry, exculdability, rejectability

Question 24

non rivalry or non diminishing

Answer 24

feature of a good or service whereby if a person consumes that good or service
-it does not reduce the quantity available to others

Question 25

non reject-ability

Answer 25

feature of a good or service whereby if that good or service is provided, an individual must accept it even if they would not chose to consume that good or service

Question 26

a free rider

Answer 26

someone who benefits from a good or service without paying

Question 27

Quasi-public good

Answer 27

goods that are partly excludable or partially rivalrous

Question 28

positive externalities in consumption

Answer 28

benefits to outsiders or third party arising from purchase or use

Question 29

negative consumption externalities

Answer 29

consequences to third parties arising from purchase or use

Question 30

positive production externalties

Answer 30

benefits arising from producing / manufactoring the good or service

Question 31

negative externalities in production

Answer 31

consequences to third parties from producing the good or service

Question 32

private costs

Answer 32

financial costs to an individual or firm of an economic transaction undertaken by that individual or firm

Question 33

private benefits

Answer 33

financial benefits to an individual or firm of an economic transaction undertaken by that individual or firm

Question 34

external benefits

Answer 34

value of positive externalities arising from production and consumption of a particular good

Question 35

social costs

Answer 35

full costs to society of an economic activity taking into consideration both private and external costs.

Question 36

social benefits

Answer 36

full benefits to society of an economic activity taking into consideration both private and external benefits

Question 37

imperfect information

Answer 37

when a buyer or seller lacks the information needed to make the best choice in a transaction

Question 38

symmetric information

Answer 38

when both the seller and buyer are well informed about the goods and services and prices in the market

Question 39

asymmetric information

Answer 39

when either the seller or buyer has more information then the other party in the transaction

Question 40

progressive tax

Answer 40

is a tax that takes a higher proportion of taxpayers incomes as their incomes increase

Question 41

regressive tax

Answer 41

is a tax that takes a lower proportion of tax payers income as their income increases

Question 42

proportional tax

Answer 42

tax that takes the same proportion of tax payers incomes regardless of their income levels.

Question 43

government intervention

Answer 43

describes government actions that are designed to effect economic activity and the allocation of resources

Question 44

public expenditure

Answer 44

describes spending by government on the provision of goods and services and spending it cash benefits. its often referred to as government spending.

Question 45

direct taxes

Answer 45

are those levied, on income or wealth such as income tax

Question 46

indirect taxt

Answer 46

are paid on spending by firms, households and other organisations. the major indirect tax in the UK is value added tax

Question 47

subsidy

Answer 47

is a payment to a producer in order to encourage greater greater production of a good

Question 48

price controls

Answer 48

exists when government takes action to affect directly the price paid for a good

Question 49

government failure

Answer 49

occurs when government intervention in the economy leads to net loss in economic welfare and misallocation of resources

Question 50

the law of unintended consequences

Answer 50

occurs when the actions of participants in economic designs such as government, producers and consumers are not the actions that were expected.