Economics - Unit 1 Flashcards
What is a resource?
Something used to produce an output
What are the factors of production?
Labour - human input they have different skills and if they have a higher human capital then they are more productive
Land - land itself and the natural resources
Capital - goods that are used to produce other goods and services
Enterprise - taking risks and having. Ideas
What is the primary sector?
The extraction of raw materials e.g. Mining
What is the secondary sector?
Raw materials manufactured into goods
What is the tertiary sector?
The service sector
What is opportunity cost?
The next best alternative forgone when making a choice because the scarcity of capital economic problem and unlimited needs and wants
What is a market?
Where buyers and sellers meet to exchange goods
What is the market economy?
Where all the resources are allocated by private individuals and groups
What is a planned economy?
Where all resources are allocated by the government
What is a mixed economy?
Were some resources are allocated by the government and others by individuals or groups
What is the public sector of the economy?
The government sector of the economy which are organised and owned and ran by the government
What is the private sector of the economy?
The sector of the economy where firms are owned and run by private individuals and groups were their main aim is profit maximisation
What are the benefits to specialisation?
- workers become more productive
- lower average costs due to increased productivity
- production levels are increased
- higher pay
- specific skills improved
- motivation from job satisfaction
What are the costs of specialisation?
- increased cost of training workers
- workers become bored and quality may suffer
- more expensive workers
- borden due to lack of variety
- other skills suffer
- eventually replaced by machinery
What is the medium of exchange?
Handing over money for an item
What is the unit of account?
Measuring the value of money
What is the store of value?
When it keeps it value
What is means of deferred payment?
Borrowing money
What is a competitive market?
A market situation in which there are a large number of buyers and sellers
What are the areas of competition?
- price
- quantity
- promotions
- branding
- advertising
- innovation
What are the benefits of a competitive market for a consumer?
Shop around for the highest quality and lowest prices
Variety
Good consumer service
What are the costs of a competitive market for a consumer?
Small firms cant gain economies of scale so cannot provide low costs
Confusion
What are the benefits of a competitive market for a firm?
Gain market share
Grow larger
Able to provide goods and services at a price that are willing to pay it will thrive
What are the costs of a competitive market to a firm?
Monopolies can drop prices
Fail to satisfy consumers so it will fail
What is the economic problem?
Wants are infinite but resources are limited and scarce
What is a monopoly?
When there is only one firm operating in the market
What is a monopoly power?
When a firm has more than 25% of the market
How do you achieve monopoly power?
- Merger and takeover- less choice due to fewer firms you can there for raise prices and lower quality
- statutory monopoly - give by Gov.
- internal expansion - build more factories and shops increasing market share
- branding - brand increases gain market share
- cost barriers - firms gain economies of scale and lower there average cost so they can keep prices low to stop new firms entering a market
Positive points of a monopoly
R + D
International competition
Exploitation of economies of scale which would lower average costs and then they may reduce prices
Name the negative points of a monopoly
High prices due to no competition
Poor quality due to lack of competition
Land grab and bad for local economy
What is demand?
The quantity buyers are willing and able to buy at a given price in a given period of time
What does demand need to become effective?
The consumer must be able and willing to buy
What is the contraction of demand?
The fall in quantity demanded due to the rise in price
What is the extension of demand?
The increase in quantity demanded due to a fall in price
what are the things that cause the demand curve to shift ?
PASIFIC
- population
- advertising
- substitutes
- income
- fashion
- interest rates
- complements
What is supply?
The quantity a producer is willing and able to produce at a given price in a given period of time
- more suppliers will enter a market when the price rises as the product is more profitable
What causes the supply curve to shift?
Productivity Indirect taxes Number of firms entering the market Technology Subsidies Weather Cost if production
What does the PED measure?
It measures the responsiveness of the quantity demanded to a change in the price of a good
- always negative because price and quantity move in opposite directions
What are the factors that influence PED?
Number of close substitutes in the market Habit forming goods Luxuries and necessities Time period under consideration Percentage of income spent on a good
Why is PED important to a firm?
Important for making price decisions if they want to increase total revenue
- if elastic they put price down to increase total revenue
- if inelastic they increase price to increase total revenue
What does PES measure?
Responsiveness of quantity supplied to a change in price
What are the factors that influence PES?
- Level of spare capacity
- Level of stock and work in progress
- Production lags
- Time period
- Substitutability of factors of production
