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Economics > Exam 1 > Flashcards

Exam 1 Flashcards

(62 cards)

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1
Q

The basic economic problem

A

Our wants are infinite,but resources are finit. Therefore, we have to choose how to best allocate our scarce resources in a way that best maximises utility in society

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2
Q

The output point is above the PPF curve

A

It is currently unattainable but with technological breakthrough this can be produced

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3
Q

Output point is on the PPF curve

A

All resources are fully utilised

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4
Q

Output point is under the PPF curve

A

A misallocation of resources

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5
Q

PPF line

A

Shows the maximum potential output of an economy if all resources are fully utilised

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6
Q

Factors that could shift the PPF line outwards

A
  • land
  • productivity of labour
  • technological breakthrough
  • increased retirement age
  • better machinery
  • increased working class population
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7
Q

Opportunity cost

A

The benefit forgone when choosing the next best alternative

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8
Q

Excess supply

A

When the quantity supplied is larger than the quantity demanded at the price

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9
Q

Shortage

A

Excess demand

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10
Q

As P increases

A

There will be some contraction of D

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11
Q

Unitary elastic demand

A

When a change in price leads to equal proportional change in demand

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12
Q

Factors of production

A

Land, Labour, Capital, Enterprise

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13
Q

Land

A

Copper, trees, coal

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14
Q

Labour

A

Teachers, Accountants, dentists

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15
Q

Capital

A

Roads, computers, factories

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16
Q

Enterprise

A

CEO, The chairman, the managing director

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17
Q

Pareto efficiency

A

When an economy is using all its resources

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18
Q

Allocative efficiency

A

When resources are allocated to produce goods and services that best reflects the current desires of society

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19
Q

Concave-shaped PPF line

A

Imperfect factor substitution

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20
Q

Straight line PPF

A

Perfect factor substitution

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21
Q

Pivot shift PPF

A

A technological breakthrough only applied to one output

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22
Q

Potential economic growth

A

A rise in the maximum potential output of an economy

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23
Q

Actual economic growth

A

A rise in the amount of goods and services produced

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24
Q

Output gap

A

The difference between the maximum potential output and the actual output being produced

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25
Labour productivity =
Total output / number of workers employed
26
Total production =
Output per worker per hour x Number of hours worked
27
Division of labour
The breaking down of production process, whereby workers specialise in just 1 or 2 tasks
28
Specialisation
When a worker/firm/country focuses on producing just one or two goods
29
Labour productivity
Measures the value of output per worker per hour
30
Structural Unemploymet
The inability of labour to take a job in a different profession, due to a lack of transferable skills
31
Occupational immobility of labour
Structural Unemployment
32
The supply curve:
The marginal cost of production curve
33
The supply curve shows:
The cost of producing each unit of output Or The total quantity produced at any given price
34
If the price rises due to an extension of demand
There will be an extension of supply (upwards)
35
If the price falls due to a fall in demand
There will be a contraction of supply (downwards)
36
The demand curve shows
How much an individual would buy at different prices
37
The law of diminishing marginal utility
As consumption increases, marginal utility derived from each additional unit declines
38
Why does the demand curve slope downwards?
The income effect | The substitution effect
39
The income effect
When price falls people can afford to buy more of that good
40
The substitution effect
As the price of a good falls, consumers will substitute and switch to buy that good.
41
Supply is more abundant, the price falls
Extension of demand (downwards)
42
When price rises due to a left shift in the supply curve
The rising price will ration goods to those who most enjoy consuming them
43
Supply curve shifts right
Increase the quantity supplied at any given price
44
Demand curve shifts right
Increase in quantity demanded of a good at any given price
45
Consumer surplus
The difference between the highest price consumers are prepared to pay, and the price they actually pay
46
Producer surplus
The difference between the lowest price a producer is prepared to sell for, and the actual price received
47
The sum of all the consumer surplus on each unit
The area between the demand curve and the equilibrium price
48
The cum of all producer surpluses on each unit
The area between the supply curve and the equilibrium price
49
Community surplus
Producer surplus + consumer surplus
50
Excess supply
When the quantity supplied is greater than quantity demanded at that given price
51
Excess demand
When quantity demanded is greater that quantity supplied at that given price
52
The rationing function
When the price for a good falls, it is like a small increase in REAL income
53
Elastic demand
-infinity to -1
54
Inelastic demand
-1 to 0
55
The signalling function
And increase in prise caused by a rise in demand, will signal to entrepreneurs to enter the market A decrease in price, waisted by a fall in demand, will signal to entrepreneurs to EXit the market
56
PED
% ^ Qd / %^ price
57
Inelatic demand
Vertical When a change in price leads to a less than proportional change in quantity demanded
58
Elastic demand
Flat When a change in pride leads to a more than proportional change in quantity demanded
59
Unitary-Elastic demand
Convex ( When a change in price leads to an equal proportional change in quantity demanded
60
YED
%^Qd / %^P
61
Inferior good
Income very inelastic
62
PES
%change in Qd / %change in P

Economics (5 decks)

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