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Economics > Exam 1 > Flashcards

Exam 1 Flashcards

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
Q

Labour productivity =

A

Total output / number of workers employed

26
Q

Total production =

A

Output per worker per hour x Number of hours worked

27
Q

Division of labour

A

The breaking down of production process, whereby workers specialise in just 1 or 2 tasks

28
Q

Specialisation

A

When a worker/firm/country focuses on producing just one or two goods

29
Q

Labour productivity

A

Measures the value of output per worker per hour

30
Q

Structural Unemploymet

A

The inability of labour to take a job in a different profession, due to a lack of transferable skills

31
Q

Occupational immobility of labour

A

Structural Unemployment

32
Q

The supply curve:

A

The marginal cost of production curve

33
Q

The supply curve shows:

A

The cost of producing each unit of output
Or
The total quantity produced at any given price

34
Q

If the price rises due to an extension of demand

A

There will be an extension of supply (upwards)

35
Q

If the price falls due to a fall in demand

A

There will be a contraction of supply (downwards)

36
Q

The demand curve shows

A

How much an individual would buy at different prices

37
Q

The law of diminishing marginal utility

A

As consumption increases, marginal utility derived from each additional unit declines

38
Q

Why does the demand curve slope downwards?

A

The income effect

The substitution effect

39
Q

The income effect

A

When price falls people can afford to buy more of that good

40
Q

The substitution effect

A

As the price of a good falls, consumers will substitute and switch to buy that good.

41
Q

Supply is more abundant, the price falls

A

Extension of demand (downwards)

42
Q

When price rises due to a left shift in the supply curve

A

The rising price will ration goods to those who most enjoy consuming them

43
Q

Supply curve shifts right

A

Increase the quantity supplied at any given price

44
Q

Demand curve shifts right

A

Increase in quantity demanded of a good at any given price

45
Q

Consumer surplus

A

The difference between the highest price consumers are prepared to pay, and the price they actually pay

46
Q

Producer surplus

A

The difference between the lowest price a producer is prepared to sell for, and the actual price received

47
Q

The sum of all the consumer surplus on each unit

A

The area between the demand curve and the equilibrium price

48
Q

The cum of all producer surpluses on each unit

A

The area between the supply curve and the equilibrium price

49
Q

Community surplus

A

Producer surplus + consumer surplus

50
Q

Excess supply

A

When the quantity supplied is greater than quantity demanded at that given price

51
Q

Excess demand

A

When quantity demanded is greater that quantity supplied at that given price

52
Q

The rationing function

A

When the price for a good falls, it is like a small increase in REAL income

53
Q

Elastic demand

A

-infinity to -1

54
Q

Inelastic demand

A

-1 to 0

55
Q

The signalling function

A

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
Q

PED

A

% ^ Qd / %^ price

57
Q

Inelatic demand

A

Vertical

When a change in price leads to a less than proportional change in quantity demanded

58
Q

Elastic demand

A

Flat

When a change in pride leads to a more than proportional change in quantity demanded

59
Q

Unitary-Elastic demand

A

Convex (

When a change in price leads to an equal proportional change in quantity demanded

60
Q

YED

A

%^Qd / %^P

61
Q

Inferior good

A

Income very inelastic

62
Q

PES

A

%change in Qd / %change in P

Economics (5 decks)

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