EXAM! Flashcards
Define normative statement
Value judgements that can’t be concluded from looking at the evidence avalible
Define positive statement
Statement that can be scientifically tested by referring to evidence to see if correct
Distinguish the difference between a need and a want
Need: necessity, needed for survival
Want: not a necessity, not needed for survival, something desired
Define economic welfare
Well being of an individual/group within society/an economy
Define factions of production
Inputs into the production process
What is the basic economic problem
Wants are infinite and resources are scarce
Define opportunity cost
The cost of giving up the next best alternative
What’s the difference between a free good and an economic good
Free good: a resource that isn’t scarce/available without limit
Economic good: good that can be sold
Define demand
Quantity of a good/service that consumers are willing and able to buy at a given price over a given period of time
Define price elasticity of demand and show equation
Measures to the extent the demand of a good changes in response to a change in price of the good
%change in Q D
—————-
%change in P
Distinguish between a Normal good and an inferior good
Normal: demand increases when income increases (vice versa)
Inferior: demand decreases when income increases (vice versa)
What is income elasticity of demand?
Measures the extent to which demand for a good changes in response to a change in income
% change in Q D
—————–
% change in Y
What is cross elasticity of demand?
Measures extent to which the demand of a good changes in response to a change in price of another good
%change of Q D of good A
—————————-
% change in P of good B
Define supply
Quantity of a good/ service a firm is willing and able to sell at given prices over a period of time
What is price elasticity of supply
Mesure the extent to which supply of a good changes in response to a change in price
%change in Q supplied
————————
%change in P
What is market equilibrium?
When planned demand meets planned supply (no excess D or S)
Curves cross
What is market disequilibrium?
Excess demand or supply (any price other than the equilibrium
Define derived demand
Demand for a good/service involved in producing another good/service
Define composite demand
Goods that have more than one use
Define goods in joint supply
When one good is produced and other is also produced as part of the production process of producing the first good
Define joint demand
Goods complementary to each other bought together
What are the conditions of demand
- income: normal, inferior
- change in price of substitute goods
- change in price of complementary goods
- tastes/preferences
- population/size
- future predictions
What are the conditions of supply?
- changes in costs of production
- taxes/subsidies
- changes in price of goods in joint supply
- changes in price of substitutes
- technology
- knowledge
- weather
Define productivity
Output per unit of input over a period of time
Define production
Process/processes converting inputs into outputs
Define specialisation. What are the advantages?
A worker performing a task/narrow range of tasks
- more efficient
- saves time
Define the division of labour
Different workers performing different tasks in the course of producing a good/service
Define short run
Time period in which at least one factor of production is fixed and cannot be varied
Define long run
Time period in which no factors of production are fixed and in which all the factors of production can be varied
Distinguish between fixed cost and variable cost
Fixed cost: cost of production in the short run does not change with output
Variable cost: cost of production which changed with output produced in the short and long run
Distinguish between economies and diseconomies of scale
Economies of scale: as output increases average long run costs fall
Diseconomies of scale: as output increases long run average costs rise
Define total revenue and state equation
Money a firm received from selling its output
Price X Q sold
Define total costs and state equation
Whole cost of producing a particular level of output
Fixed cost + variable cost
Define market structure
Organisation of a market in terms of the number of firms in the market and how they behave
Define pure monopoly
When there is only one firm in the market
Define monopoly power
Power of a firm to act as the price maker not taker
-makes short and long term profits
What are the conditions of perfect competition
- large number of buyers and sellers in the market
- perfect market info
- ability to buy and sell desired amount at given price level
- individual sellers can’t influence a market
- homogenous product (no branding)
- no barriers to entry
Define allocative efficiency
When avalible economic resources are used to produce the combination of goods/services that best match people’s tastes and preferences
Define productive efficiency
When it is impossible to produce more of one good without producing less of another (opp cost)
Define barriers to entry
Obstacles for new firms to enter the market
What is the concentration ratio
Indicates total market share for a number of leading firms
Output of them as a percentage of total market output
Define market failure
When the free market forces of demand and supply leads to a misallocation of resources
What are market forces
Forces of demand and supply allocating the price and quantity of scarce resources
Distinguish between a merit good and a demerit good
Merit : good/service providing greater social benefits than private/long term benefits exceeding short term
Demerit: greater social costs then private costs when consumed
Distinguish between a private and public good
Private: good which is excludable and diminishable
Public: good which is non excludable and non diminishable
