google forms Flashcards
PPFs are very useful tools to show the ideas of what?
Scarcity and choice
On a microeconomic level. What does a PPF show? ( 2 things)
The maximum possible production of two goods or services with given factors of production, and the combinations of two goods or services that can be produced with given factors of production.
On a macroeconomic level. What does a PPF show? (2 things)
The maximum production of all goods and services that can be produced with the factors of production, and the combinations of all goods and services that can be produced with given factors of production
The diagrams can be used to show concepts such as….
Opportunity cost, efficiency
How can you tell a PPf is a microeconomic PPF?
There will be two specific goods labelled
The curve of the PPF show us the ___________ possible production a firm can produce of two goods and the various __________ of these two goods
Maximum, combinations
If a firm is producing on their PPF, what happens if they wish to produce more of one of the goods - How does this show opportunity costs?
The production of the other good decreases
What happens to the amount of laptops lost (opportunity cost) the second time production is specialised towards tablets?
A larger amount of laptops lost
What is the term for the curved shape of the PPF
Concave
What law does a concave PPF indicate?
The more we produce of one good, the more we give up of the other
What differentiates a Micro PPF from a Macro PPF in terms of labelling and what it represents overall?
The axis labels on a macro PPF is ‘goods’ and ‘services’ or ‘capital’ and ‘consumer’
Why does the law of increasing opportunity cost occur? (consider what happens as you move along the PPF and the factors of production that are deployed)
At the extremes of the axis, the factors of production are more suited to one good than the other, causing more of a loss per increment
What does a downwards sloping linear (straight line) PPF demonstrate?
Constant opportunity cost
What are the three types of efficiency that can be shown on a PPF?
Productive, allocative, pareto
What is meant by productive efficiency
Using up all factors of production to the maximum
At what points on a PPF diagram is productive efficiency shown
On the PPF curve
At whats points on PPF diagram is productive inefficiency shown?
Inside the PPF curve
Why is it productively inefficient
The factors of production are not being used to their maximum
What does a point outside of the PPF represent?
What does a point outside of the PPF represent?
On a macro diagram what can point inside the PPF curve be known as?
Unemployment
What is meant by allocative efficiency?
Whether whats being produced is satisfying consumer demand
At what point on a PPF diagram can allocative efficiency be shown?
Any- you cannot tell
What is meant by pareto efficiency?
Nothing can be made better off without making something else worse off
At what point on the PPF diagram can pareto efficiency be shown?
The middle
If a business is performing within their PPF (productively inefficient and pareto inefficiency) , how can production be increased?
Use their factors of production better
How may a firm increase the production of certain type of good if they are already operating on the PPF?
Reallocate factors of production
How can the PPF curve be shifted outwards?
Increase quantity or quality factors of production
What has happened if there is a shift in a PPF outwards that favour production on one good or service?
A change in the quantity or quality of factors of production that only suits one good
All other things being equal, when the equilibrium price of car tyres in a market rises from £60 to £90, the quantity demanded falls from 2 million units to1.5 million units. Therefore, the value of the price elasticity of demand is
-0.5
If demand for a product is unit elastic, for a given percentage increase in price, total revenue will
Remain unchanged.
A supermarket reduces the price of tins of biscuits from £4 to £3 per tin. Subsequently, the sales
increase from 200 to 300 tins of biscuits per day. The price elasticity of demand is
-2.0
The price elasticity of demand (PED) for petrol used by car drivers in an economy is estimated to
be −0.2
What is most likely reason for the low PED?
Few bus and rail services
The government was recently advised that a 40% increase in the price of beer would reduce
beer consumption by the rich by 6% and beer consumption by the poor by 20%. It can be
concluded from this that
A demand for beer is price inelastic for both rich and poor.
A product has a price elasticity of demand of −0.5. If the price of this product increases by 10%,
then total revenue will
Rise by less than 10%.
The price elasticity of demand for a good made by a firm is −0.6. If the firm raises the price of the
good, its revenues will
Rise
What is the formula for PeD
% change in quantity demanded / % change in price
How is demand defined?
The quantity of a good or service consumers are willing to buy at a given price at a given time period
What is meant by demand having to be “effective”?
Consumers are both willing and able to buy something
What is the law of demand?
There is an inverse relationship between price and quantity demanded. As price increases, quantity demanded decreases and vice versa
What is the Y axis labeled as on a supply and demand diagram?
Price
What is the x axis labeled as on a supply and demand diagram?
Quantity
How is a demand curve sloped and why?
The demand curve is downwards sloping, this is because of the law of demand - inverse relationship is due to income and substitute effect
If P1 increased to P2, what would happen to Q1?
Q1 would decrease to Q2 showing the inverse relationship
What happens when price decreases?
QD inceases
What is meant by the assumption “Ceteris Paribus”
All other factors remain unchanged, all other things remain equal
When price increases causing quantity demanded to decrease and there is a movement along the demand curve, what is this called?
Contraction of demand
When price decreases causing quantity demanded to increases and there is a movement down the demand curve, what is this called?
Extension of demand
“When prices go up or down there is a change in quantity demanded shown by ………….”
A movement along the demand curve
Why is there an inverse relationship between supply and demand?
The income effect and the substitute effect
How does the income effect explain, why when there is an increase in prices, quantity demanded falls (inverse relationship)?
When prices go up purchasing power of income reduces therefore people are less able to buy. Incomes do not allow people to buy the same number of goods/services as before and so demand contracts
How does the substitute effect explain, why when there is an increase prices, quantity demanded falls?
As prices go up other goods and services become more price competitive and so individuals switch their consumption to those instead
Non-price factors will do what to the demand curve?
Shift the curve
If a non-price factor occurs that increases demand what way does the demand curve shift?
Right
If a non-price factor occurs that decreases demand what way does the demand curve shift?
Left
The non-price factors impact demand completely independent of price. what does this mean in terms of the price level when the curve shits either left or right?
The price level remains the same when the demand curve shifts
What happens to quantity demanded when the demand curve shifts right?
QD increases at same price level
What happens to quantity demanded when the demand curve shifts left?
QD reduces at same price level
what are factors that can cause the demand curve to shift?
- Population
- Advertising
- Substitute’s price
- Income
- Fashions/tastes
- Interest rates
- Complement’s price
How and why can population impact the demand curve?
Cause a shift- If there is a higher populatio then there will be more demand
How and why can advertising impact the demand curve?
Curve to shift- good advertising can increase an individuals willingness to buy something so shifting the curve rightwards
How and why can substitute’s pricing impact the demand curve for a good or service?
Curve to shift- If the price of a substitute goes up, more people will be willing and able to buy the other good
What is a normal good - use the impact income has on demand of these types of good in your answer
As incomes rise demand for normal goods increases too
–> necessity and luxury
How and why can fashion/trends impact demand?
It can cause the demand to shift- if fashions move towards a good/service
What is an inferior good - answer using the impact income changes have on demand
As incomes decrease demand for inferior goods increase
How and why can interests rate impact demand?
If a good/service is one which consumers borrow money to purchase then when interest rates go down, borrowing money becomes cheaper and therefore demand increases
What is a complementary good?
A good often bought with another
How and why can complementary goods prices impact demand for a good or service?
If the price of the complementary good increases the demand for the other good would decrease
The demand for cocoa is derived from the demand for chocolate. When the demand for chocolate falls, the most likely result is a
movement along the supply curve for cocoa.
Land is in composite demand and can be used to build houses or to provide playing fields. When the demand for playing fields increases, there will be
a decrease in the supply of new houses.
The two diagrams below show the markets for Goods X and Y. 3. The markets are initially in equilibrium at P1 and Q1. If the supply of Good X increases and both markets move to a new equilibrium at P2 and Q2, it may be concluded that Goods X and Y are in
competitive demand.
Which one of the following best describes the relationship between the demand for air travel and the demand for airline pilots?
Derived demand
The diagrams below show the impact of an increase in demand for good G and the resulting change in the related market for good H.
These changes imply that goods G and H are in
joint supply.
Which one of the following best describes the relationship between the demand for air travel and the demand for airline pilots?
Derived demand
The demand for capital goods such as plant and machinery is said to be an example of derived demand because the demand for capital goods depends on
the volume of consumer goods purchased.
If Incomes change by £500 and £200 of this was then spent on consumption - what is the marginal propensity to consume?
0.4
The MPC is 0.25. Calculate the multiplier
1.33
The value of the multiplier is 1.75. Investment has increased by £50 million. What will be the overall increase in national income?
£87.5 million
The initial injection was £12 million and the final increase in GDP was £36 million - what was the multiplier?
3
The government invests £1 billion in an extension to the motorway network. As a result, in addition to this initial investment, national income increases by a further £2 billion.
What is the value of the multiplier?
3
In an economy, the marginal propensity to consume is 0.6. All other things being equal, which one of the following statements is correct?
A £5 billion reduction in the economy’s national income will result in a £3 billion fall in consumption
The marginal propensity to consume (MPC) in an economy is 0.5. If the MPC increases by 20% the new value of its multiplier will be
2.5
In an economy, the government reduced its spending by £4bn at the same time as exports rose by £20bn. As a result of these changes, national income rose by £20bn. The size of the multiplier is
1.25
Which one of the following best describes how an initial change in expenditure leads to a larger impact upon the level of national income?
The multiplier effect
An injection into an economy, with a marginal propensity to consume of 0.8, leads to a total increase in national income of £350 million. What was the value of the initial injection?
£70 million
If the value of the marginal propensity to consume is 0.8, what is the total increase to real national income, due to the multiplier process if the initial injection is £25m?
£125m
All other things being equal, when an increase in exports leads to a larger increase in national income, this illustrates
the operation of the multiplier.
The multiplier can refer to the effect of a change in the level of
investment upon national income.
The multiplier effect of an increase in investment in an economy is
a larger increase in national income than in investment.
‘The multiplier’ usually refers to how an initial increase in investment, government spending or exports leads to a larger increase in the level of
Income
