How Markets Work? Flashcards

1
Q

What are the Factors of Production?

A

Land, Labour, Capital and Enterprise.

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2
Q

Describe Production Possibility Diagrams.

A

Curve shows point where all resources are used. Closer to each side more of that good made. Below curve is recession and beyond is impossible.

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3
Q

Define Opportunity Costs.

A

By taking one item, you lose the ability to have alternative. If you have 50p and buy Mars then no longer have money for Twix.

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4
Q

Define Demand.

A

Inverse relationship between price and quantity.

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5
Q

Fill out this ‘I Sell Tacky Condoms With AIDS’

A

Income, substitutes, technology/trends, compliments, weather and advertising.

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6
Q

What is Effective Demand?

A

Demand backed by ability to pay.

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7
Q

Define Supply

A

High price attracts firms into the market, giving increased quantity. As price fall inefficient producers force out, decreased quantity.

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8
Q

Fill out ‘Peter Tickles Tom’s Sausage’

A

Production, Technology, Taxes and Subsidy.

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9
Q

How do the curves shift curve shift?

A

Increase is right and decrease is left.

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10
Q

How does price affect the curve?

A

Movement along the curve.

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11
Q

What is Equilibrium?

A

Price consumers are willing to pay and producers willing to sell. Is also where supply and demand curve crosses.

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12
Q

Equation for Elasticity of Supply.

A

% difference of Quantity Supplied / % difference of Price

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13
Q

What are the outcomes of elasticity of supply?

A

Less than one is in elastic and greater than one is elastic.

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14
Q

Factors that effect elasticity of supply.

A

Space Capacity, Time Period, Materials, Ease of Switching and Capital Intensive.

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15
Q

What are the outcomes for Price Elasticity of Demand?

A

Greater than one is elastic and less than one is in elastic.

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16
Q

Equation for Cross Elasticity of Demand.

A

% difference of Quantity Demand / % difference of Price

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17
Q

What are the outcomes for Cross Elasticity of Demand?

A

Positive is a Substitute product and Negative is a Complementary product.

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18
Q

Equation for Elasticity of Demand

A

% difference of Quantity Demand / % difference of Income

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19
Q

What are the outcomes for Income Elasticity of Demand?

A

Negative is Inferior, positive (0-1) is normal and positive (1+) is superior.

20
Q

Define an Inferior Good.

A

Income goes down, more low cost items bought e.g. rice and primarks Clothes

21
Q

Define a Normal Good.

A

Income goes up, demand goes up e.g. olives.

22
Q

Define Superior Goods.

A

Income goes up, demand goes up a lot e.g. luxury goods.

23
Q

Factors that effect Elasticity of Demand.

A

Availability of Substitutes, Cost of Switching, Breadth of Definition, Degree of Necessity, Time Frame, Brand Loyalty, Percentage of Income, Habit Forming.

24
Q

What is a Positive statement?

A

Statement that can be tested by fact e.g. Earth is round.

25
Q

Define Fixed Costs.

A

Costs that don’t change no matter the output e.g. rent.

26
Q

Define Variable Costs.

A

Costs that change depending on the output e.g. materials.

27
Q

Define Total Costs.

A

Fixed Costs + Variable Costs

28
Q

Equation for Average Fixed Costs.

A

Fixed Costs / Units of Output

29
Q

Equation for Average Variable Costs.

A

Total Variable Cost / Units of Output

30
Q

What is Normative statement?

A

Statement that is based on opinion e.g. Roses are a better flower then Tulips.

31
Q

Equation for Total Revenue.

A

Price x Quantity Sold

32
Q

Equation for Average Revenue.

A

Total Revenue / Quantity Sold

34
Q

Equation for Average Costs.

A

Total Costs / Units of Output

35
Q

Define Production.

A

Conversion of Factors of Production into finished good or services.

36
Q

Define Productivity.

A

Measures efficiency that production occurs.

37
Q

Equation for Labour productivity.

A

Output / Number of Employees

38
Q

Define Specialisation.

A

Individual or firm that focuses on specific area.

39
Q

Define Division of Labour.

A

Break down of production into tasks that groups specialise it.

40
Q

What is an Internal Economies of Scale?

A

Factors leading to lower costs as output increases - purchasing economics (bulk buys means lower costs). Encourages growth.

41
Q

What is an Internal Diseconomies of Scale?

A

Factors leading to higher costs as output increases - poor customer service. Discourages growth.

42
Q

Define Economies of Scale.

A

Advantage of Large Scale Production, bigger output less unit cost.

43
Q

What are the 5 types of economies of scale?

A

Technical, marketing, purchasing, managerial and financial economies.

45
Q

What is the price mechanism?

A

Interaction of supply and demand to create equilibrium - allocating, signalling and rationing

46
Q

What is Market Forces another term for?

A

Price Mechanism

47
Q

What are the objectives of firms?

A

Profit, market share, environment, ethical issues, consumer and employment satisfaction

48
Q

What are the external benefits of education?

A

Rising incomes and productivity for future, increase in occupational mobility and reduce unemployment