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IB Economics SL > Intro to economics > Flashcards

Intro to economics Flashcards

1
Q

Which are the determinants of PED?

A
  1. Number and closeness of substitutes
  2. Proportion of income spent on the good
  3. Time period between measurements
  4. Nature of the good
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2
Q

What is the basic economic problem?

A

Humans have unlimited wants and needs but limited resources

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3
Q

Define opportunity cost

A

The next best alternative sacrifice

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4
Q

Define consumer goods

A

Everything that we buy

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5
Q

Define capital goods

A

Equipment necessary to produce consumer goods

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6
Q

Describe a production possibility curve

A

A PPC shows us the largest amount of capital goods (x) and consumer goods (y) a system could possibly produce if it correctly utilised all its resources

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7
Q

Define actual growth

A

Using all the resources available to you

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8
Q

Define free market

A

No control from the government (Hong Kong)

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9
Q

Define central planning

A

State funded and controlled (N. Korea)

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10
Q

Define mixed economy

A

A mixture of government decisions and a market economy

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11
Q

Define the invisible hand

A

The hand that pushes us all towards a common goal

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12
Q

Which are the key determinants of demand?

A 
Price 
Preference/ Taste
Price and availability of substitutes
Income 
Price and availability of compliments
Population size
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13
Q

Define Market

A

A place, institution or structure that allows buyers and sellers to sell any type of goods, services or information

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14
Q

Define Ceteris Paribus

A

To keep all other conditions the same

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15
Q

Define Demand

A

The quantity of a good/service consumers are willing and able to buy at a given price in a given time period

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16
Q

What is the Law of Demand?

A

There is an inverse relationship between price and quantity demanded (assuming ceteris paribus)

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17
Q

Which two effects affect the demand curve?

A

Income effect

Substitution effect

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18
Q

Describe the income effect

A

As price increases, the cost represents and increasing proportion of the consumer’s income and thus they become less able to afford it

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19
Q

Describe the substitution effect

A

As price increases, other goods/services become more competitive relatively

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20
Q

What are the two types of determinants?

A

Price determinants

Non-price determinants

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21
Q

What happens to a demand curve if there is a change in the price of goods?

A

Movement occurs along the demand curve

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22
Q

What happens to a demand curve is there is a change in any non-price determinants of goods?

A

A shift in the curve

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23
Q

What would happen to the curve if the cost of producing increased?

A

The demand would move along the curve towards the y axis

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24
Q

What would happen to the curve if the population size increased?

A

The demand curve would move towards the right in the direction of the x axis

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25
Q

Define price mechanism

A

The manner in which the profits of goods or services effect the supply and demand of goods and services

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26
Q

Define a shortage

A

Excess demand

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27
Q

Define supply

A

Willingness and ability of producers to provide/sell goods and services at a given price in a given time period

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28
Q

Define a supply curve

A

Shows what producers are able to supply at different prices, ceteris paribus

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29
Q

Law of supply

A

There is a positive relationship between quantity supply and price

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30
Q

What may a producer do if there is excess demand?

A

Increase price

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31
Q

What may a producer do if there is excess supply?

A

Decrease price

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32
Q

Define elasticity of demand

A

How responsive demand is to changes in price

33
Q

How do we get the coefficient of PED?

A

PED = %ΔQd / %ΔP

34
Q

Define PED

A

Price elasticity of demand

This measures the responsiveness of the quantity demanded following a change in price

35
Q

What is the coefficient of PED telling us?

A

The degree of responsiveness between two specific points on a demand curve

36
Q

What does -1 < PED < 0 mean?

A

The price is inelastic (not very responsive to changes in price)

37
Q

What does -∞ < PED < -1 mean?

A

The price is elastic (responsive to changes in price)

38
Q

What does PED = 0 mean?

A

Perfectly inelastic demand

Price has no impact on demand

39
Q

What does PED -> -∞ mean?

A

Perfectly elastic demand

40
Q

What does an elastic demand curve look like?

A

Light gradient

41
Q

What does an inelastic demand curve look like?

A

Steep gradient

42
Q

Define Revenue

A

The amount of money coming in

43
Q

How can we calculate the revenue for a specific point on the demand curve?

A

Use the point to draw a rectangle which reaches both axes

The area of this is equal to the revenue

44
Q

To increase revenue, what should a firm do if they have an elastic demand?

A

Decrease the price

45
Q

To increase revenue, what should a firm do if they have an inelastic demand?

A

Increase the price

46
Q

Which are the determinants of elasticity?

A

Nature of goods
Number and availability of substitutes
Time period between measurements
Proportion of income spent on the good

47
Q

What happens to the elasticity of a product as time passes?

A

It becomes more elastic

48
Q

Are essential goods more likely to be elastic or inelastic? Why?

A

Inelastic as people have to buy it no matter the price

49
Q

Are addictive goods more likely to be elastic or inelastic? Why?

A

Inelastic as people have to buy it no matter the price

50
Q

Are non-essential and luxury goods more likely to be elastic or inelastic? Why?

A

Elastic as people can find substitutes or do without if they feel the pricing is unfair

51
Q

Who pays most tax on an inelastic product?

A

The consumer

52
Q

Who pays most tax on an elastic product?

A

The producer

53
Q

What happens to the elasticity of a single product at different points along its’ demand curve?

A

The more expensive it is, the more elastic the price. This is due to the income effect

54
Q

Define YED

A

Income elasticity of demand

The responsiveness in quantity demanded following a change in income

55
Q

How do we calculate YED?

A

YED=%ΔQd / %ΔY

56
Q

What does it mean if the coefficient of YED is positive?

A

This is a normal good

As income increases, quantity demanded increases

57
Q

What does it mean if the coefficient of YED is negative?

A

This is an inferior good

As price increases, quantity demanded decreases

58
Q

What does it mean if YED = 0?

A

The quantity demanded is unaffected by income

59
Q

What does it mean if we have a YED > 1?

A

It is a normal good and the product is income elastic (such as luxuries)

60
Q

What does it mean that YED < 1 (assuming YED is positive)?

A

It is a normal good and the product is income inelastic

61
Q

Define a superior good

A

When YED > 1

These are usually luxuries

62
Q

Define PES

A

Price elasticity of supply

63
Q

Between which values is supply inelastic?

A

0 < PES < 1

inclusive of 1

64
Q

Between which values is supply elastic?

A

PES > 1

65
Q

What is the primary sector?

A

Agriculture

66
Q

What is the secondary sector?

A

Manufacturing

67
Q

What is the tertiary sector?

A

Services

68
Q

What is a primary commodity?

A

Any good from the agricultural sector

69
Q

What is a secondary commodity?

A

Any good from the manufacturing sector

70
Q

What is a tertiary commodity?

A

Any good from the services sector

71
Q

What is the equation for PES?

A

PES = %ΔQs / %ΔP

72
Q

What are the determinants of PES?

A 
Time between measurements
Unused capacity
Quality of labour
Ability to store stocks
Number and closeness of supplier substitutes
73
Q

Define supplier substitute

A

An alternative that a supplier could produce

74
Q

Define consumer substitute

A

An alternative a consumer could buy

75
Q

With which commodities may a minimum price be useful?

A

Those where the goods are not perishable

76
Q

What are the problems with minimum price?

A
  1. Perishable goods surplus becomes money loss
  2. Secondary markets may be created
  3. Pass the problem off to some other sector/ area
77
Q

Define indirect tax

A

Tax charged to a specific type of good or service

78
Q

Define direct tax

A

Tax charged to income

79
Q

Specified tax

A

Tax of a specified quantity to a specific product

IB Economics SL (5 decks)

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