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Edexcel Econmics: Micro (Year 1) > Introduction To Markets And Market Failure > Flashcards

Introduction To Markets And Market Failure Flashcards

1
Q

What is ‘ceteris paribus’?

A

Latin for meaning that all other variables remain equal.

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2
Q

What is a positive statement?

A

Statements that can be proven to be true or false, can be supported or disputed using evidence.

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3
Q

What is a normative statement?

A

A statement that cannot be supported or refuted, they are opinions and judgements.

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4
Q

What is the basic economic problem?

A

There are infinite human wants but scarce resources.

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5
Q

What are the factors of production, and what do they relate to?

A

Land- natural resources
Labour- the workforce
Enterprise/entrepreneurship- innovation and taking risks to seek out profitable opportunities for production
Capital- the stock of manufactured resources used in the production of goods and services

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6
Q

What does utility refer to?

A

The satisfaction gained from consuming a product.

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7
Q

What does marginal mean?

A

Additional

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8
Q

What is the price mechanism?

A

The interaction of buyers and sellers in free markets enabling goods, services and resources to be allocated by prices.

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9
Q

What does a demand curve show?

A

The amount people are willing to buy at a given price.

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10
Q

What factors affect the demand curve?

A

Changes to income, population, fashion and changes to the price of other goods.

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11
Q

What does a supply curve show?

A

The amount firms are willing to supply at a given price.

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12
Q

What factors affect the supply curve?

A

Changes to the cost of production
Natural factors (e.g weather/disasters)
Government taxes and subsides

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13
Q

What is the equilibrium, and where is it found on a demand and supply diagram?

A

It is where all the product being supplied onto the market will be purchased, and is found where the demand and supply curve meet.

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14
Q

What is the price elasticity of demand?

A

The responsiveness of demand to a change in price.

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15
Q

What does it mean for a product to be elastic?

A

It means that the % change in demand is greater than the % change in price.

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16
Q

What does it mean for a product to be inelastic?

A

It means that % change in demand is less than % change in price.

17
Q

What is the formula for working out Price elasticity of demand (PEOD)?

A

% change in quantity demanded ÷ % change in price

18
Q

After working out the PEOD, if the answer is between 0 and -1, what is the relationship?

A

Inelastic

19
Q

After working out the PEOD, if the answer is between -1 and infinity, what is the relationship?

A

Elastic

20
Q

What is the gradient of a inelastic demand/supply curve?

A

Steep

21
Q

What is the gradient of a elastic demand/supply curve?

A

Flat

22
Q

What are five determinants of elasticity?

A
  • Time period
  • Number/closeness of substitutes
  • Proportion of income taken up by the product
  • Luxury/necessity
  • Habit farming
23
Q

What is the price elasticity of supply?

A

The responsiveness of supply to a change in price

24
Q

How do you work out price elasticity of supply (POES)?

A

% change in quality supplied ÷ % change in price

25
Q

If the PEOS is less than 1, what is it?

A

Inelastic

26
Q

If the PEOS is more than 1, what is it?

A

Elastic

27
Q

If the PEOS is 1 exactly, what is it?

A

Unit elastic (change in price=change in quantity supplied)

28
Q

Why is supply likely to be inelastic in the short run?

A

It takes time for supply to ‘catch up’ to demand, as demand can change overnight yet it takes time to find the resources to make a product (slowing production tome). Thus the change in price will seem larger than the change in quantity supplied.

29
Q

What are the 9 determinants of PEOS?

A
  • Land
  • Labour
  • Capital
  • Enterprise
  • Time
  • Spare capacity
  • Spare stock and components
  • Nature of the product
  • Availability of the factors of production
30
Q

What is income elasticity of demand?

A

The responsiveness of demand to a change in income.

31
Q

How do you work out income elasticity of demand?

A

% change in quantity demanded ÷ % change in income

32
Q

DO ANOTHER FOR INCOME ELASTICTY

A

Sh

33
Q

What is cross elasticity?

A

The responsiveness of demand of one good to changes in the price of a related good.

34
Q

How do you work out cross elasticity (XED)?

A

% change of good A ÷ % change of good B.

35
Q

What do the calculations of cross elasticity reveal?

A

If the product is a substitute (+) or a conpliment (-).

36
Q

How can you tell that a product is a normal/inferior good in income elasticity of demand?

A
  • If a +, the product is a normal good.

- If a -, the product is an inferior good.

Edexcel Econmics: Micro (Year 1) (1 decks)

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