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Economics A.1 > Jan Mock - Econ > Flashcards

Jan Mock - Econ Flashcards

1
Q

Price Mechanism 4 Functions?

A
  1. Allocate
  2. Ration scarce resources
  3. Signalling
  4. Incentives
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2
Q

Ration scarce resources

A

If there’s high demand for a good/service and its supply is limited, then the price will be high. supply of the good will be restricted to those that can afford to pay a high price. The opposite is also true.

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3
Q

Price Mechanism Acting as an Incentives function

A

Higher prices allow firms to produce more goods/services and encourage increased production and sales by providing higher profits.

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4
Q

Signalling device

A

Changes in price show changes in supply and/or demand and act as a signal to producers and consumers.

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5
Q

Price Mechanism +ve’s

A

Resources will be allocated efficiently to satisfy consumers’ wants and needs.

The price mechanism can operate without the cost of employing people to regulate it.

Consumers decide what is and isn’t produced by producers.

Prices are kept to their minimum as resources are used as efficiently as possible.

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6
Q

Price Mechanism -ve’s

A

Inequality in wealth and income is likely.

There will be an under-provision of merit goods and an over-provision of demerit goods, as the supply of and demand for these goods won’t be at the socially optimal level.

People with limited skills or ability to work will suffer unemployment or receive very low wages.

Public goods won’t be produced.

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7
Q

Absolute advantage

A

A country will have an absolute advantage when its output of a product is greater per unit of resource used than any other country.

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8
Q

Absolute poverty

A

This is when someone doesn’t have the income or wealth to meet their basic needs, such as food, shelter and water.

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9
Q

Aggregate demand

A

The total demand, or total spending, in an economy at a given price level over a given period of time.
AD = C + I + G + (X - M)

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10
Q

Aggregate supply

A

The total amount of goods and services which can b resupplied in an economy at a given price level over a given period of time.

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11
Q

Aid

A

The transfer of resources from one country to another.

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12
Q

Allocative efficiency

A

This is when the price of a good is equal to the price that consumers are happy to pay for it. This will happen when all resources are allocated efficiently.

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13
Q

Asymmetric information

A

This is when buyers have more information than sellers (or the opposite) in a market.

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14
Q

Automatic stabilisers

A

These are parts of fiscal policy that will automatically react to changes in the economic cycle. Eg: during a recession, government spending is likely to increase because the government will automatically pay out more unemployment benefits, which may reduce the problems the recession causes.

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15
Q

Balance of payments

A

A record of a country’s international transactions.

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16
Q

Bank rate

A

The official rate of interest set by the Monetary Policy Committee of the Bank of England.

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17
Q

Black market

A

Economic activity that occurs without taxation and government regulation.

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18
Q

Budget deficit

A

When government spending is greater than its revenue.

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19
Q

Budget surplus

A

When government revenue is greater than spending.

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20
Q

Capital account on the Balance of payments

A

A part of the record of a country’s international flows of money. This includes transfers of non-monetary and fixed-assets, such as through emigration and immigration.

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21
Q

Cartel

A

A group of producers that agree to limit production in order to keep the price of goods or services high.

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22
Q

Circular flow of income

A

The flow of national output, income and expenditure between households and firms.

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23
Q

Comparative advantage

A

A country has a comparative advantage if the opportunity cost of it producing a good is lower than the opportunity cost for other countries.

24
Q

Command economy

A

An economy where governments, not markets, determine how to allocate resources.

25
Q

Competition policy

A

Government policy aimed at reducing monopoly power in order to increase efficiency and ensure fairness for consumers.

26
Q

Conglomerate integration

A

Mergers or takeovers between firms which operate in completely different markets.

27
Q

Consumer surplus

A

When a consumer pays less for a good than they were prepared to, this difference is the consumer surplus.

28
Q

Contestability

A

A market is contestable if it’s easy for new firms to enter the market. i.e if there are low barriers to entry.

29
Q

Cost-benefit analysis (CBA)

A

This involves adding up the total private and external costs and benefits of a major project in order to decide if the project should go ahead.

30
Q

Cost-push inflation

A

inflation caused by the rising cost of inputs to production.

31
Q

Creative destruction

A

This occurs when the innovation and invention of new products and production methods causes the destruction of existing markets and creates new ones.

32
Q

Cross elasticity of demand (XED)

A

This is a measure of how the quantity demanded of one good/service responds to a change in the price of another good/service.

33
Q

Current account on the balance of payments

A

A part of the record of a country’s international flows of money. It consists of: trade in goods, trade in services, international flows of income (salaries, interest, profit and dividends), and transfers.

34
Q

Cyclical unemployment

A

Unemployment caused by a shortage of demand in an economy, eg: when there’s a slump.

35
Q

Demand-pull inflation

A

Inflation caused by excessive growth in aggregate demand compared to aggregate supply.

36
Q

Demand-side policy

A

Government policy that aims to increase aggregate demand in an economy. Eg: a policy to increase consumer spending in an economy.

37
Q

Demerger

A

A firm selling off part(s) of its business to create a separate firm, or firms.

38
Q

Demerit goods

A

A good or service which has greater social costs when it’s consumed than private costs. Demerit goods tend to be overconsumed.

39
Q

Dependency ratio

A

How many people are either too young or too old to work, relative to the number of people of working age.

40
Q

Deregulation

A

Removing rules imposed by a government that can restrict the level of consumption in a market.

41
Q

Derived demand

A

The demand for a good or factor of production due to its use in making another good or providing a service.

42
Q

Developed countries

A

Relatively rich, industrialised countries with a high GDP per capita.

43
Q

Developing countries

A

Countries that rely on labour-intensive industries. They have relatively low GDP per capita.

44
Q

Diseconomies of scale

A

A firm is experiencing diseconomies of scale when the average cost of production is rising as output rises.

45
Q

Disposable income

A

Income, including welfare benefits, that is available for households to spend after income tax has been paid.

46
Q

Dividend’s

A

A share of a firm’s profits that is given to the firm’s shareholders.

47
Q

Divorce of ownership from control

A

This occurs when a firm’s owners are no longer in control of the day-to-day running of the firm. This can lead to the principal-agent problem, where those in control act in their own self-interest, rather than the interest of the owners.

48
Q

Dynamic efficiency

A

This is about firms improving efficiency in the long term by carrying out research and development into new or improved products or investing in new technology and training to improve the production process.

49
Q

Economic cycle

A

The economic cycle is the fluctuations in actual growth over a period of time.

50
Q

Economic development

A

An assessment of living standards and people’s overall welfare in a country.

51
Q

Economic growth

A

An increase in an economy’s productive potential. Usually, measured as the rate of change of the gross domestic product, or the GDP per capita.

52
Q

Economic integration

A

The process by which the economies of different countries become more closely linked, Eg: through free trade agreements.

53
Q

Economic rent

A

The excess a worker is paid above the minimum required to keep them in their current occupation.

54
Q

Economically active population

A

The people in an economy who are capable of and old enough to work.

55
Q

Economies of scale

A

A firm is experiencing economies of scale when the average cost of production is falling as output rises.

56
Q

Price mechanism

A

The price mechanism is when changes in demand or supply of a good/service lead to changes in its price and the quantity bought/sold.

The free-market price mechanism clearly does NOT ensure an equitable distribution of resources and can lead to market failure.

Economics A.1 (5 decks)

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