JESS Test Oct 2024 Flashcards
Scarcity
Scarcity – it is the situation in which available resources (land, labour, capital, entrepreneurship) are limited; they are not enough to produce everything that human beings need and want.
What is the basic economic problem
The basic economic problem occurs because resources are scarce – but our wants are infinite. As resources are scarce and our wants are never-ending, we have to allocate resources.
When allocating resources, individuals, firms and governments must all make decisions about what to produce, how to produce, and for whom to produce.
Opportunity Cost
Needs
Needs – something essential to survival – food, water, warmth, clothing and shelter.
Wants
Wants – something you would like to have, but is not essential to survival – for example cars, mobile phones and chocolate.
Factors of production
Factors of production – the resources we have available to produce goods and services (land, labour, capital and entrepreneurship).
Economics
is the study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants
Goods
are items that you can touch (tangible) – you can take them home and use them. An example of a good is a pen or a packet of crisps.
Services
a service is something that someone provides for you; you cannot touch it (intangible). Examples include tourism and banking.
Opportunity Cost
the next best alternative foregone when making a choice – what we give up when we make a choice.
Resource allocation
Resource allocation – assigning an economy’s available resources, i.e., the factors of production, to certain uses which have to be chosen among the many possible alternatives available.
Resources
Resources – something used to produce output.
Quantity Demanded/Demand
is the amount of a good or service that a consumer is willing and able to purchase at a given price within a certain period of time.
Law of Demand
states that “as the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus”.
When the price rises the QD falls
When the price falls the QD rises
Demand Curve
represents the relationship between the price and the quantity demanded of a product, ceteris paribu
Supply
Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period
Supply Curve
represents the relationship between the price and the quantity supplied of a product, ceteris paribus.
YED
Income elasticity of demand: measures the responsiveness of demand to a change in consumer’s income.
Shifts demand curve due to changed income
PED
Price elasticity of demand: measures the responsiveness of quantity demanded to a change in price, along a given demand curve.
PED = Percentage Change in Quantity Demanded / Percentage Change in Price
PES
Price elasticity of supply: measures the responsiveness of quantity supplied to a change in price along a given supply curve.
XED
Cross price elasticity of demand: measures the responsiveness of a demand for one good to a change in price of another good.
Movement along the curve for one good causing a shift in demand for another good
Consumer Surplus
The difference between what the consumer was willing and able to pay (the demand curve) for a good or a service and what he actually paid (the market price).
Producer Surplus
the difference between the amount a producer is willing to accept for a good or service and the amount they actually receive. It represents the benefit producers receive from selling at a market price higher than their minimum acceptable price.
Manufactured goods
washing machines, phones, cars etc
commodities
agricultural products or raw materials
Commodities are necessities as they are raw materials used in the production of goods
Secondary sector
Where raw materials are manufactured into goods
eg car manufacturing, manufacture of electronic goods eg phones, computure
Tertiary sector
The service sector
eg banking, tourism, education
Primary sector
Where the extraction of raw materials take place
eg Mining, farming, fishing, oil extraction
Consumer
A person who buys and uses goods and sercies
Supplier
Businesses that produce goods and srevices
PPC
The Production Possibility Curve (PPC) is an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods/services
Substitutes
Substitutes are products you can use instead of a different good or service (e.g., Coke and Pepsi are substitutes, so too are petrol and public bus rides.
Complements
Complements are products that are used and consumed with each other (e.g., smartphones and apps). Once the cost of smartphones falls the quantity demanded of this good increases. Extra apps are then sold.
Inferior goods
Inferior goods are those goods and services for which demand tends to fall when income rises. Examples would include used cars and cheaper cuts of meat. Demand for inferior goods decreases when income increases. The demand curve moves down and left to indicate less is required at each price.
Normal goods
Normal goods are goods and services for which demand increases as consumers’ income increases and for which demand goes down when income is lower. Examples include new cars and holidays.
Demand for normal goods will increase as consumers’ income increases. The demand curve shifts up and right to illustrate that more of the good or service is required at each price.
Ceteris paribus
Ceteris paribus means “Other things being equal” and it is used as a reminder that all variables other than the ones being studied are assumed to be constant.
Market
market is any arrangement that allows buyers and sellers of goods and services and resources to be linked together and exchange things.
Excess supply
This occurs where the price of the good is higher than the equilibrium price, such that the quantity supplied is greater than the quantity demanded.
Excess demand
This occurs where the price of a good is lower than the equilibrium price, such that the quantity demanded is greater than the quantity supplied.
MEP
Signalling
If the price of a good or service increases, it signals to producers that there is high demand for it, and they will produce and supply more of it.
Rationing
rationing refers to the allocation of scarce goods or resources among competing individuals or groups. Rationing typically occurs when the demand for a particular good or resource exceeds its available supply.
price mechanism
The means by which millions of decisions taken by consumers and businesses interact to determine the allocation of scarce resources between competing uses. In a free market economy, resources are allocated through the price mechanism.
Factors that affect elasticity with examples
The factors that determine the price elasticity of demand
These can be summarised using the acronym SPLAT
Substitutes
Proportion of income
Luxury or necessity
Addictiveness
Time period
Consumer behaviour
Producer behavior
