Lesson 2 Flashcards
What is Economics ?
The study of the production, distribution and consumption of goods and services.
What is microeconomics ?
How individuals , households and businesses allow care resources. And how changes in demand affect market price
What is macroeconomics?
Concerns the performance , structure and behaviour of the economy as a whole . Looks at national trends in unemployment and economic growth
What is the basic economic problem ?
People’s wants are infinite but the world resources are finite . How do we allocate the resources equally
What is demand
This is the amount of something that people are willing to buy at the given price at that time
What is demand
This is the quantity of goods or services that people are able and willing to purchase at a given time
Factors affecting demand ( price)
Price is a key factor when determining demand
Based on the idea that consumers will pay the lowest price possible
As price decreases , more people will pay
Other factors that affect demand ?
- Changes in people’s income
- Changes in fashion , trends and tastes
- The availability of substitute / complimentary goods
- Changes in demographics
- Seasonal factors
What is disposable income ?
This is an amount that is available over a period of time to spend ; it includes state benefits but not taxes
What is an effect of having more disposable income ?
More disposable income means demand for goods/ services rises. More money = more spending
Consumer may choose more expensive versions of an item
Result of Changes in fashion ,trends and tastes ?
If an item or idea is in fashion then the demand will increase , and people will pay more for it
If an item is going out of fashion then demand will decrease and people will not pay as much for it
What are substitute products and what is the effect of the change in price of them ?
This is basically a similar alternative , for example Pepsi is to Coca-Cola and lamb is to beef.
And increase in price for one option will lead to decrease in demand , and there for and increase in demand the other option
What are complimentary products ?
These are products that are used or purchased together and / or used together. An increase in demand for one will lead to a corresponding increase in demand for the other and vice versa
Effects of Changes in demographics ?
Greater population = more consumers = greater demand .
Also need to factor in distribution, ages , genders and what the different markets would be for that demographic .
What effect will seasonal factors play
During certain seasons the demand for certain products will increase , and when out of season the demand for those same products will decrease
What is meant by supply ?
Supply relates to the quantity of something that a producer is able and willing to supply to the market at a given price at a particular time
Why is price a factor that affects supply ?
Price determines how much profit , and from there we can say that higher price means higher profit and then higher profit means more incentive to produce more .
An increase in quantity means and increase in price
What happens when there are changes to the cost of production ?
An increase in costs of production will reduce profit and cause a the curve to shift left. Meaning a reduction in units and price
What happens if a cost of production decreases ?
This will result in the the producer making more profit and the curve will shift towards the right ( and increase )
What will happen with an increase in productivity ?
This will result in more output and therefore , shift the supply curve to the right, allowing for greater quantity without impact on costs
What is an indirect tax and what is the result on supply ?
It is a tax on goods and services , like VAT or duty on cigarettes and petrol.
This effectively increases costs for producer and shifts curve left therefore reducing supply
What are subsidies and what is their effect on the supply ?
A subsidy is an amount paid by the government to promote and encourage the production on certain items and increase the supply market.
It acts to reduce costs , thereby leading to an increase in supply , shifting the curve to the right
What are indirect taxes and subsidies examples of and what is there purpose ?
They are both examples of government intervention and are introduced to control and stabilise the economy
What will improvements in technology help with ?
This will help to increase supply and shift the curve right , as it can help to reduce costs of production
What is meant by changes in price of other goods or services and what will it result in ?
This is where products with increasing selling prices are prioritised in order to increase supply and make the most of the high selling price to achieve maximum profit.
This will result in a reduction of one product but in increase in the one being prioritised
What effect will number of suppliers have on the market ?
More suppliers means more supply , less suppliers mean less supply. Unless the teaming number of supplies are able to increase output to meet demands
What is joint supply ?
This is where during the production of one good or service results in the production of another effectively creating a byproduct e.g
Crude oil to petrol results in butane.
As supply of petrol increases so does supply of butane ( the byproduct)
What effect will natural factors have on supply ?
For the most part it will decrease supply as weather , natural disasters and disease can inhibit the ability to produce. But in some cases it can also increase supply , eg, Covid 19 increased demand for masks and then the supply had to be met
What are the conflicts between demand and supply ?
The conflict is that the lower the price the more in demand , but the lower prices mean lower supply
What is market equilibrium?
This is where the demand meets the supply , this is the amount that is supplied meets the amount demanded .
It also means the consumer gets what they want and the producer does not have unsold surplus causing a loss in profit
What are the macroeconomic objectives ?
- Reducing unemployment
- Protect the environment
- Manage balance of payments
- Economic growth
- Control inflation
- Redistribution of income
What is fiscal policy ?
Concerns the collection and spending of revenues from taxes and other resources
What is monetary policy ?
Concerns the money within an economy and factors that influence its value
What can fiscal policy be used for ?
To increase tax , spending and influence individuals and businesses behaviour through increasing / decreasing duty and taxes
Taxes that can be imposed are ?
- Revenue taxes
- Capital taxes
- Direct taxes
- Indirect taxes
- Environmental taxes
What are direct taxes ?
Taxes that are linked to income and wealth , such as ;
1. Income tax
2. Corporation tax
3. Capital gains tax
4. National insurance tax
5. Inheritance tax
What are indirect taxes
Taxes on spending , more a person spends the more they pay in tax
1. VAT
2. Duties
What are environmental taxes ?
Taxes that are designed to help with climate change
1. Climate change levy
2. Landfill tax
3. Aggregates tax
What are the key principles of a tax system ?
- Equity
- Certainty
- Convince
- Economy
- Fairness
- Transparency
What is meant by equity in the tax system?
Burden of tax faced by the tax payer
What is meant by certainty in the tax system ?
Taxes should be clear and easy to understand
What is meant by convenience in the tax system ?
The tax system should make it easy to comply with rules
What is meant by economy in the tax system ?
Tax should be cheap and easy to collect
What is meant by fairness in the tax system ?
The right amount of tax should be generated at the right time
What is meant by transparency in the tax system ?
This is about preventing individuals or organisation from hiding their affairs and evading tax through global operations
What is meant by full employment ?
Everyone who is not in full time education, who can work and who wants to work , can find employment at the current wage rate
What are structural factors in unemployment ?
Declines in certain industries and rises in others
What are cyclical factors in unemployment ?
There are periods of growth and periods of recession
What is meant by Geographical factors in unemployment ?
This is the decline of industries in certain locations, resulting in geographical unemployment in area
what are voluntary factors in unemployment ?
This is where someone will choose to be unemployed , this could be because the money from work will not cover the living expenses
What is economic slowdown ?
This is where there is a drop in demand for workers because the supply is slowing down
Methods the government can use to help with unemployment are ;
Cutting interest rates , this should encourage more spending
Cutting taxes , increase disposable income
Increasing government spending on infrastructure
Promoting overseas trading
Monetary policy controls decisions about what ?
- Interest rates
- Money supply
- Exchange rates
What does contractionary mean in regards to monetary policy ?
Reducing the total amount of demand using high interest rates , restricting supply of money
What does expansionary relate to in regards of monetary policy?
This involves increasing total demand , using low interest rates and fewer restrictions on the money supply and having a weak exchange rate
What is inflation ?
This is the continued rise in price of goods and services of a period of time
What is deflation ?
This is the fall in prices of goods and services , it is also the increase in the value of money
What are the 2 main ways that inflation is measured In The uk ?
- Retail price index
- Consumer price index
What is retail price index ?
A measure of general price level , this includes house prices and council tax. Results in higher result that CPI
What is consumer price index ?
A measure of general price level excluding housing costs which can distort the figures due to high cost of property
What is considered the official rate of inflation on the uk ?
Consumer price index ( CPI)
What is thought to cause inflation ?
It is thought to be the result of too much money in the economy
How can Inflation be controlled ?
By increasing Interest rates
Why will increasing interest rates reduce inflation ?
It will have multiple effects ;
- Makes borrowing money harder so the availability is reduced
- Reduces the amount of disposable income in the economy , thus reducing demand. This causes supplier to reduce prices to encourage consumers to buy goods , almost reseting the market price
What is a downside of having a strong exchange rate ?
Imports will be cheaper so consumers may choose foreign products over domestic products
What are some advantages of international trade ?
- Increased demand for a product
- Cheaper material and services
- Spreading risk
- Spreading technical knowledge
What are some disadvantages of international trade ?
- Language barriers
- Cultural barriers
- Currency issues
- Local taxes
- Local laws
- Tariffs and duties
What is FX Risk ?
This is where a low exchange rate means that imports are cheap. It exports bring in less revenue.
It’s hard to manage because of how volatile FX rates can be
What is logistical risk ?
This is where there could be an issue with suppliers delivering on time , a way to mitigate this is to have multiple suppliers
What are political risks ?
This relates to issues like , change In local laws , nationalisation , seizure of assets , war and terrorism and the failure of local authorities to enforce contracts
What are tariffs and duties ?
These are charged charged on imports , they are subject to change. Tariffs and duties are used by governments to reduce imports by making them more expensive which stimulates demand in the domestic market
