lesson 5-6 Flashcards
what is an incentive?
and what do low prices incentivise?
they encourage a certain behaviour you would not otherwise do
low prices incentivise consumers to buy
what else can a production possibility curve be referred to as?
production possibility frontier
what does the production possibility curve show?
The PPC curve shows economic choice and opportunity cost. It shows the maximum output an economy can produce with its resources at max efficiency.
what is a consumer good?
goods used by consumers
what is productive efficiency?
maximising output with our resources
if there is a cross inside the production possibility curve what does it show?
unemployment / inefficiency
some reasons for being inside the production possibility curve (inefficient)?
- lack of workers
- strikes
- productively inefficient
- poor machines
- covid/economic shock
- unemployment
what is inelastic demand?
we will keep on buying it regardless of price as its a necessity
What is allocative efficiency?
When consumers get both needs and wants
What’s a market?
Where buyers and sellers meet up and agree on a price
Buyers buy what they want or need if they can afford it
Sellers sell what they can to make and try to earn profit for their trouble
Some uses of money
- A medium of exchange
- Unit of account
- Save
Money as a unit of account
It measures a value
What makes up a competitive market?
- Many sellers who went to high prices for high profits
- Many buyers who want low prices but high quality
- No buyer or seller dominates
What is a planned economy?
Planned-public sector
Things are planned from the centre by the government (government control on all things)
What is a market economy?
Where allocation of resources and prices of goods and services are determined by the market forces mainly supply and demand
What did Adam smith argue?
markets should be left alone as the selfish pursuit by every individual could lead to an economy where benefit was maximised as it incentivises producers to be allocative efficiency
What did Hayek argue?
He was in favour of the free market and no government intervention as he thought state control would lead to loss of freedom
What is a free market?
When people can buy and sell goods and services that is not under the control of the government
Advantages of a free market
- Profit is an incentive to take risks
- Workers motivated by the high wages boosting productivity
- Demand is signalled to firms by rising prices so firms can react with rising the supply so consumers get what the want which is allocative efficiency
Disadvantages of free markets
- People miss out on essential services making it inefficient
- Lots of waste
- Unequal distribution of wealth
- Firms are motivated by profits and don’t care about side effects including the environment
- Rewards if you are already rich
What is demand?
The quantity of a product which all the consumers in a market are willing and able to buy at different market prices.
What’s the law of demand?
If price falls then more is demanded
Falling prices causes what to happen to demand?
Demand will extend (increase because its lower so people are more inclined to buy it)
Rising prices causes what to happen to demand?
Causes demand to contract (decrease/ go back because prices are higher and people aren’t willing to pay those prices)
What is supply?
The willingness and availability to sell a product at any given price over some given period of time
What is the public sector financed by?
Taxation
Inelastic demand is known as a…
Necessity
why is a productive work force good for an economy?
more products are produced, increasing efficiency, leading to increase in profit
why are all economic decision makers forced to make choices?
resources are finite
The price mechanism allocates scarce resources…
ensuring that low prices attract consumers and high prices put them off
in the free market what are firms incentivised to do?
to produce what people want
