Little Parts Flashcards
What is a planned economy
Economy where desicions on what and how to produce are made by the government
Positives of a planned economy
Low unemployment
Affordable market prices
Economy focused on public welfare
Negatives of a planned economy
Lack of innovation due to low incentive for profit
Shortages in supply- low flexibility
What is a mixed economy
Economy where it mixes both freedom and govt intervention
Pros of mixed economy
Increased efficiency and productivity due to market based incentives
Allows govt to set strategic priorities through economic policy
Cons of mixed economy
Does not avoid market distorting effects of govt intervention
Finding right equilibrium hard , trade offs and crowding out
What is a free economy
Where individuals and businesses have their own freedom to make economic decisions
Pros of free economy
Choice increased
Incentives for efficiency and innovation
Cons of a free economy
Limited govt intervention-abusive business practices
Formula for marginal revenue
Change in total revenue/ change in quantity sold
Minimum efficient scale
Lowest point on a cost curve at which a company can produce its product at a competitive price
Demerit good
Good which has negative impact on consumer
Merit good
Has a positive effect on the consumer
Economic agents
Producers
Consumers
Government
Role of economic agents
Producers- produce goods and services
Consumers- purchase goods and services
Govt- collect tax, spend on public services and regulate
Consumer objective
Maximise satisfaction and utility
Objectives of governments
Reducing DWL by responding to market failure of public goods,external costs and benefits and imperfect competition
Objectives of producers
Maximise profits
Allocate resources
Social responsibility
Allocative efficiency
Optimal distribution of goods and services taking into account different consumer preferences
P=mc
Incentives within a economy
Quality incentives
Price incentives
Tax incentives
Joint demand
Ink and printers, goods that complement each other in demand
Composite demand
Exists where goods or services have more than one use.
An increase demand for one product leads to fall in supply of another
E.g oil for plastic demand increases leading to decrease in supply of oil for petrol
Competitve demand
When demand increases for one good or service decreasing demand for another
Demand for rail increases leading to fall in demand for cars
Joint supply
When two goods are produced together from the same origin
Beef and leather- cow being slaughtered can increase supply of both
Competitve supply
Alternative products a firm could make with its resources
For example a farmer could choose to produce carrots or potatoes with its machinery
Market supply
How much producers in a collective market are willing to supply and sell their goods and services at different prices over a given period
Individual supply
How a single firm is willing to price and quantify their goods over a given time period
Define rationality
When agents make a choice they choose the option that seeks greatest utility
Characteristics of a normative statement
Subjective
Based on value judgement
Cannot be tested true or false
Ought, should and fair
Positive statement characteristics
Can be proven
What the economy is
Trade off define
Weighing of two options to choose what you want
Opportunity cost evaluate
Pros - recognising opportunity cost can allow you to make better decisions and reduce scarcity of choices
Cons- difficult to identify OC as benefits of goods can’t easily be quantified
Specialisation
Concentration of production on narrow range of goods and services
Pros
Wider range - choice
AE
Productivity
Quality improvements
Cons
Finite resources
Changes in tastes
Accounting profit
Revenue minus the explicit costs like a depreciation
Public good
Non excludability
Non rivalry
Zero mc
Private good characteristics
Excludable
Rivalry
Opportunity cost generated
Merit goods are typically
Under consumed
Underproduced
Contain positive externalities
Demerit the opposite
Principal agent problem
Agent is expected to act in the best interests of a principal but does not
For example a shareholder may want to maximise profits however the manager doesn’t share the same idea
Difference between a shift and a movement along a demand curve
Shift - factors other than price change the overall demand for the product
Movement- price of product changes
Extension- increase in demand
Contraction- decrease in demand
Economic good
A good with some benefit to society and an opportunity cost
Moral hazard
Situation where a a firm or individual takes a risk knowing that someone bears the cost if it goes badly
Free goods
Goods with zero opportunity cost such as air
Evaluative points
Ceritus paribus
Short and long run
Elasticity
Business objectives
Marginal cost
Change in total cost / change in quantity produced
Cost calculations
AC=TC/ number of units
AVC= VC/ number of units
DOL
Broken down of tasks upon specialisation
Pros
Higher productivity
Lower prices
Higher quality
Cons
Worker turnover - lower quality
Demotivation of workers
Marginal revenue
Change in revenue / change in output
Causes to shift supply
Changes in technology
Natural events
Changes in price to produce
Causes of shifts in demand
Income
Trends or tastes
Price of substitutes
