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Microeconomics > LS1 - LS10 > Flashcards

LS1 - LS10 Flashcards

1
Q

Economics

A

The study of the economy

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2
Q

An economy is?

A

All the goods and services produced in an area

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3
Q

Difference between a good and service

A

Goods are tangible and services are intangible

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4
Q

Name the 4 factors of production?

A

Capital
Enterprise
Land
Labour

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5
Q

What is capital?

A

used to make goods and services - such as machinery and automation

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6
Q

What is enterprise?

A

The willingness of people in business to take risks to make a profit

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7
Q

What is land?

A

Refers to the natural resources such as oil, forests, and the land itself

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8
Q

What is labour?

A

All of the work done by humans in production

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9
Q

What is the economic problem?

A

How to use the available scarce resources to satisfy people’s infinite needs and wants as effectively as possible

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10
Q

Three key questions?

A

What to produce?
How to produce it?
Who to produce it for?

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11
Q

What are economic agents?

A

Groups that participate in the economy

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12
Q

What is a producer?

A

Who produces goods and services

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13
Q

Another term for a business?

A

Firm

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14
Q

Role of the government?

A

Sets rules that other economic agents must follow.
They also produce some goods and services such as roads, health care and education.

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15
Q

Who are consumer?

A

They buy goods and services made by firms.
Individuals and firms can be consumers - such as supplier to firms

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16
Q

How do economists explain how the economy works?

A

Via developing models

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17
Q

How do economists explain and predict economic phenomena?

A

Using data and assumptions to make models

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18
Q

What is ceteris paribus?

A

Meaning “all other things being equal” - showing the indication of the effect one economic variable has on another, provided that that all variables are constant

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19
Q

What is the opportunity cost of a decision?

A

Is the value of the next best alternative forgone (as a result of the choice made)

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20
Q

What are the uses of opportunity cost?

A

Consumers uses it to decide what to spend their incomes on
Producers use to decide what and how to produce goods and services
Governments use it to decide what policies to choose

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21
Q

Empirical models?

A

Models based on economic data - using facts, statistics and numbers

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22
Q

Theoretical data?

A

Models based off theoretical data such as theory/hypothesis

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23
Q

Why do economists use the ceteris paribus assumption?

A

It is used to isolate the variable and make decisions and predictions.

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24
Q

What is a PPF?

A

Production possibility frontier

It shows the maximum potential output of a combination of two goods or services an economy can achieve when all of its resources are fully and efficiently used/employed, given the current level of technology.

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25
Q

If a point on the PPF shifts outwards…?

A

It is undergoing economic growth, meaning quality and quantity of goods and services had increased due to efficient use of factors of production.

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26
Q

If a point on the PPF shifts inwards…?

A

It is undergoing a decline in economic growth as there is a decrease in quality of quantity of goods and services - due to inefficient use of factors of production

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27
Q

What is economic growth?

A

Increase in the production of goods and services in an economy

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28
Q

What is negative economic growth?

A

Decrease in the production of goods and services in an economy

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29
Q

List three economic agents?

A

Consumers, producers, the government

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30
Q

Point E on a PPF?

A

Under-utilisation or underemployment of allocation of resources - machinery and labour not being used, entrepreneurship not being encouraged - inefficient use of factors or production

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31
Q

The curve/arc of the PPF shows…

A

The maximum amount of output a economy can produce

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32
Q

Consumer goods?

A

Goods which do not produce other goods

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33
Q

What are consumer goods for?

A

Used by people to satisfy their wants and needs

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34
Q

Capital goods?

A

Goods which are used to produce other goods and services

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35
Q

If an economy is at any point on the PPF…

A

There is an efficient allocation of resources, since none are being under-utilised or wasted

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36
Q

What are positive statements?

A

Economic statements that can be proven true or false - they are objective

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37
Q

What are normative statements?

A

Economic statements express opinions and cannot be proven true or false - they are subjective

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38
Q

Words that indicate that an economic statement is normative….

A

Fair
Unfair
Should
Ought
Better/worse

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39
Q

In decision making, governments….

A

Make valued judgements on economic issues
Use positive analysis to help them make decisions

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40
Q

What is specialisation

A

Occurs when an individual, firm, region or countries concentrates on the production of a limited range of goods and services

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41
Q

What is division?

A

The specialisation of workers on specific tasks in the production process

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42
Q

What is productivity?

A

The effectiveness of productive effort - usually measured in terms of the rate of output per unit of input

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43
Q

Increased productivity leads to…

A

Higher output and higher quality
Higher standard of living
More efficient use of resources

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44
Q

Advantages of division of labour

A

Works become more skilled though repetition of tasks
Productivity rises so output rises
Time is saved by workers focussing on a narrow range of tasks
Workers are easier and cheaper to train

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45
Q

Overall benefit for firms as a result of increased productivity?

A

Greater quantity and higher quality of output

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46
Q

Overall benefit for workers as a result of increased productivity?

A

Higher skill levels and potentially higher wages

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47
Q

Repetition of tasks can lead to?

A

Boredom - leading to quality and morale to drop

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48
Q

Simplified job roles can reduce what in workers?

A

Pride in which workers feel in their jobs

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49
Q

Advantages of specialisation?

A

Better quality and higher quantity of products
More efficient use of scarce resources
Higher trade with other countries
Higher economic growth —> higher standards of living

50
Q

Overall benefit for the economy as a result of specialisation?

A

Higher growth and standard of living

51
Q

Disadvantages of specialisation?

A

Over reliance on a few industries is risky
Increased interdependence reduces self-sufficiency

52
Q

2 methods of trading?

A

Bartering
Money

53
Q

2 functions of money?

A

Medium of exchange
Measure of value

54
Q

What is medium of exchange

A

Something commonly accepted in exchange for goods and services

55
Q

What is measure of value?

A

The price of a food reveals its value

56
Q

What is store of value?

A

Value is maintained and can be kept for a long time

57
Q

Method of deferred payment

A

Allows debts to be created

58
Q

What does planning refer to?

A

Refers to the process by which a government allocates resources - funded by taxation

59
Q

What is a market?

A

Where buyers and sellers exchange goods and services - physical or digital

60
Q

What is price mechanism?

A

The process by which the market allocates resources

61
Q

Public sector =

A

Providing services for the welfare of society

62
Q

Public sector is known as?

A

Command market

63
Q

Private sector?

A

Individual groups of individuals such as sole proprietors, partnerships, franchises (that provide goods or services)

64
Q

Private sector is known as?

A

Free market

65
Q

A mix of both public and private is called?

A

Mixed economy

66
Q

Examples of command market?

A

Government providing healthcare and roads

67
Q

Command economy?

A

In which resources are allocated solely by the public state

68
Q

Mixed economy?

A

In which resources are allocated by the state and the price mechanism (private sector)

69
Q

Firms have a…

A

Profit motive in free market and mixed economies.

70
Q

Firms having a profit motive leads to…

A

Wider choice because thus incentivises..
Firms to develop new products
Firms to meet consumer demands

71
Q

Profit motives are absent in…

A

Command economies because firms are told what to produce

72
Q

Firms in command economies who are told what to produce lead into…

A

Limited choice for consumers

73
Q

What can limit choice in free market and mixed economies?

A

Concentrated markets and monopoly

74
Q

What are concentrated markets?

A

Whole industry made up of a few supplies —> leading to more competition

75
Q

What is monopoly?

A

Those that legally own more than 25% of the market - top firms that are currently dominating (Tesco’s etc)

76
Q

Quality and innovation is higher in….

A

Mixed and free market economies

77
Q

Why is quality and innovation higher in mixed/free market economies?

A

Both competition and profit motive are present in these types of economies

78
Q

Competitions pushes businesses to…

A

To make more better and innovative ideas/products

79
Q

Efficiency is linked with…

A

The optimal production and distribution of these scarce resources

80
Q

Why are mixed/free market economies more efficient than command economies?

A

Command economies lack competition and profit motive.

81
Q

Free market have a less _______ than command economies

A

Less equitable distribution of income and wealth

82
Q

Why do free market/mixed economies have less equitable distribution of wealth and income compared to command economies?

A

Owners of capital and land accumulate wealth over time and pass privilege onto their children through: property, private education and social networks

83
Q

Command economies can still lack _____?

A

Equitability in terms of opportunity and access to public services
Example: in communist countries, they have access to the best school and health care

84
Q

A state is made up of?

A

Territory
Citizens - population
Government

85
Q

What’s the role of a government

A

They rule over a state at a given time

86
Q

Difference between state and government?

A

State is permanent/ gov is not
State is made up of all citizens/ gov is not

87
Q

Role of state in mixed economies?

A

It allocates resources through planning
It redistributes incomes through welfare spending
It regulates consumers and firms

88
Q

Two approaches from making assumptions

A

Induction - collecting evidence
Deduction - starting with a hypothesis

89
Q

Decision makers are assumed to be?

A

Rational

90
Q

How are consumers rational?

A

By buying products that maximise utility

91
Q

What is utility?

A

The satisfaction or benefit derived from consuming a good

92
Q

Utility for firms is taken to be…

A

Profit

93
Q

How is profit maximised

A

By producing as efficiently as possible and making things that consumers both want and can afford

94
Q

To make rational decisions, economic agents require?

A

Time
Information
Ability to process information

95
Q

What is behavioural economics?

A

School of economic thought based on evidence and observations to develop assumptions of economic decision making

96
Q

What does behavioural economics assume?

A

That individuals have bounded rationality - they wish to maximise utility but are not able to

97
Q

Several aspects of human behaviour prevent rational decision making?

A

Habitual behaviour
Consumer inertia
Influenced by the behaviour of others
Consumer weakness at computation

98
Q

What is demand?

A

Quantity of a good or service purchased at a given price over a given time period

99
Q

How to explain changes in the prices of goods and services?

A

Develop a model that brings together the two fundamental economic agents that determine rhe price of a good - consumers and producers

100
Q

Law of demand: as the price of a good increases…

A

Quantity demanded decreases

101
Q

Law of demand: as the price of a good decreases…

A

quantity demanded increases

102
Q

A decrease in price results in….

A

An extension/expansion in demand

103
Q

Increase in price results in….

A

A contraction in demand

104
Q

Quantity demanded?

A

Varies inversely with price

105
Q

What are substitute goods?

A

Two alternative products that could be used for the same purpose

106
Q

What are complement goods?

A

Products that are bought/used together

107
Q

What can change/affect demand?

A

Change in the age structure

108
Q

Changes in incomes…

A

Affect demand

109
Q

Increase in income leads to….

A

Rise in demand

110
Q

Change in consumer tastes/preference leads to…

A

Can also affect demand

111
Q

What is revenue?

A

The income that a government or company receives

112
Q

Total revenue =

A

Price x quantity

113
Q

What is supply?

A

The quantity of goods and services that firms are Willian to sell at a given price over a given period of time.

114
Q

Law of supply: as price of good increases….

A

Quantity supplied increases

115
Q

Law of supply: as the price of a good decreases…

A

Quantity of supply decreases

116
Q

An increase in price in law of supply results in…

A

An extension/expansion in supply

117
Q

Law of supply: a decrease in price results in….

A

Contraction of supply

118
Q

Supply diagram assumes?

A

Firms are motivated to produce by profit
The cost of producing an unit increases as output increases

119
Q

What is excess demand

A

Price of good is lower than the equilibrium price - meaning more consumers will want to buy the goods than suppliers are willing to sell

120
Q

What is excess supply?

A

Where the market support of a commodity is greater than the market demand for it, causing its market price to fall

121
Q

What is the equilibrium price?

A

When supply of goods matches demand

122
Q

Cons of bartering system?

A

Time and effort to find traders to barter with

Microeconomics (3 decks)

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