Markets In Action Flashcards
What is economics about?
The efficient allocation of scarce resources
What is opportunity cost
The next best alternative forgone
Give an example of an opportunity cost scenario
If I had 1 pound and wanted to buy a pizza that cost 1 pound and I had to pick between margarita and pepperoni if I picked pepperoni the margarita would be the opportunity cost.
What is the PPF/PPC
The production possibility frontier/curve is it graphical representation, of the maximum number of goods or services , an economy can produce using all of its resources to there full potential
Give three examples of Land resources
Natural resources like:
Land
Sea
Minerals
What is the labour resource?
Human resources this depends on the populations size and peoples skills and levels of training
What is Capital and Give two examples of Capital resources
Man made aids: factories, equipment
What is Pareto optimality
Pareto optimality or Pareto efficiency is when it is impossible to improve one thing without making the other worse
What are the four factors of production?
Think C.E.L.L
Capital Entrepreneurship Labour Land
What does an increase in the price of a good do to the demand curve?
It causes a contraction of demand
What does a decrease in the price of a product do to the demand curve
It’s causes an extension of demand
Does price move the demand curve?
Price does not move the demand curve it only causes an extension of demand or a contraction of demand
What is a contraction of demand
When the price increases the amount of people willing and able to buy the products decreases
What is an extension of demand?
When the price of a good or service is lowered more consumers are willing and able to purchase it
Name the 7 factors that cause a shift in the demand curve
Weather Income Fashion Complementary goods Advertising Population Substitute
What is Consumer Surplus?
The extra amount that a consumer is willing to pay for a product above the Market price of the product
Give an example of a shopping scenario where there is a consumer surplus
If I go to new look and expect to buy a blouse for £20 but there is a 25% sale and the blouse actually costs £15 there is a consumer surplus of 5 pounds
What is a market
Any place where the transactions of buying and selling occurs.
What is demand
The amount of a product that customers are willing and able to buy
Why does the demand curve say an inverse relationship?
As the price increases the demand falls and vice versa
What does Ceteris Paribus mean?
All other things being equal
What is the label on the Y axis?
Price
What is the label on the X axis?
Quantity
What is above the price that the consumer has to pay but below for the price they thought they were to pay?
Consumer surplus
What is supply?
The amount of a product that producers are willing and able to produce at different market prices over a period of time
What does the supply curve show ?
The supply curve shows the relationship between the quantity of a product supplied and the price of the product
What causes a contraction of supply?
A reduced price (that the producers will get for a product)
What causes an extension in supply?
An increase in price (that producers will get for a product)
Does a change in price cause the supply or demand curve to move?
No a change in price only causes an extension or contraction in demand. A shift in supply or demand are caused by factors other than price
What factors cause a shift in supply?
Productivity Indirect Taxes Number of firms in the market Technology Subsidies (grants) Weather Costs of production
What is producer surplus ?
When the market price is higher then what the producer was originally willing to accept and supply at.
If I’m willing to sell shoes for £30 but the market price is £40 I have producer surplus of £10
What is Price Equilibrium ?
The market price at which quantity demanded of a product is equal to the quantity that is supplied by producers
What happens to supply when demand is shifted to the left? Why does this happen
There is a contraction of supply when demand is shifted to the left as less product is needed if less people are willing and able to buy it
What happens to supply when demand is shifted to theright
The Producer makes more of the good so there is an extension in supply to satisfy the need and bring the producer more sales 👉 more money
What is it called When the quantity demanded of a good is smaller than the quantity supplied?
There is a surplus of supply (excess)
What is it called when the quantity demanded is larger then the quantity supplied
There is a shortage in supply
How may a firm try to manage excess supply
They may reduce the price of a good so more people are able to afford it. This is an extension of demand
How may affirm try to manage an access of demand
Increasing the price will lead to a contraction of demand as less people will be able to afford the product
What does PED stand for
Price Elasticity of Demand
What does it mean if a product is has price inelasticity and give an example
That the change in price to the product will not be to a significant change in demand e.g. petrol. If it has a PED of 0 to -1 it is inelastic
What is price elasticity of demand
This measures the responsiveness of demand to a change in price
What is the equation for PED
Percentage Change in quantity demanded
______________________________
Percentage change in price
If a product has a PED that is smaller than -1 is it elastic or inelastic
Elastic
If a product has a PED of -1 is it elastic or inelastic
It is unitary
What happens to the total revenue of a business if the majority of it comes from a product that is price elastic eg a pink blouse and the price is increased
The TR will reduce as people will pick an alternative
What is income elasticity of demand ?
The responsiveness of demand to changes in people’s incomes
What does YED stand for?
Income elasticity of demand
What is a normal good? + example
A good where the demand rises as peoples income rises and the demands of the product falls as income falls
Eg iWatch
What is an inferior good? + example
A good where demand increases as income decreases OR
Demand falls as income increases for example the basics range of goods at Sainsbury’s
How can you tell whether a good is normal or inferior
If it is positive ( after being put in the equation) it is a normal good
If it has q negative sign it’s an inferior good
What is the equation for YED
The equation for income in elasticity of demand is
Percentage Change in quantity demanded
______________________
Percentage Change in income
What does XED stand for ?
Cross elasticity of demand
What is Cross elasticity of demand?
The responsiveness of demand of a good to changes in the price of a related good (substitute /complement )
What is the equation for Cross Elasticity of demand?
Percentage change in quantity demanded of your good
_________________________
Percentage change in price of substitute / complement
What does it mean if XED is positive?
The good in the equation is a substitute for the main good and they are in direct proportion eg of pepperoni pizza prices are increased ppl may just buy Hawaiian instead
What is scarcity?
This occurs as consumers have infinite wants but there are finite resources
What do economists mean by ‘the Economic Problem’ ?
The idea that there is scarcity as there is infinite wants but finite resources meaning economies must make a choice about what goods and services should be produced
How they should be produced
and
how the factors of production (capital, entrepreneurship , land and labour) must be allocated
What is the role of markets in allocating scarce resources?
It depends on the type of market:
Free Market
Mixed Matket
Command economy
How are resources allocated in a mixed economy ?
This is s blend of the free market and command economy
Resources are owned by individuals (like in freemarket) and the state meaning the government can make adjustments to markets with taxation
How are resources allocated in a command economy ?
All resources are allocated by the government
How are resources allocated in a free market ?
The price mechanism scheme is used which means the higher the demand of a product the higher the price that consumers must pay. A high market price encourages more producers to move more resources into the production of this good as they know by producing more if the product their profits will rise.
Also will the lower the demand of a product the cheaper the product is
What is a competitive market?
When there is oligopoly, meaning there are several providers of a good or service in a market meaning the firms must compete with each other to offer the best prices and quality of good/service
as the consumer has several options on where to get the good/service and can choose a more capable firm if the meaning consumer welfare (allocative efficiency )is high
What happens to consumer surplus as demand increases?
Consumer surplus will decease as an increase in demand means firms will charge a higher price
When is there a price equilibrium ?
When producers and consumers are happy with the market price and quantity supplied therefore supply and demand is equal
What is a free good?
A Free good is not scarce and has no opportunity cost so it is available in great quantity
What is an economic good?
A good/ service that has benefit to society and has a degree of scarcity so people are willing to pay for them
What is a positive statement
A positive statement is an objective statement that can be proven by referring to evidence
E.g. if the government raise taxes on Beer this will lead to a decrease in amount of people buying beer
What is a normative statement?
A statement that is subjective so it is based on personal opinion and can’t be proven with evidence
Eg unemployment is worse than inflation