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Economics > Micro > Flashcards

Micro Flashcards

0
Q

How do we try to solve the economic problem?

A

Economics tries to solve this problem by allocating resources to their most efficient use.

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1
Q

What is the economic problem?

A

The economic problem is based upon scarcity. We live in a world of unlimited wants and needs but also limited resources.

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2
Q

What is the PPF/PPC?

A

The production possibility frontier/production possibility curve is an economic model used to show how the economic problem of scarcity applies to firms setting production quantities.

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3
Q

What is opportunity cost?

A

The next best forgone option.

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4
Q

What are the 4 factors of production?

A

The 4 factors of production/factor inputs are resources needed by any firm to run a business and thus produce what customers may need or want before they start. They are:
Land-Natural resources or that which we derive from the land.
Labour-The human input
Capital-Anything man-made which aids production (not money!)
Enterprise-The ideas, creativity, drive and successful mixture of the other factors of production

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5
Q

What is demand?

A

The amount of people willing and able to purchase a good or service at a given price.

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7
Q

What is a market?

A

An arrangement that brings buyers into contact with sellers for the purpose of trading or exchanging goods. Price is determined.

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8
Q

What are the determinants of supply?

A 
Change in costs
Technological progress
Environmental effects
Competition
Future expectations
Government position
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9
Q

What is price elasticity of demand?

A

The responsiveness of the quantity demanded to ac change in the price of goods.

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10
Q

What is income elasticity of demand?

A

The responsiveness of the quantity demanded to a change income.

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11
Q

What is a normal good?

A

A good where an increase in income results in an increase in the quantity demanded.

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12
Q

What is an inferior good?

A

A good where an increase in income results in a fall in the quantity demanded.

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13
Q

What is producer surplus?

A

The difference between what the producers is willing to sell at and the market price.

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14
Q

What is consumer surplus?

A

The difference between how much the consumer is willing to pay and the market price.

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15
Q

What are the determinants of demand?

A 
Population
Interest rates
Prices of other goods- substitutes and compliments
Real income
Tastes and preferences 
Marketing and advertising
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16
Q

What is price elasticity of demand?

A

The responsiveness of the quantity demanded to a change in the price of a product.

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17
Q

What is the formula of price elasticity of demand and the relationship between the values?

A

%Δ Qd/%Δ p

Always a negative number because the values are inversely proportional.

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18
Q

Whats is income elasticity of demand?

A

The responsiveness of quantity demanded to a change in income.

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19
Q

What is the formula of income elasticity of demand and the significance of the final value?

A

%Δ Qd/%Δ Y
An inferior good has a YED of less than 0
A normal good has a YED of more than 0.

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20
Q

What is price elasticity of supply?

A

The responsiveness of the quantity supplied to a change in the price of a product.

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21
Q

What is the formula of price elasticity of supply and the significance of the final value?

A

%Δ Qs/%Δ p
Elasticity of more than 1 means it is elastic
Elasticity of less than 1 means it is inelastic.

22
Q

What is cross price elasticity of demand?

A

The responsiveness of demand of one good (good a) to a change in the price of a different good (good b).

23
Q

What is the formula for cross price elasticity of demand and what is the significance of the final value?

A

%Δ QdofX/%Δ pofY
If XED is negative then the goods are compliments
If XED is positive then the goods are substitutes.
If XED is less than 1 the good is inelastic
If XED is more than 1 the good is elastic
If XED is 0 or very close then the two goods are unrelated or very weakly related.

24
Q

What is market failure?

A

Where the free market mechanism fails to achieve economic efficiency.

25
Q

What is price flexibility?

A

If price is limited the price flexibility is limited. If price can’t go up then suppliers have.

26
Q

What is productive efficiency?

A

Where production takes place using the least amount of scarce resources.

27
Q

What is economic efficiency?

A

Where both allocative and productive efficiency are achieved.

28
Q

What is inefficiency?

A

Any situation where economic efficiency is not achieved.

29
Q

What is the free market mechanism?

A

The system by which the market forces of demand and supply determine prices and decisions made by consumers and firms.

30
Q

What is information failure?

A

A lack of information resulting in consumers producers making decisions that do not maximise welfare.

31
Q

What is asymmetric information?

A

Information not equally shared between two parties.

32
Q

What is an externality?

A

An effect whereby those not directly involved in taking a decision are affected by the actions of others.

33
Q

What is third party?

A

Those not directly involved in making a decision.

34
Q

What are private costs?

A

The costs incurred those taking a particular action.

35
Q

What are private benefits?

A

The benefits directly accruing to those taking a particular action.

36
Q

What are external costs?

A

The costs that are the consequences of externalities to third parties.

37
Q

What are external benefits?

A

The benefits that accrue as a consequence of externalities to third parties.

38
Q

What are social costs?

A

The total costs of a particular action.

39
Q

What are social benefits?

A

The total benefits of a particular action.

40
Q

What is a negative externality?

A

It exists where the social cost of an activity is greater than the private cost.

41
Q

What is a positive externality?

A

It exists where the social benefit of an activity exceeds the private benefit.

42
Q

What are merit goods?

A

These have more private benefits than their consumers actually realise.

43
Q

What are demerit goods?

A

Their consumption is more harmful than is actually realised.

44
Q

What are public goods?

A

Goods that are collectively consumed and have characteristics of non-excludabilty and non-rivalry.

45
Q

What is non-excludability?

A

A situation existing where individual consumers cannot be excluded form consumption.

46
Q

What is the free rider problem?

A

Someone who directly benefits from the consumption of a public good but who does not contribute towards its provision.

47
Q

What is non-rivalry?

A

A situation existing where consumption by one person does not affect the consumption of all others.

48
Q

What are quasi-public goods?

A

Goods having some but not all of the characteristics of a public good.

49
Q

What is a direct tax?

A

One that taxes the income of people and firms that cannot be avoided.

50
Q

What is an indirect tax?

A

A tax levied on goods and services.

Economics (4 decks)

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