Micro Flashcards
What are the 4 factors of production?
- Land (natural resources used to create good/service)
- Labour (effort into the production of goods/services)
- Capital (physical equipment that allow increased work production)
- Enterprise (ability to bring all together + return a profit)
What’s the basic economic problem?
The scarcity of resources in relation to the unlimited needs + wants of individuals + societies
What’s opportunity cost?
Cost of the next best thing forgone ~> what you have to give up to buy what you want in terms of other goods/services
What’s a positive statement?
A statement or fact that can be tested
What’s a normative statement?
A statement that includes an opinion that can’t be tested
What are the 3 types of economy?
Command, Market and Mixed
Micro Short run AS
At least 1 factor of production is fixed
Micro Long run AS
All factors can change
Productive efficiency
When it’s impossible to produce more of 1 good without producing less of another
Allocative efficiency
When the available economic resources are used to produce the combination of goods + services that best matches peoples tastes
Market
When a buyer and seller meet
Market economy
Where all decisions relating to the production and distribution of goods + service made through price mechanism
Planned economy
Where the state controls the production of goods + services
Mixed economy
Where there is an element of market and planned
Demand
Quantity of good / service consumer is willing + able to buy at a given price in a given time period
Law of demand
Inverse relationship between price + Quantity. As price increase demand decreases
Derived demand
Demand for a good / service that results from the demand for a different or related good / service
Composite demand
Where goods have more than 1 use
Joint demand
The combined demand of 2 + interlinked goods e.g shampoo + conditioner
Inferior goods
If consumers income rises they buy less of that good e.g supermarket own goods
Normal good
A good where when consumers income rises they buy more of that good
PED equation
% change in Quantity Demanded / % change in price
Supply
Quantity of a good or service that firms plan to sell at a given price in a given period of time
Subsidy
Gov pay rest of price so costumer doesn’t have to
Price elasticity of supply ( PES )
The extent to which supply of a good changes in response to a change in price of that good
PES equation
% change in Quantity supplied / % change in Price
Theory of Market
When buyer and seller agree the market clears
Cross elasticity of demand ( XED ) equation
% change in Quantity demanded / % change in income
XED
The responsiveness of a change in demand for a good / service due to a change in income
Competing demand
Occurs in the case of substitutes ( increase in 1 increase in the other )
Close substitutes
Small rise in price of X causes large rise in demand for Y
Weak substitutes
Large ride in price if S leads to small increase in demand for T
Close complements
A small fall in price of A causes large rise in demand for B
Weak complements
A large drop in price of E causes a small rise in demand for F
Economy definition
A system which tried to solve the economic problem
Barter
When 1 good is swapped for another
Competing demand
Occurs in the case of substitutes
Effective demand
The willingness and ability of consumers to purchase goods at different prices
