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economics micro > micro > Flashcards

micro Flashcards

1
Q

what is ceteris paribus

A

all things remain equal

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2
Q

what is a positive statement

A

are objective statements that can be tested against facts/evidence to be declared either true or false

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3
Q

normative statements

A

are subjective opinions or value judgements that cannot be tested against facts

they include ethical or moral judgements (words such as ought should better and worse)

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4
Q

what is a need

A

something humas require to survive such as food warmth and shelter

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5
Q

what is a want

A

is somethign that is not essential to survive but which people improves their standard of living, or econo,ic welfare such as a new car

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6
Q

what is economic welfare

A

refers to the standard of living or general wellbeing (happiness) of individuals in society

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7
Q

what are economic resources known as

A

the factors of production

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8
Q

what are the factors of production (4)

A

land
labour
capital
enterprise

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9
Q

what is land

A

earths natural resources (minerals, sea, water(

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10
Q

what is labour

A

the people involved in production, work done by those who contribute to the production process

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11
Q

what is capital

A

man made physical equipment used to make goods/services (machinery)

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12
Q

what is enterprise

A

individuals willing to take a risk to make a profit

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13
Q

what are the three main economic groups (economic agents)

A

consumers
producers
government

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14
Q

what is interdependence

A

the decisions of each group contribute to how economies resources are used

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15
Q

what is a producer/firm/suppliers aim

A

a person, company, or country that makes, grows or supplies goods and/or services. they have influence over the quantity, price and quality of goods they produce. THEY AIM TO MAXIMISE THEIR PROFITS

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16
Q

what is the government

A

a political authority that decides how a country is run and manages it’s operations. They make and enforce rules within a country. they also spend money in the economy.

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17
Q

what is interdependence of economic groups

A

many of the governments actions may influence price, quantity, or quality of a good or service. They aim to protect the consumer from exploitation by the producer

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18
Q

what’s the basic economic problem

A

is that scarcity ie. economic resources are limited relative to society’s wants

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19
Q

3 fundamental questions have to be considered when allocating resources:

A

What to produce and in what quantities?
How should goods and services be produced?
To whom should goods and services be allocated?

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20
Q

what is opportunity cost

A

it refers to the value of the next best alternative forgone (given up) when a choice is made.

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21
Q

what is productivity

A

is the rate at which factor inputs ( land, labour, capital, enterprise) are connected into outputs of goods and services

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22
Q

what is productivity formula

A

total productivity= total output/ total amount of inputs used

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23
Q

production possibility frontier (PPF) is also know as what

A

production possibility curve

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24
Q

what does a production possibility curve depict

A

is a diagram which depicts the various combinations of two products that can be produced by an economy when all available resources are fully and efficiently employed

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25
Q

what does the points on the curve on a PPF show (about output)

On the PPB (potential possibility boundary)

A

the points on a curve show the level of output if resources are used to their maximum potential. show resources being used efficiently

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26
Q

why is peoples confidence in money important

A

otherwise it will lose its general acceptability of making transactions, once this happens it ceases to be money

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27
Q

what are the functions of money(4)

A

medium of exchange
measure of value
store of value
method of deferred payment

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28
Q

what is a medium of exchange useful for

A

it enables the buying and selling of products. making exchange easier, money eliminates the need for barter.

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29
Q

how is money a measure of value

A

it enables a value to be placed on products so they can be bought and sold with ease, money creates a unit of measure that enables comparisons between relative value of products

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30
Q

how is a store of value a function of money

A

it is convenient way of storing wealth so that it can be spent at a later date. if money will tend to hold its value in the short term as long as inflation remains low

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31
Q

how is a method of deffered payment a function of money

A

it enables borrowing and lending. this means that someone can borrow money in order to buy products rather than waiting until they’ve saved enough funds. a price is usually set -rate of interest

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32
Q

what is division of labour

A

is a process whereby the production process/procedure is broken into a sequence of stages and workers are assigned a particular stage.

by focussing on particular stages the workers become highly skilled at performing specialise tasks and thus more efficient at carrying out that task

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33
Q

what are advantages of division labour (4)

A
  • increase in productivity (higher output per worker) leading to economies a scale
  • Increase in efficiency of resources, helping to reduce the cost per unit of output as equipment can be used continuously on a production line
  • Effieciency also improved as no time is wasted in moving workers from one task to another. less time needed to train workers for a specific task
  • allows people to work to their natural strengths
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34
Q

what are disadvantages of division labour (3)

A
  • repetition creates monotony and boredom- leads to high turnover of staff increasing recruitment cost
  • breaking down production into different stages makes it easier to replace skilled workers with machines- leading to structural unemplyment
  • creates interdependence in production. if one set of workers go on strike it could halt production across the whole country.
35
Q

when does specialisation occur

A

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

36
Q

advantages of specialisation (3)

A
  • increase in productivity
  • increase in efficiency
  • reduction in average cost
37
Q

disadvantages of specialisation (3)

A
  • when demand for a good or service falls it can lead to structural unemployment
  • a country that specialises in the prouction and exports of minerals may face problems of resources depletion
  • the price goods are sold at- eg some countries face unfavourable exchange rates, selling their commodities at a lower price compared to goods purchased abroad.
38
Q

what are the 2 main allocative mechanisms

A

free market (market economy)
command economy (planned economy)

39
Q

what is a free market

A

(market economy) economic system in which goods and services are purchased through the price mechanism and allocated based on supply and demand

40
Q

what is a command economy

A

(planned economy) an economic system in which government officials are planners allocate economic resources to firms and other productive enterprises

41
Q

what are the advantages of a free market economy (3)

A

efficiency- only products of the best value will be in demand- incentive for firms to make goods in most efficient way possible
enterprise- rewards for good ideas can make entrepreneurs a lot of money
choice- the incentive for innovation can lead to an increase in choice for consumers

42
Q

what are the disadvantages of a free market economy (3)

A

•inequalities- free market can lead to a huge difference in income, not fair. In a completely free market those who cannot work receive no income
•non-profitable goods may not be made- for example drugs to treat rare medical conditions may not be profitable so may not be made
•monopolies-successful business can become the only supplier of a product- this market dominance can be abused

43
Q

what are the advantages of a command economy (4)

A

governments can prevent inequality and redistribute income fairly
goods produced are beneficial to society
low unemployment- government can try to produce everyone with a job and a salary
governments can prevent monopolies from developing

44
Q

disadvantages of planned economy (3)

A

•poor decision making by government about what needs to be produced
•restricted choice for consumers as firms will make what they are told to make
•Lack of risk taking, innovation and efficiency as incentive for making a profit limited

45
Q

what is a mixed economy

A

when both governments and markets play a part in allocating resources

46
Q

what is utility

A

is the amount of satisfaction obtained from consuming a good or service

47
Q

what is a rational consumer

A

consumers will allocate their income to maximise their utility or satisfaction from the goods and services they purchase.

48
Q

what is a rational producer

A

firms will use their resources to maximise their profits for the goods and services produced

49
Q

what is rational decision making based on consumers and producers having (4)

A
  • perfect market information
  • computational skills and judgemental skills
  • the ability to take decisions free from influence and others behaviour
  • sufficient time to make decisions
50
Q

what is marginal

A

is the change in a variable caused by an increase of one unit of another variable

eg the marginal cost of an ice cream is the additional cost of making one additional ice cream. ie the cost of the final ice cream produced

51
Q

what is marginal utility

A

is the satisfaction gained by a consumer consuming an additional unit of good or service

for every additional unit its how much the satusfaction increases for each unit

52
Q

what is diminishing marginal utility

A

that for each additional unit of good that’s consumed, the marginal utility gained decreases

53
Q

what is demand

A

the willingness and ability to purchase a good and a service at the given price in a given time period

for most products as the price of a good or service falls, the quantity demanded increases

54
Q

if prices changes on the demand graph will it shift or move along the demand curve

A

moves

anything else changes there’ll be a shift in the demand curve

55
Q

examples of what could cause a shift in demand (5)

A
  • income
  • price of other goods
  • intoduction of a new product
  • increase/decrease in population
  • weather
56
Q

what is substitute goods?

A

are goods which are alternative to each other eg beef and lamb

57
Q

what are complementary goods?

A

goods often used together eg strawberries and cream

58
Q

what is derived demand?

A

demand for a good or factor of production used in making another good or service eg demand for fencing will affect demand for wood

59
Q

what is composite demand

A

goods with more than one use such as oil eg demand for oil can lead in changes of demand curve for plastics

60
Q

what are normal goods

A

are those that people demand more of it if their real income increases

61
Q

what are inferior goods

A

are those that people demand less or it if their real income increases (cheap clothing)

62
Q

what is speculative demand?

A

if the price of a good such as housing or shares start to rise people may speculate that it may rise further (eg first time house buyers may scramble to buy houses fearing if they wait prices could rise again)

63
Q

what is a veblen good?

A

some firms try to sell their goods based on the fact that they cost more than those of their competitors eg ferrari cars as a sign of wealth

64
Q

what is a giffen good?

A

is a low-income, non-luxury product.
demand for giffen goods rises when the price rises, and falls when the price falls eg bread, rice

65
Q

what is price elasticity of demand

A

this looks at how sensitive of the quantity demanded for a good or service when there is a change in its price

66
Q

for PED products can be either what? (2)

A

elastic or inelastic

67
Q

what is elastic?

A

a product that is highly price sensitive (will be a significant change in demand for any price change) price elasticity beyond -1

68
Q

what is inelastic

A

a product that is not very price sensitive ( won’t be a significant change in demand for a price change) price elasticity between 1 and -1

69
Q

PED formula

A

%change in demand / % change in price

% change in QD/ % change in P

70
Q

what’s % change formula

A

new amount - original amount / original amount

71
Q

does an elastic demand diagram have a steep or shallow gradient?

A

shallow

72
Q

does an inelastic demand diagram have a steep or shallow gradient?

A

steep

73
Q

whats a perfectly elastic diagram

A

had a PED of infinity
any increase price means that the demand will fall to 0

74
Q

what’s a perfectly inelastic diagram

A

has a PED of 0
any change in price won’t have an effect on the quantity demand

75
Q

what is unitary elasticity of demand

A

if the size of the % change in price is equal to the size of the % change in quantity demanded

76
Q

what is revenue

A

is the money made from sales

77
Q

what is revenue formula

A

revenue = price x quantity

78
Q

what is supply

A

is the amount of goods or service producers offer for sale to the market at each price level

79
Q

what is planned supply

A

is the amount that producers intend to produce at each given price

80
Q

what do firms take into consideration when deciding the quantity to supply

A

the cost to produce the good (land, labour, capital)

81
Q

what’s the law of supply

A

as price increase the quantity supplied will increase

82
Q

what would cause a shift in the supply curve (5)

A

changes in raw material prices
wage rates
objectives of firms
subsidies (gov give people money)
expectations about future prices

83
Q

what is joint supply

A

where production of one gold or service involves or interrelates to the production of another( or several)

84
Q

if the price of a product increases what does the supply do

A

the supply of it and any joint products will also increase

economics micro (1 decks)

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