Micro Flashcards
1
Q
What is the economic problem?
A
unlimited wants + limited resources - scarcity
the factors of production are scare so we cannot have all we want, we have a number of decisions ‘opportunity cost’
2
Q
what does mean opportunity cost?
A
the best alternative which is given up when an economic decision is made
3
Q
Name the four economic resources
A
“CELL”
- Capital: equipment
- Enterprise: the idea
- Land: row materials
- Labour: staff, employees
4
Q
How many sectors a production takes place?
A
3 - the process of combining scare resources to produce outpt
5
Q
Which are the the sectors of production?
A
Primary- extraction of natural resources
Secondary- turning the raw materials into finished goods
Tertiary- providing a service, the finished good int he stores
6
Q
definition of capital goods
A
used to produce consumption goods in the future
7
Q
definition of consumption goods
A
bought for final consumption - in a durable (TV, washer machines…) o a non durable (food…) goods
8
Q
Free goods
A
no opportunity cost - air, ideas…
9
Q
economic goods
A
products that are scare and have an opportunity cost
10
Q
Resource Allocation
A
What to produce?
How to produce?
For whom do we produce?
11
Q
consumers
A
we have limited income so we want maximum satisfaction (utility)
12
Q
Workers
A
they want maximum gain for working, in different aspects
13
Q
firms
A
want to maximise profits. a productive organization which sells its output of goods or services commercially
14
Q
Governments
A
have to make decisions
- in the best interest of the people they represent
- based on whether they will be re-elected again
15
Q
Economic systems
How many are?
Which are?
A
3
- Free market economic system
- Mixed Economic system
- Planned Economic system: where all resources allocated by government
16
Q
Explain advantage and disadvantages of the
Free market economic system
A
Advantages:
- free choices
- businesses compete with each other
- encourage new business
- make profitable goods that consumers want
- prices are influenced by the demand of these goods
Disadvantages:
- no government involved in providing goods or services
- only those that can afford can use the services
- can create booms and recessions
17
Q
Explain the
Mixed economic system
A
Has both
- Private Sector: business make their own decisions on what to produce, how it should be produced and what price to charge. their aim is profit
- Public Sector: made up of Government control
18
Q
Explain advantage and disadvantages of the
Planned economic system
A
Advantages:
- Government control - eliminates waste
- work for everyone
Disadvantages:
- little production of luxury
- wages are fixed so no incentive to produce more
- low efficiency and innovation
- very little consumer choice
19
Q
PPC - Production Possibility Curves
A
Because Resources are scare and have alternative uses, therefore, we have to decide how to allocate our resources
- Productive efficiency: when there is no waist of resources or under using them
- Allocative efficiency: what to produce? - it s not possible to produce one more TV without making less radios
the PPB can grow or shift to the right when:
- there is an increase in population - migration or increases on the birth rate
- new or improvement technology
- improved in the skills, abilities and motivation of workers thus increase output
- finding new land - more resources , minerals or row materials
20
Q
Define division of Labour
A
workers assigned to particular task (specialisation) - breaking the production process
Advantages:
- increases efficiency
- less time wasted
- ‘practice make perfects’
Disadvantages:
- workers can become bored
- if a worker is absent, another worker can not stand in for them - efficiency can fall
- perceived as unfair when one worker has the ‘dirty job’ all the time
21
Q
normative - economic statement
A
based on opinions - hard to prove
22
Q
Positive - economic statement
A
facts that can be tested
23
Q
What is a market?
A
where buyers and sellers come together to exchange products for money
it can be online, shops, fairs….
24
Q
What is demand?
A
the quantity buyers are willing and able to buy at a given price in a given period of time
25
individual demand
how much a single consumer in the market plans to demand at all the different possible prices of a good or service
26
market demand
the total demand for a good for the total number of consumers
27
effective demand
consumers must have the money to buy goods they need and want
28
what does mean extension of demand
a rise in the quantity demanded due to a fall in price
29
what does mean contraction of demand
a fall in the quantity demanded due to a rise in price
30
condition of demand
a determinant of demand (different from goods and services) that fixes the position of the demand curve
31
composite demand
a good that is demand for more than one purpose
32
derived demand
the demand of a good come from the demand form an other good
- the demand of petrol can come for the demand of cars
33
Factors that shits the demand curve
| word..
PASIFICO
P - population: increase or decrease because developments, poor etc
A - advertising: on the product
S - substitutes: a rise or fall in the price - willing to buy a honda because its the increase in price of toyota
I - income: and increase or decrease in consumer spending- un or employment
F - fashion: the trends change over time - nokia-apple
I - interest rates and taxes on income: increase or decrease
C - complements: a complement good - tea + sugar
O - other factors: changes quality, the law, context,...
34
Inferior goods
goods or services for which demand fall when incomes rise
35
normal goods
demand increases when income rise
36
what is a supply?
refers to the amount of a good or services firms or producers are willing to make and sell at different prices
the tiger the price of the product, the more a firm will be willing to supply because more profit can be expected
37
extension of supply
supply increase when price rise
38
contraction of supply
supply decrease when there is a fall in price
39
Factors that shits the supply curve
| word..
PINTSWCO
P - productivity: output per worker per period of time
I - indirect taxes: on specific good, and increase in tax the supply curve shift left
N -number of firms entering the market: increase n. of firms therefore, would be more supply
T - technology: supply increase - more advance, efficient
S - subsides: shift right, a payment to a firm, usually given by the government
W - weather
C - cost of production: a rise in cost production (wages, shortage in row materials) shift left
O - other factors: weather, government intervention, future prices expectations
40
Market Price - Equilibrium
| definition
the point at which demand and supply meet
41
what is elasticity:
the responsiveness of t=one variable to change in another
42
how many elasticity of demand are?
| Which are?
3
formula: percentage change in Q/ percentage change in...
1. price elasticity of demand (PED): change in price (0 - -1: inelastic; more than -1 is elastic)
2. income elasticity of demand (IED): more than 1 is elastic
3. Cross- elasticity of demand (Xped): two goods that are substitutes or complements, or with no discernible demand relationship
43
Price elasticity of supply
PES
formula: percentage change in Q supplied/ percentage change in price
more than 1: elastic
les than 1: inelastic
44
Production
converts inputs (about, capital..) and outputs (goods, services) of goods and services
45
Labour productivity
2 types
formula
production: a firm or a county output
productivity: output per worker
formula: total output in a given period / number of units of labour used
46
Named the two types of cost
```
Fixed Cost (FC): cost that do not vary with output
Variable Cost (VC): cost change with output
```
47
formulas of cost
| how many are?
6
```
total cost (TC): fc +Vc
Average variable cost: vc / output
Average fixed cost: fc / output
Average TC: tc / output
Total Revenue (TR): price * quantity
Profit: total revenue - tc
Average revenue: tr / output
```
48
Internal Economies of scale
when a firm grows in size and so benefits from lower average costs
49
Diseconomies of scale
when output increases, long-run average cost rises
when the firm grows too large and cost start to rise
-loss of control
- lack of coordination
50
External Economies of scale
firms has a large manufacturing base
51
monopoly
A situation where there is only one firm selling in a market
advantages:
- high profit levels
- innovation can lead to lower cost than in competitive markets
-exploitation of economics of scale
Disadvantage:
- no incentive to be better
- limited choice
- high prices
- poor quality and services
- limited supply
- limited information
- productive and allocative are inefficiency
52
monopoly power
when a firm has more than 25% of the market share
53
which are the monopoly power in markets
- Pure monopolist: single seller
- Working monopoly: a firm with greater than 25% of the total sales
- Oligopoly: few dominant firms, each has market power
- Duopoly: two firms take the majority of demand
54
Market Structure
the number of firms in a market and the ways they behave in terms of
- competitiveness
- the extent to which goods/ services are being produced
- how barriers affect the operation of the market entry
55
Which are the two types of market structure
1. Perfect competition: does not exist and is the price taker
2. Monopoly in a concentrated market: rare in the real world and is the price maker
56
Market definition
is the place where buyers and sellers meet to exchange a product, good, or service
price are established
57
sub-markets
a segmentation of a market
58
what does mean the function of the price mechanism
when the allocation of resources is based on the interaction between consumers and businesses to know what goods or services consumers are wiling to buy
-signalling function:
signs that tell business to supply, expand, incentive to rise output, more or other type of things
- rationing function:
- ?
59
Define
| Market Failure
when the market fail to allocated resources in the best interest of society as a whole
occurs when markets outcomes are inefficient because the decision
60
The market failure can occur due to
```
5
imperfect information
externalities
monopolies
immobility of factors of production
the private sector being unable to provide goods profitably
```
61
negative externalities
occurs when the production or consumption of a good impose external costs on third parties outside of the market
62
is consider market failure when..
MPB : MPC - it is allocatively inefficient
63
when a loss of social welfare happens ?
when MSC > MPC
64
How can be reduced the externalities?
imposing a tax - tax increase a MPC
and therefore, receiverevenue to be used in those problems
allocate resource in the correct way
65
Public goods. what types are
3
non-excludability
non-rival consumption
non-rejectable
66
explain the 3 types of public goods
non-excludability: all the society can enjoy the good, like fireworks - but this is a 'free-rider' problem because some might have pay and other dont (this can produce market failure)
non-rival consumption: the satisfaction the good doesnot take the satisfaction from an other person. street lights etc
non-rejectable: goods that cannot be rejected by the citizens, such as national nuclear defense, police, etc.i can not always be part of it.
67
quasi public good
is a near-public good, some characteristics of a public good
68
explain the 2 types of quasi public good
1. semi-non-rival: everyone can enjoy public goods such parks, roads, etc. but it can become crowded
2. semi-non-excludable: roads are public, but one of them can have toll booths on congested road routes
69
non-excludability and free-riding
others pay for a public good they will consume. eg.cure for cancer... NHS
if everyone tries to be a free-rider, no one pays for the good to be produced - leads to social loss of welfare, everyone worse off.
70
de-merit goods
are thought to be bad for you
71
explain consequences of de-merit goods
consumtion can lead to negative externalities
imperfect information - long term damage
government intervention- taxes on producers or consumers
alcohol, violent films, hands-free mobile phones, etc
72
merit goods
is a product that society values and judges that people should have regardless of their ability to pay.
state and private sector provide merit goods
positive externalities
-health service, public libraries, education
73
Indirect Taxes
tax on what we buy
74
types of Indirect Taxes
- Progressive Tax: % depends on how much you earn
- Proportional Tax: the same %, from everyone income
- Regressive Tax: is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder
75
government subsides
any for of government support - financial or other wise
| offered to producers and occasionally to consumers
76
Output
the number of goods or services produced by a firm
77
needs
something essential to survival - food, water, warmth, shelter
78
market
where beers and sellers meet to change goods and services
79
merger
an agreed coming together of two firms
80
wants
something you would like to have but is not essential for survival
81
perfectly inelastic demand
the quantity demanded remains the same although the price changes. unresponsive to price
82
integration
where two firms come together through merging or are taken over
83
Total Revenue
The amount of money a firm receives when selling its products
84
takeover
when a firm seeks control of another (friendly or hostile)
85
rational behaviour
means people try to make decisions in their self-interest or to maximise their private benefit
86
utility
the satisfaction or economic welfare an indivudual gains from consumption a good or service
87
marginal utility
the additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good.
88
hypothesis of dimishing marginal utility
for a single consumer the marginal utility derived from a good or service disminishes for each additional unit consumed
89
asymmetric information
when eithaer the buyer or the seller involved in a potential transaction knows something that is not observable to the other party
90
behavioural economics
A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions
91
rule-of-thumb
a rough and practical method or procedure that can be easily applied when making desicions
92
bounded rationaly
when making decisions, an individual´s rationality is limited by information they have, the limitations of their minds, and the finite amount of time available in which to make decisions
93
bounded self-control
limited self-control in which individuals lack the self-control to act in what they see as their self-interest
94
according to Daniel Kahneman what are the 2 systems of how peole think?
System 1: decisions are made quickly and little effort is used to analyse the situation. this situation is automatic thinking
System 2: concentration and mental effort are required to work through a problem before a decosopn can be made
95
cognitive bias
a mistake in reasoning or in some other mental thought process occurring as a result of, for example, using rules-of-thumb or holding onto one´s preference and belives. regardless of contraryinformation
96
availability bias
occurs when individual make judgements about the likehood of future events according to how easy it is to recall examples of similar events
97
anchoring
a cognitive bias describing the human tendency to compare and contrast only a limited set of items
98
social norms
forms of patterns of behaviour considered acceptable by a society or group within that society
99
economic sanctions
restrictions inposed by regulations and/or laws that restrict an individual´s freedom to behave in certaain ways. Breaking a sanction can lead to punishment
100
nudges
factors which encourage people to think and act in particular ways. Nudges try to shift group and individual behaviour in ways which comply with desirable social norms
101
altruism
concern for the welfare of others
102
fairness
the quality of being impartial, just, or free of favouritism. it can mean treating eveeryone the same. fairness involves trating people equally, shering with others, giving others respect and time, and not taking advantage of them
103
choice architecture
a framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision making
104
default choice
an option that is selected automaticallyy unless an alternative is specified
105
framing
how something is presented influences the choices people make
106
mandate choice
peole are required by law to make a decision
107
restricted choice
offereing people a limited number of options so that they are not overwhelmed by the complexity to the situation. if there are too many choices, people may make a poorly thought-out decision or not make any decision
108
what is the best way to help an individual´s decision-making process?
is to provide feedback that enables them to learn from their past performance
109
what is the best way to give a feedback?
the best way is a constructive feedback which enhances people feelings of competence and self-control.
by contrast, destructive feedback tends to cause conflict and reduce personal motivation
110
Nudge Theory
Nudges must be open and transparents to the general public. governments should be honest with the public and ensure that they explain why they have introduced a nudge, but still allow individuals to make a choice
111
marginal returns of labour
the change in the quantity of total output resulting from the employment of one more worker, holding all the other factor of production fixed.
112
law of dimisnishing returns
a short-term law whixh states that as a variable factor of production is added to a fixed factor of production, eventually both the marginal and average returns to the variable factor will begin to fall. it is also know as the law of diminishing marginal (and average) productivity.
113
formula of the average returns of labour
total output of labour force / # of workers
114
total returns of labour
total output produced by all the workers employed by a firm
115
returns to scale
the rate by which output changes of the scale of all the factors of production is changed (long-run)
short-run: when is a variable factor of production
116
plant
an establishment, such as a factory, a workshop or a retail outlet, owned and operated bt a firm
117
what are the three possibilities of returns to scales?
increasing returs to scale
constant returns to scale
decreasing returns to scale
118
increasing returs to scale
when the scale of all the factors of production employed increases, output increases at a faster rate
119
onstant returns to scale
when the scale of all the factors of production employed increases, output increases at the same rate
120
decreasing returns to scale
when the scale of all the factors of production employed increases, output increase at a slower rate.
121
economy of scale
as output increase, long-run average cost falls
122
long-run average cost
cost per unit of output incurred when all factors of production or inputs can be varied
123
optimum firm size
the size of the firm capable of producing at the lowest average csot and thus being productively efficient
124
minimum efficient scale (MES)
the lowest output at which the firm is able produce at the minimum achievable LRAC
125
internal economies and diseconomies of scale
changes in long-run average costs of production resulting from changes in the size or scale of a firm or plant
126
external economy of scale
occur when average or unit cost of production fall, because of the growth of the industry of which the firm is a part
127
external diseconomy of scale
occur when average costs of production increases because of the growth of the whole industry or market
128
marginal cots
addition to total cost resulting from producing one additional unit of output
129
average fixed cost
total cost of employing the fixed factors of production to produce a particular level of output, diiveded by the size of output: AFC = TFC/Q
130
average variable cost
total cost of employing the variable factors of production to produce a particular level of output, divided bt the size of output: AVC= TVC/Q
131
average total cost
total cost of producing a particular level of output, dived by the size of output; often called average cost: ATC= AFC + AVC
132
PED
Definition: Demand is price elastic if a change in price leads to a bigger % change in demand; therefore the PED will therefore be greater than 1. ELASTIC
These are goods where a change in price leads to a smaller % change in demand; therefore PED <1 Between o and -1. Is INELASTIC
It is always a negative number, because demand moves to opposite directions
