Micro: Economic Basic tings Flashcards
Positive statement
An objective statement that can be tested against the facts
Normative
A subjective opinion,or value judgement,that cannot be declared either true or false
Basic economic problem
1) what to produce and in what quantities
2) how should goods and services be produced
3) to whom should the goods and services be allocated to
Free market or capitalist economy- decisions are made solely by the interaction of consumers and firms with no gov intervention
The command or centrally planned economy- decisions are made solely by the planning department of governments
How Functions of price allocate resources
1) Rationing- rising price,excess demand is removed and only those who can pay for the good are able to purchase the good
2) Signalling- prices provide important information to market participants, e.g. Producers to either increase or decrease production
3) Incentive-increased prices incentivise firms to produce more in order to make a profit
4) Allocative- the function of prices that diverts resources to where returns can be maximised
When any of these key functions break down there is said to be market failure
Public goods
Non excludable
Non rival
Private goods
Excludable and rival in consumption
Quasi public good
Partially non excludable and/or partially non rival
Rival
Excludable
Rival- after being consumed there is less for the next consumer
Excludable- can stop non paying customers from consuming it
Joint supply
Where the production of one good leads to the production of another good
E.g. Production of beef and leather from cattle farming
Joint demand
Goods that tend to be demanded together e.g. Complementary goods
Composite demand
When a good is demanded for more than one distinct use
Therefore an increase in the demand for one good reduces demand for the other good
Derived demand
When a particular good or FOP is necessary for the provision of another good or service
E.g. Increase in the demand of healthcare will increase in the demand for doctors and nurses
