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Economics Yr12 > Micro Theme 1 > Flashcards

Micro Theme 1 Flashcards

1
Q

What is a normative statement?

A

A statement of opinion or value judgement rather than a fact that can be tested by looking at available evidence.

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2
Q

What is a positive statement?

A

Statement are objectives that can be tested, amended or rejected by referring to the available evidence.

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3
Q

What is a model?

A

A therotreitcal concept that looks at now different variables interact

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4
Q

What is Ceteris Paribus?

A

All the other factor remain the same.

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5
Q

What is scarcity?

A

When there are unlimited human wants but limited number of resources to meet these wants.

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6
Q

What are renewable and non-renewable sources?

A

Non-renewable resources are finite in supply
Renewables are replaceable if the rate of extraction is less than the natural rate at which a resource renews

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7
Q

What is the economic problem?

A

Making choices on how to allocate scarce resources to best meet our needs and wants.

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8
Q

What is opportunity cost?

A

The benefit of the next best alternative when making a choice.

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9
Q

What is a PPF?

A

A curve which represents all possible combination of goods an economy or a firm can produce when all factors of production are fully employed and used efficiently.

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10
Q

What are the factors of PPF?

A

Opportunity Growth
Economic growth or decline
Efficient or inefficient allocation of resources
Possible and unobtainable production

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11
Q

What are the factors of production?

A
  1. Land
  2. Labour
  3. Capital
  4. Enterprise
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12
Q

What is productive efficiency?

A

When the economy uses minimum inputs to produce maximum output at lower cost.

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13
Q

What is allocative efficiency?

A

Social welfare is maximised in the production of goods and services.

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14
Q

What is capital goods?

A

Goods used to make consumer goods and services.

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15
Q

What is consumer goods?

A

Goods and services that satisfy our needs.

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16
Q

What is specialisation?

A

Occurs when economic units focus on producing specific goods or services.

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17
Q

What is the division of Labour?

A

The assignment of different parts of a manufacturing process or task to different people in order to improve efficiency.

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18
Q

What are some advantages and disadvantages of division of labour?

A

Advantages:
Higher output
Variety
A bigger market

Disadvantages:
Unrewarding, repetitive work that requires little skill can lower motivation and eventually causes lower productivity.
Workers may take less pride in work and quality suffers.
Dissatisfied workers cause absenteeism to increase
People move to less boring jobs creating a problem of high worker turnover and increased hiring/training costs
Increased risk of repetitive strain injuries at work
Some workers receive little training and may not be able to find alternative jobs when out of work – they suffer structural unemployment / occupational immobility
Mass-produced standardised goods may lack variety

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19
Q

What are the four main functions of money?

A

A medium of exchange
A store of value
A unit of account
A standard of deferred payments.

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20
Q

Whats the difference between free market, mixed and command economies?

A

Free market economy: Markets allocate resources through the price mechanism.
Planned or command economy: in a planned or command system associated with a socialist or communist system, the government owns scarce resources.
Mixed economy: In a mixed system, some resources are owned by the public sector (government) and some are owned by the private sector.

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21
Q

What are the advantages of a free market economy?

A

Advantages:
An efficient allocation of scarce resources
Competitive prices for consumers
Competition drives competition
Promote investment
Reduces Monopoly

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22
Q

What are the disadvantages of free market economies?

A

Some members of the economy may be unable to work
Goods that are not good (demerit goods) may be over-produced
Because of profits, firms may be tempted to cut costs
Some firms grow so big they have monopoly power
Public goods won’t be produced

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23
Q

What are advantages of command economies?

A

Low level of unemployment and low levels of inequality
Resources are allocated more evenly
It may be more fast to get infrastructure projects to be built

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24
Q

What are the disadvantages of command economies?

A

Bureaucratic costs of central planning of resources
Problems in fixing prices of goods and services
Absence of incentives for both workers and businesses can damage productivity and also lead to large levels of over-employment.
Low productivity and weak incentives lead to rising losses for state-owned businesses.
The state can suffer from information failures and corruption

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25
Q

What is rational decision making?

A

Rational decision making is making choices with the aim of maximising utility.

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26
Q

Why do consumers make rational decision?

A

To maximise utility.

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27
Q

Why do firms make rational decisions?

A

To maximise profits.

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28
Q

What is demand?

A

Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.

29
Q

What’s the difference between a movement on a demand curve and a shift on a demand curve?

A

A change in the price of the product itself causes a movement along the demand curve.
Non-price factors cause a shift in the demand curve

30
Q

What is the law of demand?

A

There is usually an inverse relationship between the price of the good and demand..
Prices fall demand increases
Prices increases demand falls

31
Q

What are the factors that cause a shift in the demand curve?

A

Price change in substitute good
Price change in complement goods
Change in real income
Change in distribution of income
The effects of advertise in and marketing
Interest rates
Change in the size and age of structure and population
Seasonal factors
Social and emotional factors

32
Q

What is total utility?
What is marginal utility?

A

The total satisfaction from a given level of consumption.
Marginal utility is the change in satisfaction from a consuming an extra unit.

33
Q

What is diminishing marginal utility?

A

The marginal utility of extra units decline as more is consumed.

34
Q

What is supply?

A

Supply is the quantity of a good or service producers are willing and able to supply at a given price in a given time period.

35
Q

What is the difference between a shift and a movement on a supply curve?

A

If there is a move it means the price has changed
If is is a shift it means a change in supply.

36
Q

What are the factors that affect a shift in supply?

A

Changes in cost production
Change in technology
Government taxes and subsides and regulation
Changes in climate in agricultural industries
Changes in price of a substitute in production
The number of producers in the market and their objectives

37
Q

How is the equilibrium of demand and supply determined?

A

Equilibrium means a state of equality or balance between market demand and supply.

38
Q

How to use graphs to find out the excess demand?

A

Excess demand is when quantity demanded exceeds available supply
Excess demand happens when the current market price is set below the equilibrium price.
This will result in queuing and an upward pressure on price.
Higher prices ration demand to those consumers with effective demand
Higher prices – in theory – stimulate an expansion of supply as producers respond to higher profits

39
Q

How to use graphs to find out the excess supply?

A

Excess supply is a state of disequilibrium in a market
When supply is greater than demand and there are unsold goods in the market, there is excess supply
Surpluses put downward pressure on the market price.
As prices fall, there is an extension of demand which cuts the surplus and takes a market towards equilibrium

40
Q

How to eliminate excess demand and supply?

A

For excess supply:
A sudden “sale” would decrease supply as more people would buy it.
For excess demand:
An increase in prices would cause a decrease in demand.

41
Q

What are the three price mechanisms?

A

Signalling
Rationing
Incentives

42
Q

What is signalling?

A

Price performs a signalling function.
If higher prices because of demand then producers should increase production
If supply is high this would help as it would allow prices to decrease.

43
Q

What is incentives?

A

Through choices consumers send information to producers changing their nature of needs and wants.

44
Q

What is rationing?

A

Prices ration scarce resources when demand outstrips supply. When there is a shortage, prices bid up leaving only those with the willingness and ability to pay to purchase.

45
Q

What is price elasticity of demand?

A

Measures the responsiveness of quantity demanded after a change in the good’s price.
%change in quantity demanded / %change in price

46
Q

What are the factors of price elasticity of demand?

A

Availability in close substitutes
Cost of switching suppliers
Degree of necessity
Time frame when making a choice
Brand loyalty

47
Q

What is income elasticity of demand?

A

Measures the responsiveness of demand when income changes.
%change quantity demanded / %change in income

48
Q

What is cross elasticity of demand?

A

Measures the responsiveness in change in demand for good X when the price of good Y changes.
%change of quantity demanded of good X / %change in price of good Y

49
Q

What’s the difference between unitary elastic, perfectly and relatively elastic, and perfectly and relatively inelastic

A

Unitaty: PED = 1
Perfectly elastic: -infinity demand goes to 0 when price is changes
Relatively elastic:
Perfectly inelastic: If PED = 0 means demand does not change as price does
Relatively inelastic:

50
Q

What are substitute, complementary and unrelated goods?

A

Substitute: A good that can be purchases instead of the first one. An increase in the price of first product would cause a increase in the demand of the substitute.
Complementary: When there is a strong complementary relationship. An increase in the price of good A would lead to a decrease in the demand for Good B.
Unrelated goods: A good that affects nothing.

51
Q

What are some factors of the significance of elasticities of demand to firms and government?

A

Change in real income
Change in the prices of substitutes and complementary goods \
The imposition of indirect taxes and subsides

52
Q

What is price elasticity of supply?

A

Measures the relationship between change in quantity supplied and change in the market price.
%change in quantity / %change in price

53
Q

What are the factors that influence price elasticity of supply?

A

Spare production capacity
Stock of finished product and component
Ease and cost of factor substitution
Time period and production speed
Complexity of the production process

54
Q

What are the difference between short and long run in elasticity?

A

Short run: for an economist refers to the period of time in which at least of factor of production is fixed PES will be relatively in elastic
Long run: for an economist refers to the period of time in which all factors of production are variable. PES will be relatively elastic.

55
Q

What is consumer surplus?

A

The difference between what they are willing to pay and what they actually paid

56
Q

What is producer surplus?

A

Producer surplus is difference between the price producers are willing and able to supply a product for and the price they get in the market.

57
Q

What is an indirect tax?

A

A tax that is paid on the consumption of goods and services

58
Q

What can firms do maximise profits?(tax related)

A

Producers pass on as much of the indirect tax as they can to consumers and pay the balance.

59
Q

What is a producer subsidy?

A

A set amount of money given to a firm by the government per unit.

60
Q

Why are subsidies given out?

A

To increase production
To increase provision of a merit good

61
Q

What are alternative views of consumer behaviour?

A

The influence of others
Habitual behavior
Weakness in computation

62
Q

What are types of market failure?

A

Externalities
Public goods
Information gaps

63
Q

What are externalities?

A

It occurs when there is an external impact on a third party not involved in the economic transaction

64
Q

What is an external cost?

A

Occurs when the social cost of an economic transaction are greater than the private cost

65
Q

What is an external benefit?

A

Occurs when the social benefits of an economic transaction are greater than the private benefits

66
Q

What is a public good?

A

Goods provided by the government and are non-excludable and non-rivalry

67
Q

What are information gaps?

A

In many markets the buyer and seller have different amount of information.

68
Q

Why is there government intervention?

A

Support firms
Correct market failure
Promote equity
Support poorer households
Collect government revenue

69
Q

What are some methods of government intervention?

A

Indirect tax
Subsidies
Maximum price
Minimum price
Trade pollution permits
State provision of public goods
Provision of information
Regulation

Economics Yr12 (3 decks)

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