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A Level Economics > Micro Year 1 > Flashcards

Micro Year 1 Flashcards

1
Q

What is the Basic Economic Problem?

A

Based on scarcity, the basic economic problem states that there are a finite amount of resources that are unable to meet the infinite wants of humans. We need to decide what we are going to produce, how we will produce it and for whom it is being produced for. After this, a question of opportunity cost arises.

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2
Q

Define Opportunity Cost

A

The loss of alternatives after an option is chosen

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3
Q

What is Ceteris Paribus

A

All things being equal

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4
Q

What is a Production Possibilities Frontier graph?

A

A curve depicting the maximum possible output for 2 products in a country being produced over a specific time period with minimal wastage in the products.

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5
Q

What can expand the PPF outwards? (3 factors)

A

Economic growth, increased investment, productivity improving, improvements in tech.

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6
Q

What can bring the PPF inwards? (3 factors)

A

Fall in population, fall in investment, fall in production, natural disasters

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7
Q

Define economic growth

A

An expansion in the productive capacity of an economy

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8
Q

What are the four factors of production?

A

Capital, enterprise, land and labour

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9
Q

What are the two types of capital?

A

Fixed - Resources like hospitals or factories, turning working capital into goods and services

Working - Resources used to produce goods and services

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10
Q

What are capital goods?

A

Goods used to make consumer goods

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11
Q

What are consumer goods?

A

Goods bought for consumption, not for the production of another good

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12
Q

Define specialisation

A

Focusing on carrying out/working on a goods/service being done

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13
Q

Define the division of labour

A

Specialisation amongst workers, working on different tasks at different productive stages, collaborating with other workers.

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14
Q

What is Herding mentality?

A

Suggests that consumers act and behave in packs and mimic each other

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15
Q

What is rationality

A

The idea that consumers aim to maximise utility

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16
Q

What is habitual behaviour?

A

Consumers sticking to what is familiar to them and dont want to risk a change

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17
Q

What is computation?

A

Society is bad at mathematical computation and can’t understand probabilities to make forecasts

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18
Q

What is demand?

A

The price that buyers are willing and able to buy at

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19
Q

What is supply?

A

The price that suppliers are willing and able to sell at

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20
Q

What shifts demand? (4 factors)

A

Income, trends, season, advertising, tax levels, substitutes, complements

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21
Q

What shifts supply? (4 factors)

A

Trends, season, taxes, tech, raw materials, productivity

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22
Q

What is the price mechanism?

A

When the price of goods and services effects the supply and demand of goods and services

23
Q

What is the signalling function?

A

Price mechanism acts as a signal, where if prices rise due to stronger demand, it signals to suppliers that they can expand output

24
Q

What is the incentive function?

A

Higher market prices act as an incentive to suppliers to raise output and make more profit

25
Q

What is the rationing function

A

When prices ration scarce resources and demand outstrips supply

26
Q

What is an externality?

A

A consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices

27
Q

What is complete market failure?

A

The market fails to supply any of a good demanded, creating a missing market

28
Q

What is partial market failure?

A

When a market for a good exists but is over or under produced in

29
Q

What is an information gap?

A

When buyers and sellers do not have the same information as one another (there is asymmetric information between the parties)

30
Q

What is the formula for XED?

A

% change in quantity of good A / % change in price of good B

31
Q

What is the formula of YED?

A

% change in demand / % change in income

32
Q

What is the formula of PED?

A

% change in demand / % change in price

33
Q

What is the formula of PES?

A

% change in quantity supplied / %change in price

34
Q

What is a direct tax? Give an example of one.

A

A tax paid directly to the government, such as income tax, corporation tax, council tax

35
Q

What is an indirect tax? Give an example of one

A

A tax imposed on consumers purchases and producers activity, such as VAT, excise duties, carbon Tax

36
Q

What is an Ad Valorem tax?

A

A tax levied as a % on every unit sold

37
Q

What is a specific unit tax?

A

A tax level on each unit sold

38
Q

What is a subsidy?

A

A government payout to individuals, organisations and businesses, designed to offset costs and advance a specific a public goals

39
Q

What is a maximum price?

A

Government intervention to cause an increase in demand by reducing a price to below the market equilibrium

40
Q

What is a minimum price?

A

Government intervention that doesn’t allow prices to fall below a certain level, above the market equilibrium

41
Q

What are trade pollution permits?

A

Government issuing permission to firms that allows them to release a fixed amount of pollution to reduce environmental damage

42
Q

What is regulation?

A

Laws implemented to help consumers avoid hidden costs and narrow information gaps

43
Q

What is government failure?

A

When government intervention leads to an increase in inefficiency, a misallocation of resources and a net welfare loss

44
Q

What are some examples of government failure?

A

Distortion of price signals, information gaps, unintended consequences. excesses and shortages, inefficiency

45
Q

When XED is between 0 and -1, it is a…

A

distant complement

46
Q

When XED is between 0 and 1, it is a …

A

Distant substitute

47
Q

When XED is greater than 1, it is a …

A

Close substitute

48
Q

When YED is between 0 and 1, it is a…

A

Normal necessity

49
Q

When YED is greater than 1, it is a…

A

Normal luxury

50
Q

When PED is 0, demand is

A

Perfectly inelastic

51
Q

When PED is 1, demand is

A

Unit elastic

52
Q

When PES is 0, supply is

A

Perfectly inelastic

53
Q

When PES is infinity, supply is

A

Perfectly elastic

A Level Economics (4 decks)

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