microeconomic introduction Flashcards
A movement along a production possibilities frontier reflects what?
opportunity costs
what is microeconomics?
its human behaviour and how consumers and firms make choices
Decision making might be irrational if what?
if there is too much relevant information
Most goods and services in the UK are allocated by what?
the market
what does a steep ppf curve mean?
the steeper the curve the higher the opportunity cost
A movement along a production possibilities frontier reflects what?
opportunity costs
When counting the costs of your studies you should include what?
the wage you have earned during your studies
whats a market economy?
businesses are privately owned, and they decide what to produce based on the profit motive.
what is a command economy?
a government body controls the factors of production, and determines how much to produce and what price to sell it for.
how do market and command economies differ?
with how they allocate goods and services
what would shift a country’s production possibility frontier
outwards?
an increase in productive resources
What are the determinants of demand?
Advertising
Price of subs/compliments
Income of consumers
Number of people
Trends
What are the determinants of supply?
weather,subsidies,taxes,wages,raw materials, technology
What are the factors of production?
land labour capital enterprise
What is opportunity cost?
the next best opportunity forgone
What does it mean to be rational?
you have full information before making a decision
What is data?
pieces of economic evidence eg price and quantity
what is the optimisation principle?
firms and individuals will look to make the most of what they have eg firms will want to profit maximise given tech and prices
what are constraints stopping you purchasing wants?
Incomes
Technology
Prices
Choices of others (game theory)
what is the equilibria principle?
the idea that economic principles often end up balancing eg prices will change until quantity demanded is equal to quantity supplied
equilibrium provides the greatest efficiency
what is the economic problem
unlimited wants with limited resources
what is game theory?
the outcome of choices made by others in order to maximise the economic benefit
what is equity?
Is where consumption (or income) is distributed in a way that is considered to be fair
what is economic efficiency?
is achieved when no actor in a market can be made better off without making somebody else worse off
what is complementary demand?
when two good are demanded together
what is derived demand?
a good thats demanded in order to produce another good
what are substitute good?
goods in competitive demand and act as replacements for similar goods
what is price elasticity of demand (PED)
it measures the responsiveness of quantity demanded to a change in price
what is the PED formula?
%change in quantity demanded/ %change in price
what are determinants of PED?
Substitutes
Percentage of income
Luxury
Addiction
Time period
what is income elasticity of demand
the responsiveness of demand to a change in income
what is the income elasticity of demand (YED) formula?
%change in quantity demanded/ %change in income
what does a (+) and (-) mean when referring to YED?
positive (+): normal good
negative (-): inferior good
What is a normal good?
a good you buy more of when incomes rise
what is an inferior good?
a good you buy less of when incomes rise
what is cross elasticity of demand? (XED)
the responsiveness of demand for one product to a change in the price of another product
what is the formula for XED?
%change in quantity demanded of good a/ %change in price of good b
What does a positive (+) and negative (-) mean when talking about cross elasticity of demand?
positive (+): substitute good
negative (-): complementary good
what is price elasticity of supply?
a measure of the responsiveness of the quantity supplied to a change in price
What is the PES formula?
% change in quantity supply / % change in price
What are the determinants of PES?
Stocks
Spare capacity
Raw materials
Time supply
What is an inelastic good?
it has an elasticity of 0-1
What is an elastic good?
it has an elasticity of 1+
What happens if PED is 0?
it means it’s perfectly inelastic (straight line up)
What happens if PED is 1?
it means it’s unitary, quantity changes at the same rate as price
Under what condition is the market allocation efficient?
sufficient competition
no externalities
what did Adam Smith call price?
the invisible hand
