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OCR economics > Microeconomics > Flashcards

Microeconomics Flashcards

1
Q

scarcity

A

unlimited wants in the face of limited resources

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2
Q

finite resources

A

resources that are fixed in supply and whose quantity falls as they are consumed

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3
Q

needs

A

necessary for human life

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4
Q

wants

A

things people would like to consume

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5
Q

wants

A

things people would like to consume

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6
Q

free goods

A

not regarded as scarce eg. air

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7
Q

economic goods

A

goods which are scarce and their consumption creates an opportunity cost

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8
Q

what does the existence of scarcity do

A

forces people to make choices

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9
Q

sustainable resources

A

resources which if managed carefully, can be replenished

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10
Q

non-sustainable resources

A

resources will eventually run out as they cannot be replenished

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11
Q

opportunity cost

A

value of the next best alternative forgone

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12
Q

factors of production

A

inputs needed into the production of goods and services

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13
Q

land - factor reward

A

natural resources - rent

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14
Q

labour - factor reward

A

human input into the production process - wages

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15
Q

capital

A

manufactured resources for the production of other goods - interest

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16
Q

enterprise

A

organises the other factors of production and takes risks - profit

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17
Q

economic questions

A

what to produce, how to produce, for whom to produce

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18
Q

economic problem

A

how to satisfy unlimited wants with limited resources

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19
Q

positive statement

A

objective statements that can be tested, amended or rejected with evidence

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20
Q

normative statements

A

subjective value based judgement

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21
Q

household choices

A

consumers who demand goods and services, and supply their labour

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22
Q

firm choices

A

produce goods or services, and what and how to sell

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23
Q

government choices

A

expenditure and taxation and regulation of markets

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24
Q

evaluation of choices

A

irrational behaviour eg. charity

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25
Q

interdependence

A

where one group responds to the actions of another group, or when one group is impacted by the decisions of another

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26
Q

production possibility frontier

A

shows the maximum combinations of two goods or services that an economy can produce when all resources are fully and efficiently employed

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27
Q

how does PPF represent opportunity cost

A

increases of an extra marginal unit production of one good leads to increasing sacrifices of production of the other good

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28
Q

why does the gradient of the PPF increase

A

there must be greater sacrifice in terms of the good foregone to produce one more new good

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29
Q

factors causing an outward PPF shift

A
  • higher productivity
  • better management to reduce wastage
  • increase in stock of capital or labour
  • innovation or invention of new products or resources
  • discovery of new natural resources
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30
Q

factors causing inward PPF shift

A
  • natural disasters
  • civil war / conflict
  • outward migration of labour
  • decline in productivity caused by a recession
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31
Q

what causes a shift in PPF

A

increase/decrease in quality or quantity of factors of production

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32
Q

capital goods

A

goods used to increase future capacity of the economy

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33
Q

consumer goods

A

goods created for current use

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34
Q

consumer goods

A

goods created for current use

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35
Q

effect of capital and consumer goods on living standards

A

if an economy chooses to produce more consumer goods, living standards in the present will increase but fall in the future
if an economy chooses to produce more capital goods, living standards in the present will decrease, but increase in the future

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36
Q

trade off

A

willingness of an economic agent to give up one thing for another

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37
Q

axioms for rationality

A

completeness, transitivity, non-satiation

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38
Q

completeness

A

if the individual has an opinion on the value of any item relative to the value of another item
has an order of preferences and understands their choices

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39
Q

transitivity

A

consistent preferences through ranked order

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40
Q

non-satiation

A

belief that ‘more is better’ - utility increases the more consumption increases

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41
Q

incentive

A

something that motivates an economic action
often relates to profit, prices and social welfare

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42
Q

market economy

A

market forces are allowed to guide the allocation of resources in a society through supply and demand with the price mechanism without government intervention

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43
Q

command economy

A

government makes all economic decisions and allocates resources

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44
Q

mixed economy

A

market forces work with government intervention

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45
Q

advantages of a free market economy

A

efficiency, entrepreneurship, choice, incentives, competition

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46
Q

disadvantages of a free market economy

A
  1. income and wealth inequalities
  2. lead to monopolies
  3. under-provision of merit goods
  4. fail to address negative externalities
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47
Q

advantages of a command economy (3)

A
  1. maximises welfare,
  2. low unemployment,
  3. prevent monopolies
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48
Q

disadvantages of a command economy (4)

A

poor decision making, restricted choice, lack of risk taking and efficiency

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49
Q

productive efficiency

A

when producers minimize the wastage of resources

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50
Q

allocative efficiency

A

Allocative efficiency exists when the production of a good is at a level where price equals marginal cost

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51
Q

dynamic efficiency

A

involves improving allocative and productive efficiency over time

52
Q

evaluating economic systems

A

incentives for economic agents show why command economies cannot produce resources efficiently - but in a free market this does not create allocative efficiency
mixed economies provide incentives but the government is still free to solve market failure

53
Q

specialisation

A

when individuals, firms, regions and whole economies focus on making a particular good/service

54
Q

division of labour

A

when the production process is broken down into smaller tasks performed by different individuals/capital

55
Q

advantages of specialisation / division of labour (3)

A
  1. increased output
  2. less wastage
  3. lower unit costs
56
Q

disadvantages of specialisation / division of labour

A

boredom

57
Q

advantages of specialisation in trade

A
  1. greater output
  2. greater variety and choice
  3. economic growth
58
Q

disadvantages of specialisation in trade

A
  1. structural unemployment,
  2. over-reliance on trading partners,
  3. changes in tastes and fashions,
  4. over-extraction of finite resources
59
Q

opportunity cost formula

A

change in production of good B / change in production of good A

60
Q

production

A

measure of the value of output of goods and services

61
Q

productivity

A

efficiency of factors of production

62
Q

barter system

A

system of exchanging one product for another without the use of money, requires a double coincidence of wants

63
Q

money as a medium of exchange

A

both sides agree on the value of the currency, a price can be negotiated

64
Q

specialisation addressing the basic economic problem

A

higher output, variety, bigger market - more wants and needs to be satisfied
competition and lower prices - specialization acts as a way to reduce costs as firms want to remain competitive

65
Q

division of labour addressing the basic economic problem

A

raise output per person - competition and reduce costs

repetitive work lowers productivity - quality and quantity suffers - not with machinery
if one machine breaks leads to halt of entire production process
structural unemployment with narrow skills - cannot work to produce other goods

66
Q

demand

A

willingness and ability to purchase a good or service at a given price over a given period of time

67
Q

individual demand

A

what one individual would be willing and able to buy at a given price over a given period of time

68
Q

what causes the inverse relationship between price and quantity demanded on the demand curve

A

disposable income effect
substitution effect - relative price changes to competitors
diminishing marginal utility

69
Q

total revenue formula

A

price x quantity sold

70
Q

joint demand

A

products are complements for another

71
Q

competitive demand

A

products are substitutes for one another

72
Q

composite demand

A

product has multiple uses

73
Q

shift of demand curve

A

any factor other than price affects demand leads to increase/decrease

74
Q

factors causing shift in demand

A

Population
income
related goods/ substitutes
advertising
tastes of fashion
expectation
season

75
Q

supply

A

willingness and ability of a firm to sell products at a given price over a given period of time

76
Q

individual supply

A

what one firm would be willing and able to supply at a given price over a given period of time

77
Q

market supply

A

sum of all firms’ willingness and ability to supply a product at a given price over a given period opf time

78
Q

why does the supply curve have a positive relationship

A

the higher the price the greater the incentive for a business to supply products

79
Q

joint supply

A

when one product is a byproduct of another, or the production process leads to more than one product

80
Q

competitive supply

A

when a producer has alternative uses for the factors of production and must decide what to produce

81
Q

movements along the supply curve

A

there is an expansion/contraction from a change in price

82
Q

shift of the supply curve

A

when any other factor affects supply leading to an increase/decrease

83
Q

market equilibrium

A

when quantity demanded equals quantity supplied - allocative efficiency

84
Q

market disequilibrium

A

in a competitive market, market forces will naturally gravitate to equilibrium
if the price is too high there is excess supply
if the price is too low there is excess demand

85
Q

ceteris paribus

A

assumes there are no other influences on the market, which operates with total efficiency
allows to model how a market should respond

86
Q

evaluating the impact of demand and supply in related markets

A

extent of the substitute/complement
time frame
size of the price change

87
Q

consumer surplus

A

difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they do pay

88
Q

where is the consumer surplus

A

above price, below demand curve

89
Q

if PED is elastic what is consumer surplus

A

consumer surplus is zero

90
Q

evaluating impact of price change on consumer surplus

A

the more inelastic PED is, the more consumer surplus will change when price changes

91
Q

if PED is inelastic what is consumer surplus

A

consumer surplus is infinite

92
Q

producer surplus

A

difference between what producers are willing and able to supply a good for and the price they actually receive

93
Q

where is producer surplus

A

below price and above supply

94
Q

when is consumer and producer surplus important

A

when discussing the effects of different government intervention in markets

95
Q

total economic welfare

A

producer surplus + consumer surplus

96
Q

when does producer surplus increase

A

if supply costs fall and S shifts out
if market demand increases and D shifts out

97
Q

evaluation of the impact of a change in price on producer surplus

A

the more inelastic PES is, the more producer surplus will change

98
Q

if PES is perfectly elastic what is producer surplus

A

producer surplus is 0

99
Q

if PEs is perfectly inelastic, what is producer surplus

A

producer surplus is infinite

100
Q

price discrimination

A

consumer surplus changes with different groups
if firms can identify groups of consumers who are willing and able to pay different prices for the same product, this is a way of turning consumer surplus into producer surplus for higher revenue

101
Q

price elasticity of demand

A

responsiveness of quantity demanded due to a change in price

102
Q

PED formula

A

% change in quantity demanded / % change in price

103
Q

% change formula

A

new-old/old x 100

104
Q

price inelastic demand

A

a change in price leads to a less than proportionate change in quantity supplied

105
Q

price inelastic demand value

A

between 0 and -1

105
Q

price inelastic demand value

A

between 0 and -1

105
Q

price elastic demand

A

a change in price leads to a more than proportionate change in quantity supplied

105
Q

price inelastic demand value

A

between 0 and -1

105
Q

price inelastic demand value

A

between 0 and -1

106
Q

price elastic demand value

A

between -1 and -infinity

107
Q

total revenue when PED is inelastic and price increases

A

total revenue increases

108
Q

factors affecting PED

A

substitutes
proportion of income
luxury / necessity
addictive
time period

109
Q

when PED is -1 what is demand

A

demand is unitary

110
Q

when is total revenue maximised along a PED curve and what is the PED

A

PED is unit elastic exactly half way along the PED curve - at this point total revenue is maximised

111
Q

on a straight line PED curve, what is the elasticity to the left of the midpoint and how does this affect total revenue

A

it is price elastic
if price is cut along this range, total revenue will increase

112
Q

on a straight line PED curve, what is the elasticity to the right of the midpoint and how does this affect total revenue

A

it is price inelastic
if price is cut along this range, total revenue will fall

113
Q

income elasticity of demand

A

responsiveness of quantity demanded due to a change in income

114
Q

income elasticity formula

A

% change in quantity demanded / % change in income

115
Q

What to produce (free market economy):

A

determined by what the consumer prefers

116
Q

How to produce (free market economy)

A

Producers seek to make profit

117
Q

For whom to produce ( Free market Economy)

A

whoever has the greatest purchasing power in the economy

118
Q

what to produce (Planned economy)

A

Determined by what the government prefers

119
Q

How to produce it ( Planned economy)

A

governments and their employees

120
Q

For whom to produce it (Planned economy)

A

who the government prefers

121
Q

what to produce ( mixed economy)

A

determined by the government and the consumer preferences

OCR economics (25 decks)

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