MicroEconomics Revision Demand and Supply Mr. Samson Flashcards
Define Specialisation
When individuals or businesses concentrate in producing a particular good or service in which they have a comparative advantage
Explain the Pros and Cons of Specialisation
Advantages
Workers become quicker at producing goods (more productive) (1)
Working as a team leads to increased output (1)
Disadvantages
Quality may suffer if workers become bored or demotivated by lack of variety in the job (1)
Repetitive leading to job motivation and decreased job satisfaction for workers (1)
Define Division of Labour
Each individual or group of workers focus on a specfic aspect of the production process
Explain the three sectors of economies
Primary Sector (1) - Raw materials are extracted and food is grown e.g. agriculture
Secondary Sector (1) - raw materials are transformed into goods e.g., Food processing
Tertiary/service sector (1) - services are produced e.g., education
Define Market
Any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services
Explain how consumers, firms, and government interact in a market economy like the UK
Consumers and firms interact through voluntery exchanges in the markerplace where gods and services are bought and sold
Government interatact by setting and enforcing rules providing public goods and influencing economic conditions through policies
Explain the functions of Money
Medium of Exchange (1) - In a barter system direct exchange is challenging but money simplifies transactions
Measure of Value (1) - the value of something depending on how much it costs
Store of value (1) - money can be stored in an account and spent later
Explain the two ways resources have been allocated
The market mechanism (1) - brings buyers and sellers who agree on a price for the product or resource being sold
Planning (1) - administrative decisions and occurs within families when individuals make decisions about who in the family is to get what
List and Describe the different types of economy (3)
Free market economies (1) - economic decisions are made by private individuals and firms
Mixed economies (1) - government or central authority makes all economic decisions
Command economies (1) - Most resources are allocated by the state and the market mechanism only plays a small part
Explain the Advantages and Disadvantages of Free market economies
Advantages
Consumers have a wide range of choices in products and services (1)
Competition incentivizes firms to produce efficiently and innovate (1)
Disadvantages
Some essential services may be unprovided without government intervention (1)
Income and wealth disparities can be significant (1)
Explain the Advantages and Disadvantages of Mixed economies
Advantages
Public Goods (1) - the government can provide essential public goods and services that might be unprovided in a purely free market such as education
Disadvantages
Dependency (1) - reliance on government intervention may create a sense of dependency reducing individual and corporative initiative
Explain the advantages and disadvantages of command economies
Advantages
Central control can provide stability during crisis (1)
Resources can be directed toward public services and social welfare (1)
Disadvantages
limit consumer choices as decisions about what to produce are made centrally (1)
Central planning may discourage innovation and individual initiative (1)
Explain what it means for a country that is a planned economy to move in a more market orientated direction (3)
This would lead to a shift of many principles such as competition (1) where it would increase as markert-oriented economies encourage competition among businesses (1) leading to greater responsivness to consumer demands (1)
Define Utility/economic wealthfare (1)
The satisfaction or bnefit derived from consuming a good or a set of goods
List and Explain some of the key assumptions of the neo classical theory (2)
Utility Maximisation (1) - individuals seek to maximise their utility or well being given their preferences and budget constraints
Profit Maximization (1) - firms are assumed to seek profit maximization for analysing production, costs, and market behaviour in neo classical economic models
explain one reason why consumers may not maximise their own utility when shopping for fast food
One reason could be because of limited information. consumers are often faced with numerous choices regarding menu items, prices, nutritional content, and other factors. Limited time, attention, and cognitive resources can hinder consumers from fully evaluating all available options and making the best decisions for their preferences and well-being. As a result, individuals may make choices that do not align with their long-term health goals or overall utility
Explain one economic effect as a result of the government setting an indirect tax on cigarettes
A decrease in Cigarette conusmption would occur as the overall price the consumer would pay increases and this reduces the quantity consumers are willing to pay
Define indirect tax
Type of tax imposed on goods and services rather than directly on income or profits
Explain the impact of government subsidies on the profits made by Chinese solar panel producer
Competitive Advantage: Reduced costs can enhance the competitiveness of Chinese solar panels in the global market. Lower production costs may allow Chinese producers to offer lower prices than competitors, potentially increasing market share and overall sales volume.
Trade Disputes: Government subsidies can also lead to trade disputes, especially if other countries perceive these subsidies as providing unfair advantages. This could result in the imposition of tariffs or other trade barriers, affecting the profitability of Chinese solar panel exports.
Define Supply (1)
How many goods firms are willing and able to put on the market at any given price (1)
List factors affecting Supply
Costs of Production, Technology & Productivity, Government Policies
Define Market Equilibrium (1)
Demand and Supply are equal (1)
Define Excess Supply (or a surplus) {1}
Quantity supplied exceeds quantity demanded {1}
Define Excess Demand ( or a shortage)
Quantity demanded exceeds quantity supplied
Define Price Mechanism
Free markets allocate resources through the interaction of demand and supply
Explain the three functions of Price allocating resources
Signalling - price in market provides information to consumers & producers (1)
Incentive - Price in market encourages change in behaviour by consumers (1)
Rationing - Price in a market determines who can afford good or service (1)
Define Consumer surplus (1)
difference between what consumers are willing and able to pay for a good/ what they actually pay (1)
Define Producer Surplus (1)
difference between market price firms receive and the price they are willing & able to supply (1)
Define Specific or unit tax (1)
Fixed amount of tax set on a particular good/service regardless of its price (1)
e.g.,. tax on alcohol
Define Ad Valorem Tax
Tax imposed as a percentage of the value of a good or service (1)
e.g., (VAT)
Explain the difference between an ad valorem tax and a specific tax (2)
Ad valorem taxes are based on a percentage of the items value (1).
Specific taxes are a fixed amount per unit regardless of the items price (1)
Explain two microeconomic effects of an increase in ad valorem taxes, such as VAT
Increase in Ad valorem taxes causes higher prices for goods/services. This affects consumer purchasing power/behaviour
As prices rise, consumers may adjust spending patterns opting for alternatives or reducing overall consumption
Equation for Total Tax Revenue
Tax Rate x Tax Base
Define Subsidy (1)
Sum of money paid by governments to producers to encourage production & reduce price (1)
explain the economic effect of subsidies for bus companies on the UK government
allocating funds for subsidies means diverting resources from other potential uses such as infrastructure
