Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Moi cards > Microeconomics Theme 1 > Flashcards

Microeconomics Theme 1 Flashcards

(120 cards)

Start Studying
1
Q

Types of fiscal policies

A

Taxes
Subsidies
Tradeable pollution permits
Minimum and maximum prices
Regulation
Information provision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Government failure

A

When the government intervenes to correct a market failure but makes the allocation of resources even worse than before

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The Law of Unintended Consequences

A

Government intervention can have negative unintended consequences

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Information gaps

A

When the government lacks the information needed to intervene most efficiently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Administration costs

A

The miscellaneous costs of government intervention e.g paperwork, legal fees, managers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is another name for excess demand

A

A shortage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is another name for excess supply

A

A surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Total revenue formula

A

Price X Quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Average revenue formula

A

Total revenue / Quantity OR it equals Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is Average revenue

A

What a business receives on average from each sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is Total revenue

A

Price x Quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is Marginal revenue

A

Any additional revenue a firms makes from selling one extra unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is Price mechanism

A

The interaction of supply and demand to determine prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the functions of the Price mechanism when there is excess supply

A

Signalling - The falling price signals to producers that consumers want fewer goods, so they reduce quantity supplied
Incentivising - The falling prices reduce incentive to supply as less profit can be made, so they reduce quantity supplied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the functions of the Price mechanism when there is excess demand

A

Signalling - The rising price signals to producers that consumers want more goods, so they increase quantity supplied
Incentivising - The rising prices increases incentive to supply as more profit can be made, so they increase quantity supplied
Rationing - The rising price means fewer consumers are willing and able to demand at higher prices, so they decrease the quantity demanded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

If the PED is between -1 and -∞, demand for our good is

A

Elastic - so consumers are responsive to change so the %△QD is bigger, the curve is flatter

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

If the PED is between -1 and 0, demand for our good is

A

Inelastic - so consumers aren’t that responsive to change so the %△QD is smaller, the curve is steeper

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

If the PED is -1, demand for our good is

A

Unitary elastic - where the %△QD is equal to the %△P

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is Distortion of the price mechanism

A

Government intervention can distort the price mechanism

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is Market failure

A

When the Price mechanism leads to a misallocation of resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Types of Market failure

A

Negative externalities
Positive externalities
Public goods
Information gaps

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are Negative externalities

A

Costs which affect third parties outside the price mechanism due to the consumption of something

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are Negative production externalities

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are Negative production externalities known as

A

External costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Outside the price mechanism, there are
External costs & External benefits
26
Within the price mechanism, there are
Private costs & Private benefits
27
What is the formula for Social cost
Private costs + External costs = Social cost
28
What is the formula for Social benefit
Private benefits + External benefits = Social benefit
29
What is the formula for Net benefit (welfare)
Social benefit - Social cost = Net benefit
30
The supply curve is equal to
Marginal private cost (MPC)
31
The demand curve is equal to
Marginal private benefit (MPB)
32
When MSB and MSC are equal it is
Socially efficient equilibrium
33
Taxes are used for
Discourage harmful goods Raise tax revenue
34
What does a subsidy mean for the produces
It means they are able to lower the price due to the government giving them money to produce it
35
Benefits of the subsidy
Total cost = Size of subsidy x Quantity sold
36
What is the Consumer benefit
How much a consumer benefits from the subsidy (the lower half of the area)
37
What is the Producer benefit
How much a consumer benefits from the subsidy (the upper half of the area)
38
What is a positive statement
A statement which can be tested using evidence. It can be true or false
39
What is a normative statement
A statement which involves a value judgement. It is opinionated
40
What does Ceteris Paribus mean?
All other things held constant
41
What happens to quantity supplied when price increases
The quantity supplied goes up
42
What do all supply curves have in common?
They all slope upwards, as price goes up so does the quantity supplied
43
What is a contraction in supply
When a decrease in price leads to a decrease in quantity supplied
44
What is an extension in supply
When an increase in price leads to an increase in quantity supplied
45
What is an opportunity cost
The benefit given up of the next best alternative
46
What is the economic problem
Humans have infinite wants but scarce resources
47
What are the 4 factors of production
Land Labour Capital Enterprise
48
What is an economy
Any system that tries to solve the economic problem
49
What is Capital
The technology or machinery we use to make goods
50
What is Enterprise
An entrepreneur combines and organises land, labour and capital to produce a good
51
What is Land
All the earth's natural resources i.e. physical land but also raw materials
52
What is Labour
Human workers used to produce a good
53
Constant opportunity cost
All straight line PPF's have a constant opportunity cost
54
What is a PPF
Shows all possible combinations of two goods that can be produced, using all resources efficiently
55
What does the division of labour enable
Specialisation, when a firm splits up its production process into smaller separate tasks, and assigns different workers to each of these tasks
56
Pros of specialisation
Increases output Increases quality Reduce unit costs Save on training
57
Cons of specialisation
Demotivation Boredom Employee turnover Unemployment
58
The 4 functions of money
Deferred payment Unit of account Store of value Means of value
59
Deferred payment
You can borrow money to buy goods now, and then pay the money back in the future
60
Unit of account
Money helps us compare prices of different products
61
Store of value
You can store your money and save it for later
62
Means of value
We can use money to trade goods and services.
63
Pros of specialisation of trade
More variety More output More trade
64
Cons of specialisation of trade
Over-specialisation Natural resource depletion Vulnerable
65
Utility
Benefit/happiness
66
Neoclassical economists assume that firms will maximise ....
Profit
67
Behavioural economics
Habits - fail to maximise utility, peer pressure, consumers' weakness at computation
68
Why the demand curve slopes downwards?
Firstly, when the price goes down, more people can afford the good. Secondly, when the price goes down, more people are going to switch over and demand our cheaper good, instead of its substitutes
69
Marginal benefit curve
It is equal to a demand curve, as consumers are willing to pay = marginal benefit
70
The law of Diminishing marginal utility
As the quantity increases, the marginal utility decreases (the satisfaction)
71
Marginal utility vs Total utility
Marginal utility = Additional benefit from consuming an extra unit Total utility = Total benefit
72
Consumer surplus
The difference between what consumers are willing to pay and what they actually pay
73
Marginal cost curve
It is equal to a supply curve, as producers are willing to supply = marginal cost
74
Producer surplus
The difference between what producers are willing to sell for and what they actually sell for
75
Price elasticity of supply (PES)
PES measures how much quantity supplied changes in response to a change in price
76
PES is always...
Positive
77
When PES is between 1 and ∞, it is....
Elastic, when supply is responsive to changes in price
78
When PES is between 0 and 1, it is...
Inelastic, when supply is unresponsive to changes in price
79
When PES is equal to 1, it is...
Unitary elastic
80
Supply curves
An elastic supply curve is flatter An inelastic supply curve is steeper An unitary elastic supply curve must start from the origin (n the middle of steep and flat)
81
Factors which influence PES
Spare capacity Availability of factors of production State of economy Stockpiles and perishability Time period
82
Spare capacity
It is space/capacity that isn't used (elastic), which means if the price of a product goes up then the quantity will go up by a larger % (so its PES)
83
Availability of factors of production
How easy it is to find the factors (land, labour, capital, enterprise) If the resources are available to find - elastic If the resources aren't available to find - inelastic
84
State of the economy
Bad state of economy - factors available - elastic Good state of economy - factors already in use - inelastic
85
Stockpiles and perishability
Large stockpiles - elastic Can't stockpile - inelastic
86
Time period (supply factor)
Short run: at least 1 factor of production is fixed so its inelastic Long run: all factors can change so its more elastic
87
When PES = 0
It is perfectly inelastic, the curve is a vertical line, suppliers will not respond to a change in price at all
88
When PES = ∞
It is perfectly elastic, the curve is a horizontal line, any change in price then producers will respond massively
89
Changes in supply
The price changes cause either an extension or contraction in supply Something other than price changes cause either an increase or decrease in supply
90
Factors/conditions that affect supply
Technology Weather Costs Number of suppliers Productivity
91
When demand is perfectly inelastic, it is...
PED = 0, the curve is a vertical line
92
When demand is perfectly elastic, it is...
PED = -∞, the curve is a horizontal line
93
When demand is unitary elastic, it is...
PED = -1, the curve is the start of a U (cut in half)
94
Factors which influence PED
Necessity Addiction and habit Availability of substitutes Brand loyalty Proportion of income Time period
95
Necessity and Luxury
Necessity: It means that we need it to live our lives - inelastic Luxury: It means that the good is not needed, but is nice to have - elastic
96
Addiction and habits
Addictions and habits are inelastic
97
Availability of substitutes
Fewer substitutes mean unresponsive - inelastic More substitutes means responsive - elastic
98
Brand loyalty
The stronger the brand loyalty, the more inelastic The weaker the brand loyalty, the more elastic
99
Proportion of income
Larger proportion of income increase/decrease - elastic Smaller proportion of income increase/decrease - inelastic
100
Time period (demand factor)
Short run - no time to search for substitutes - inelastic Long run - enough time to search for substitutes -elastic
101
Total revenue and Elastic demand
Total revenue = Price x Quantity - if P increases then Q will decrease (large amount) and Total revenue will decrease if P decreases then Q will increase (large amount) and Total revenue will increase
102
Total revenue and Inelastic demand
Total revenue = Price x Quantity - if P increases then Q will decrease (small amount) but Total revenue will increase if P decreases then Q will increase (small amount) but Total revenue will decease
103
Total revenue and Unitary elastic demand
Total revenue = Price x Quantity - if P increases then Q will decrease (the same amount) so Total revenue will stay the same if P decreases then Q will increase (the same amount) so Total revenue will stay the same
104
Price mechanism: Increase in demand
When demand increases, the price and quantity increases, so the equilibrium changes (raise prices to get to rid of the excess demand)
105
Price mechanism: Decrease in demand
When demand decreases, the price and quantity decreases, so the equilibrium changes (reduce prices to get to rid of the excess supply)
106
Price mechanism: Increase in supply
When supply increases, the price decreases and quantity increases (excess supply)
107
Price mechanism: Decrease in supply
When supply decreases, the price increases and quantity decreases (excess demand)
108
Normal goods
Normal goods - Demand increases when income rises Demand decreases when income falls
109
Inferior goods
Inferior goods - (crapper goods) Demand decreases when income rises Demand increases when income falls
110
Substitutes (price of other goods)
When price decreases of one good (Samsung phone), demand for other good decreases (iPhone) When price increases of one good (Samsung phone), demand for other good increases (iPhone)
111
Complements (price of other goods)
When price increases of one good (iPhone apps), demand for other good decreases (iPhone) When price decreases of one good (iPhone apps), demand for other good increases (iPhone)
112
Factors/conditions that affect demand
Advertising Fashion and trends Population and age structure Seasons Income Price of other goods
113
Positive externalities are
Benefits that affect third parties outside the price mechanism
114
Positive consumption externalities
External benefits, that are outside the price mechanism Supply curve = MPC Demand = MPB
115
Public goods
Non-rival and non-excludable
116
Private goods
Rival and excludable
117
Free rider problem
Consumers wait for others to buy and free-ride
118
Information gaps
When there are gaps in the information between people and firms
119
Incomplete information
When someone doesn't have full information about the benefits or costs of their decisions
120

Moi cards (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions