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Economics A Level (AQA) > Microeconomics Year 1 > Flashcards

Microeconomics Year 1 Flashcards

1
Q

What is the definition of demand

A

The quantity of goods/services consumers are willing and able to purchase over a given time period at any given price

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2
Q

What are the non-price factors affecting DEMAND

A

P - Population
A - Advertising
S - Substitutes
I - Interest Rates
F - Fashion Trends
I - Income
C - Complementary goods

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3
Q

What is the definition of supply

A

The amount of goods/services that sellers are willing and able to sell at any given price over a period of time

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4
Q

What are the non-price factors affecting SUPPLY

A

P - Productivity
I - Indirect Tax
N - No. of firms
T - Technology
S - Subsidies
W - Weather
C - Cost of production

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5
Q

What is the definition of PED and equation

A

PED measures the responsiveness of demand after a change in a product’s own price (always negative)

PED = %change in Quantity demanded / %change in Price

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6
Q

What are the factors affecting elasticity

A

S - Substitutes
P - Percentage of income
L - Luxury/ Necessity
A - Addictive ?
T - Time

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7
Q

What’s the difference between a product being price elastic and price inelastic

A

Elastic - demand changes by a large extent to small change in price (price sensitive)
In elastic - demand changes by a small extent to a small change in price (price insensitive)
Larger than 1 = elastic
Smaller than 1 = inelastic

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8
Q

What does a PED of 1 mean?

A

Unit price elastic

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9
Q

What a PED of 0 mean?

A

Perfectly priced inelastic

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10
Q

What does a PED of infinity mean?

A

Perfectly price elastic

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11
Q

What is the definition of consumer surplus

A

The difference between the highest price consumers were willing to pay & the amount they actually pay

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12
Q

What is the definition of producer surplus

A

The difference between the lowest price the firm would have been willing to supply at and the actual amount that is paid

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13
Q

Give 3 types of tax in UK
(Fiscal dividends = gov tax rev)

A

• income tax
• National insurance
• VAT
• corporation tax
• excise duties

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14
Q

What is an indirect tax

A

A tax on expenditure (spending)

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15
Q

What is an Ad Valorem tax

A

A tax that increased relative to the price / amount (e.g. VAT)

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16
Q

What is a specific/ unit tax

A

The amount of tax taken does not change no matter how much the amount is (e.g. excise duties)

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17
Q

Why does adding tax to goods cause a net welfare loss to society?

A

Because both consumer & producer surplus has been eroded (use diagram)

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18
Q

What is a regressive tax

A

A tax that takes more of income as income falls

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19
Q

What is a progressive tax

A

A tax that takes more income as income rises

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20
Q

What is a proportional tax

A

A tax that takes the same amount of income regardless of level of income

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21
Q

Give 4 considerations when setting taxes

A

• setting the “right” tax rate is impossible
• cost of collection
• PED
• unintended consequences

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22
Q

What is a subsidy

A

A grant given by the government to encourage the production or consumption of a particular good/service

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23
Q

Give 2 reasons why a subsidy is put into a market

A

• encourage consumption
• encourage production (costs of production semi covered incentive)
• avoid unemployment (cover labour costs)
• increase international competitiveness

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24
Q

What is the definition of a private good

A

A good that, if consumed by one person, cannot be consumed by another

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25
Q

What is the definition of a public good

A

A good that, even if consumed by one person, can still be consumed by other people

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26
Q

What is a non-rivalry characteristic

A

Consumption of the good by one individual does not reduce the amount available to others (public good)

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27
Q

What a non-excludability characteristic

A

It is impossible (or at least very costly) to exclude other form benefiting from their use (public good)

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28
Q

What is a free rider

A

Someone who receives the benefit but allows others to pay for it

This is why the gov tends to provide public goods - little incentive to pay for consumption so unprovided (issue is how many to provide?)

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29
Q

What is a merit good

A

A good that society believes everyone ought to have regardless of whether they are wanted by the individual (eg vaccines)

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30
Q

What is a demerit good

A

A good that society believes people ought NOT to have (eg tobacco, drugs)

[controlled by laws, taxes & education]

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31
Q

What happens to merit goods in a free market mechanism

A

Under-provided as there is no incentive for businesses as it’s free of charge

32
Q

When is there market failure

A

When markets do not function effectively or equitably (when free market mechanism doesn’t lead to perfect allocation) (divergence between MSB and MSC)

33
Q

What are the 3 sources of market failure

A
  1. Externalities
  2. Under provision of public goods
  3. Information gaps
34
Q

What are the 2 ways markets fail

A
  1. Over/ underproduction of goods (partial market failure)
  2. Markets not existing, missing markets (complete market failure)
35
Q

What is maximum price and when is it used

A

Line UNDER equilibrium
Used if gov believes price is too high

36
Q

What is minimum price and when is it used

A

Line ABOVE equilibrium
Used to help producers increase incomes

37
Q

What are the 3 methods of gov intervention

A
  1. Indirect Taxation
  2. Subsidies
  3. Information provision
38
Q

What is a tradable pollution permit

A

A limit on the amount of co2 emissions companies can emit each year
(If price of co2 rises then companies will invest in reducing emissions - incentive)

39
Q

What is an unintended consequence

A

When an intervention out in place by the government causes further issues in other markets as a response to the intervention

40
Q

What is the equation for Average Costs

A

Total costs (TC) / output

41
Q

What is the equation for Average Variable Costs

A

Total variable costs (TVC) / output

42
Q

What is the equation for Average Fixed Costs

A

Total fixed costs (TFC) / output

43
Q

What is the equation for Marginal cost and definition

A

The additional cost of producing one extra unit of output

Change in TC / change in total output

44
Q

Where does the MC curve pass through the AC curve ?

A

Midpoint

45
Q

What is the definition for Marginal returns of labour

A

The addition to total output brought about by adding one more worker to the labour force

46
Q

What is the equation for Average returns of labour

A

Total output / total no. Of workers

47
Q

What is the definition of Increasing returns to scale

A

An increase in the scale of all FofP causes a more than proportionate increase in output (a faster rate)

Constant = same proportion
Decrease = less than proportionate

48
Q

What is the definition of Economies of Scale

A

When a company grows in size and increases their output and their long run average costs of production fall (increasing returns to scale)

49
Q

What is a monopoly

A

A market with only one firm (eg national grid, Royal Mail)

50
Q

What are the 6 conditions needed for a market to be consider at Perfect Competition

  • 2 of the most important
A
  1. Large no. of buyers & sellers *
  2. Perfect market information
  3. Ability to buy or sell as much as desired at ruling market price
  4. Inability of a single buyer/seller to influence market price
  5. Homogeneous product *
  6. No barriers to entry/ exit in long run
51
Q

What is a price maker (monopoly)

A

When a firm faces a downward sloping demand curve for its product, it posses the market power to set the price at which it sells the product

52
Q

What is a quantity setter (monopoly)

A

When a firm faces a downward sloping demand curve for its product, it possesses the market power to set the quantity of the good it wishes to sell

53
Q

What is a price taker (perfect competition)

A

A firm which is so small that is has to accept the ruling market clearing price

If firm raises price, no sales
If firm cuts it price, gains no advantage

54
Q

What’s the difference between monopoly and perfect competition

A

• no competition - highly competitive
• 1 firm - many firms
• unique - homogenous
• high share concentration - low share concentration

55
Q

What is the equation for average revenue (AR)

A

AR = Total revenue / Quantity sold

56
Q

What is the equation and definition for Marginal Revenue (MR)

A

The amount received from selling an extra unit of output
MR = change in TR / change in Q

57
Q

What happens to AR and MR in Perfect Competition

A

AR & MR = price
Because there is only a change in output not price

58
Q

What is the AR always equal to?

A

Price

59
Q

What happens to MR in a Monopoly (when price falls as output increases )

A

MR decreased at twice the rate that AR (price) decreases by

Because it’s taking double the changes in price

60
Q

What does the pi symbol mean in economics

A

Profit

61
Q

What are implicit costs

A

Opportunity costs

62
Q

What are explicit costs

A

Actual fixed and variable costs of the business

63
Q

What is the equation for economic profit

A

economic profit = accounting profit - implicit costs

64
Q

What is the equation for accounting profit

A

TR - TC (just explicit)

65
Q

When is profit called normal

A

When AR = AC - there is £0 economic profit

66
Q

When is profit called supernormal/abnormal

A

When AR is greater than AC - more than £0 economic profit

67
Q

When is profit called subnormal

A

When AR is less than AC - less than £0 economic profit

68
Q

Where is profit maximisation on profit graphs

A

Where MC = MR

69
Q

Where is Revenue maximisation on profit graph

A

Where MR = 0

70
Q

Where is sales maximisation on profit graph

A

Where AC = AR

71
Q

What is income

A

A flow of money going to factors of production (eg wages, salaries, interest from savings)

72
Q

What is wealth

A

The current value of a stock of assets owned by someone or society as a whole (eg savings, shares, property)

73
Q

What are positive statements

A

Objective & factual comments that can be tested & accepted/ rejected using evidence

74
Q

What are normative statements

A

Subjective statements which carry value judgements (cannot be factually verified)

75
Q

What is the economic problem

A

That resources are scarce and not allocated efficiently

76
Q

What 3 things can expand a frontier

A

Changes in law
Land expansion
Increase in population
(Quality and/or quantity of FofP)

77
Q

What is the definition of specialisation

A

When production concentrated in a particular product or process

Economics A Level (AQA) (4 decks)

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