Mr Boughen Flashcards
What is economics?
A social science concerned with the production, distribution and consumption of goods and services, and the transfer of wealth
What is microeconomics?
The study of economics built from the actions of individuals, firms and government in markets
What is macroeconomics?
The study of economics viewing the whole economy at one, and splitting it into different areas.
What is scarcity?
When demand for a resource is greater than supply as resources are limited
What are Economic goods?
Goods that are scarce
What are free goods?
Goods such as the earth’s atmosphere that are not normally regarded as being scarce
What does rationality mean?
Economic agents acting in their best interests
What is utility?
The benefit derived from the consumption of a good or service
What is incentive
A thing that motivates or encourages someone to do something
What is a positive statement?
A statement that is based solely on facts
What is a normative statement?
A statement involving a value judgement about what ought to be
What is a value judgement?
A statement based on your opinions or beliefs, rather than on facts
What are factors of production?
They are resources used in the production process, or inputs into products
What are the factors of production
Land, Labour, Capital, Enterprise
What is the reward for land?
Rent
What is the reward for labour?
Wages / salaries
What is the reward for capital?
Interest
What is the reward for enterprise?
Profit
What are trade-offs?
Situations in which the choice of one alternative requires the sacrifice of another
What is opportunity cost?
The value of the next best alternative
what does a PPC show?
a curve that shows the maximum combinations of goods or services that can be produced in a set period of time given available resources
what are capital goods?
goods that are used in the production process, such as machinery or factory buildings
what are consumer goods?
goods produced for consumers to use
What is a market economy?
market forces are allowed to guide the allocation of resources within a society (eg Taiwan)
what is a centrally planned economy?
the government guides resource allocation within a society (eg North Korea)
what is a mixed economy?
a combination of market forces and government intervention which guides the allocation of resources within a society (eg UK)
what is the invisible hand?
a term used by adam smith to describe the way in which resources are allocated in a market economy
what is marginal principle?
the idea that economic agents may take decisions by considering the effect of small changes from the existing
what is rational decision making?
a decision that allows an economic agent to maximise their objective, by setting the marginal benefit of and action equal to its marginal cost
what is marginal utility?
the ADDITIONAL utility gained from consuming an extra unit of a good or service
what is law of diminishing marginal utility
states that the more units of a good that are consumed, the lower the utility from consuming those additional units
what is specialisation?
the process of concentrating on a task or activity in order to become expert in it
what is division of labour?
a process whereby the production is broken down into a sequence of stages, and workers are assigned to particular stages
what is a barter system?
an economy without money so that transactions in goods or services rely on direct exchange
what is labour productivity?
output per worker, per unit of income
what is the formula for labour productivity?
units of output / units of input
what is a tax?
a compulsory fee levied on individuals or firms by government
what is indirect tax?
a tax levied on spending on goods or services
what is direct tax?
a tax charged directly to an individual based on a component of income
what is incidence of a tax?
the way in which the burden of paying a sales tax is divided between buyers and sellers
what is specific tax?
a tax of a fixed amount imposed on purchases of a commodity
what is ad valorem tax?
a tax levied on a commodity set as a percentage of the selling price
what is excess burden of a sales tax?
the deadweight loss to society following the imposition of a sales tax
what is polluter pays principle?
an argument that a firm causing pollution should be charged the full external cost that it inflicts on society
what is a subsidy?
a grant given by the government to producers to encourage production of a good or service
what is government expenditure (state provision)?
where the government decides which goods or services to provide and then spends money providing them
what is price control?
a legal maximum or minimum price
what is a price floor?
a legal minimum price (eg minimum wage, alcohol minimum unit pricing)
what is a price ceiling?
a legal maximum price (eg rent control)
what is a merger?
two or more firms joining to form a new firm
what is a cartel?
an ILLEGAL agreement between firms on price and/or output with the intention of maximising their joint products
what are buffer stocks?
a scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low.
