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Economics - Higher Level > NAB - Unit 1 > Flashcards

NAB - Unit 1 Flashcards

1
Q

What causes the Basic Economic Problem?

A

Unlimited wants and limited resources

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2
Q

What is the basic economic problem?

A

Scarcity

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3
Q

What is scarcity?

A

Scarcity is when there is not enough resources to produce the goods and services that people want

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4
Q

What is shortage?

A

Shortage is when there is not enough supply of goods and services to meet demand

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5
Q

Scarcity and shortage are two different things. One is solvable and the other is not. Which is which?

A

Scarcity is unsolvable whereas shortage is solvable

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6
Q

Draw a production possibility curve.

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7
Q

What is happening at points A,B,C,D,E and F?https://instruct1.cit.cornell.edu/courses/econ101-dl/images/img00097.gif

A

A - all resources being used in production of good Y

F - all resources being used in production of good X

B and D - possible with available reousrces

C - unemployed resources/inefficient production methods

E - can’t achieve this level with present productivity capacity of resouces available

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8
Q

What is a Production Possibility Curve (PPC)

A

Shows the possible combination of goods that can be produced within an economy with its available resources

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9
Q

What can a PPC show?

A

Opportunity cost

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10
Q

What does a shift to the right mean in the PPC?

A

An increase in productive capacity of a country or firm, this is called economic growth

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11
Q

Why does a PPC shift to the right? (3 possible answers)

A
  • an increase in the quantity of a nations resources e.g a new oil field discovery - an advancement in technology - an increase in efficiency of resources e.g better trained workers
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12
Q

What does a choice result in?

A

Something being sacrificed or not being chosen

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13
Q

The item that is sacrificed when making a choice is known as what?

A

The opportunity cost

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14
Q

What is economic good?

A

A good that has a price. Something has to be given up in order to obtain them.

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15
Q

What is a free good?

A

Goods where there is enough to meet everyone’s wants

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16
Q

Which of the following has opportunity cost; Economic Goods or Free Goods and why

A

Economic Goods because something has to be sacrificed to obtain the good

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17
Q

What is economic efficiency?

A

Using a resource to its maximum potential

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18
Q

Why is it important that firms find the best use of resources?

A

Because resources are limited

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19
Q

What 3 factors have to be met before economic efficiency is achieved? State and explain their definitions.

A

Technical efficiency - when the fewest resources are used to produce each product Allocative efficiency - using resources to produce the goods and services that people want When all resources are employed - all resources should be used and not lying idle

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20
Q

What is market failure?

A

It’s what happens when a market fails to supply the type or quantity of goods or services that consumers demand

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21
Q

What does market failure cause for that market?

A

Economic inefficiency

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22
Q

Causes/Types of economic inefficiency

A

Restricted competition External costs and benefits Public goods are not provided Merit goods are not provided

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23
Q

What does restricted competition result in?

A
  • Poorer quality of goods - Limited supplies - Inefficient use of resources - Higher prices
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24
Q

In restricted competition, what does government policy aim to encourage and who’s responsibility is it?

A

It aims to encourage competition, it is the responsibility of the ‘office of fair trading’ to investigate breaches of competition law

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25
Q

What can the European Commission investigate?

A

Any merger or takeover on a European scale

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26
Q

What is a monopoly investigation?

A

Monopoly investigations are when any firm within a market share of above 25% may be referred to the competition commission if it is felt they are acting against the public interest

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27
Q

What is a merger investigation?

A

Merger investigations are when any takeover or merger which would mean a firm has more than 25% of a market or assets worth more than £30m will be looked at. If it is against public interest then the merger will not be allowed to take place

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28
Q

When will a merger or monopoly be allowed?

A

If it is in the interest of the public. Monopoly or merger will be allowed if: 1) competition is maintained 2) the competitive strength of a UK firm is increased overseas 3) the development of a new product is likely 4) costs of production are reduced 5) interests of consumers are improved

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29
Q

What are private costs?

A

The costs that a firm has to pay and is taken into account when making decisions

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30
Q

What is private benefit?

A

The benefits the customer expects to receive when buying a product

31
Q

What are external costs?

A

Costs not paid by producers and not included in the price charged to consumers

32
Q

What is an example of an external cost?

A

The cost of tidying wrappers from outside a chippy

33
Q

What are social costs?

A

The costs to society of all resources used as a result of production and consumption

34
Q

What is the formula for social cost?

A

Social cost = private cost + external cost

35
Q

When can market failure occur with external costs?

A

If a producer doesn’t take into consideration the external costs of their products then production will exceed what it should ideally be. If a firm creates external costs then the government can intervene and impose direct controls

36
Q

What is an example of government intervention and imposing direct control?

A

Limiting pub opening hours

37
Q

What is external benefit?

A

The benefit someone gets even if they have not paid for it

38
Q

What is an example of external benefit?

A

Someone who pays for medicine also benefits those around them

39
Q

What is the formula for social benefit?

A

Social benefit = private benefit + external benefit

40
Q

When can market failure occur with external benefit?

A

If a producer doesn’t consider an external benefit then output is lower than it should be. Price would fall and consumers would demand more. To encourage production the government could intervene and give a subsidy equal to the external benefit.

41
Q

What are the 3 characteristics associated with public goods?

A

1) a consumer can use it without reducing the amount available to others 2) the producers (i.e government) cannot exclude consumers from using it 3) a consumer cannot choose to consume the product

42
Q

Why can’t public goods be provided by a free market system?

A

Free rider problem

43
Q

How do the government provide public goods?

A

Paying for them through taxation

44
Q

What is an example of a public good?

A

Street lights

45
Q

What is a merit good?

A

A good that is give to people who merit them, either free or at a reduced price.

46
Q

How do merit goods differ from public goods?

A

Merit goods are rival, excludable and rejectable.

47
Q

Define rival, excludable and rejectable when talking about merit goods.

A

Rival - if you are using it someone else can’t Excludable - you can be excluded from using it Rejectable - in most cases the consumer can decide not to use the service

48
Q

How would a merit good work in a free market economy and a mixed economy?

A

Free market economy - there would be wide differences in income and wealth do that people on low incomes could not afford certain desirable services Mixed economy - the government will intervene to provide these things

49
Q

What is an example of a merit good?

A

Education

50
Q

Name the 5 government interventions

A

Minimum Price Maximum Price Imposing Expenditure Taxes Giving Subsidies Quotas

51
Q

What is minimum price, what can this create and give an example??

A

When the govt. feels the price in the market is too low. The minimum price is set above the equilibrium price. However this can create a surplus due to the demand being less than the supply created. An example is the minimum wage.

52
Q

What is maximum price, what can this create and give an example of it.

A

When the govt. feels the price in the market is too high. The maximum price is set below the equilibrium price. This can lead to a black market due to excess demand and create a shortage due to the demand being greater than the amount being supplied. An example is data roaming caps when being used abroad.

53
Q

What is expenditure tax and give an example of it

A

This has the same effect as an increase in cost of production. It’s when producers raise selling price in order to cover the increased cost. Supply will shift to the left and a new equilibrium price will be determined. How much they can pass onto consumers depends on the elasticity of demand. An example is fat tax.

54
Q

What is a subsidy and give an example.

A

This has the opposite effect of a tax. This is given to encourage supply and lower prices. This reduces the cost of production and therefore lowers price and shifts the supply curve to the right. An example is the rural bus service

55
Q

What is a quota and give an example

A

When the govt. intervenes and restricts the number of products supplied to the market. An example is the fishing quota

56
Q

What two things does price elasticity measure?

A

1) measure how responsive demand is to a change in price 2) measures how consumers react to the change of price of a product

57
Q

Why do firms need to know about the elasticity of demand?

A

As it helps to determine whether they should increase or decrease its prices

58
Q

Why does the govt. need to know about the elasticity of demand

A

To determine whether or not to get increase or decrease taxation

59
Q

What is elastic demand?

A

It means that even when there is a small change in price there is a big change in demand

60
Q

What does an elasticity of demand graph look like and where does the revenue gain and revenue loss occur?

61
Q

When demand is price elastic is it better for the firm to decrease or increase their price

A

Decrease

62
Q

What would happen if the firm increased their price? (Elastic Demand)

A

The revenue gained from the increase in price would be less than the revenue lost as a result of the drop in demand

63
Q

Describe why fixed cost, variable cost and total cost curves are shaped the way they are.

A

FC = Always stay the same regardless of changes in output

VC = Will continually increase win output

TC = Includes fixed costs and variable costs. Increases at the same rate as VC.

64
Q

Describe why average fixed cost, average variable cost and average cost curves are shaped the way they are.

A

AFC = Always falls towards 0 as the same fixed cost is being divided by an increasing output

AVC = Falls initially due to increasing returns (efficiency in labour). Then rises due to diminishing returns (labour inefficiency)

AC = Falls because AFC and AVC are falling. AC increases because AVC are rising at a faster rate than AFC are falling. This means AVC are pulling up AC.

65
Q

What do average cost, average variable cost, average fixed cost and marginal cost curves look like?

A

http://data:image/png;base64,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

66
Q

Describe marginal cost, average cost and average variable cost curves

A

MC = Falls initially due to increasing returns (labour efficiency) and then starts to rise due to diminishing returns (labour inefficiency. MC cuts AC curve at its optimum output. This means AC rises.

67
Q

What do fixed cost, variable cost and total cost curves look like?

68
Q

Name the short run cost curves

A

FC, VC, TC, AFC, AVC, AC, MC

69
Q

What are Economies of Scale, state what the 2 types are and give two examples for each.

A

EoS are the adv. of being a big company. The two types are Internal and External. Internal EoS are improvements in output as the firm grows. External EoS are improvements in output which a firm gains from growth of its industry. Internal EoS examples; risk bearing, financial. External EoS examples; lower training costs, cooperation of firms

70
Q

What are Diseconomies of Scale, state what the two types are and give two examples from each.

A

DoS is the disadv. of being a big company. There are internal and external DoS. Internal examples; management problems - difficult to control, waste is tricky to control External examples; shortages of skilled labour, high wages and raw materials. Congestion and high transport costs.

71
Q

What is variable in a long run cost curve?

A

All costs and factors of production

72
Q

What does the average cost do in the long run and what causes it to do so

A

Falls because of Economies of Scale and rises because of Diseconomies of Scale

73
Q

What does the AC curve look like in the long run

A

Shaped like a U and has interlinking SRAC curves. The point where the LRAC is at its lowest is the optimum size of the firm.

https://14yonena.files.wordpress.com/2012/12/lracsrace-scales.png

Economics - Higher Level (2 decks)

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