Pack 4 Flashcards
Show on a diagram how equilibrium price and quantity is determined.
If there is excess supply, the price will fall, if there is excess demand, the price will rise.
Define the term ‘equilibrium price’.
This is where the quantity demanded equals the quantity supplied for a good or service in the market.
Use a diagram to explain the ideas of excess demand.
Where the quantity demanded exceeds the quantity supplied for a good at the current market price.
Explain the 3 functions of the price mechanism.
A rationing device: who pays the most
An incentive device: rising prices= riding profits
A signalling device: changes in the volume of demand or supply
Use a demand and supply diagram to show the impact on price and quantity when:
- Costs rise
- Demand rises
- Less incentive to supply and prices rise.
- More incentive to supply and prices fall.
Define the term ‘free market economy’ and name one or two economists who are in favour of this economic system.
Where all the resources are privately owned and allocated via the price mechanism. There is minimal government intervention. Adam Smith and Fredrich Hayek.
Explain at least two benefits and two drawbacks of a free market economy.
+ Competition between firms, more incentive to produce
+ Financial incentives
- vulnerable people may not be helped
- unlikely to take external costs into account
Explain at least two benefits and two drawbacks of a command economy.
+ Government is likely to consider impacts on third parties
+ less inequality
- Lack of competition = less choice
- Monopolies may form
Define the term ‘command economy’ and name one or two economists who are in favour of this economic system.
Where there is state ownership of resources and these are allocated by the government. Karl Marx
Define the term ‘mixed economy’ and identify at least 3 goods/services provided by the government in most mixed economies.
Where some resources are owned and allocated by the private sector and some by the public sector.
Education
NHS
Minimum wage
Choose one good provided by the government in a mixed economy and explain why the government provides it.
Education, it is a human right that everyone receives education, however some people may not be able to afford it.
Explain the threw reasons why consumers may not act rationally.
Herding behaviour
Habitual behaviour
Weakness at computation.
