Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics B - Key Terms > Paper 1 (* are also in Paper 2, ** are not in the spec) > Flashcards

Paper 1 (* are also in Paper 2, ** are not in the spec) Flashcards

1
Q

Ceteris paribus

A

The assumption that all other variables within the model remain constant whilst one change is being considered.

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

Basic economic problem

A

Wants are infinite whilst resources are scarce so choices have to be made on how to allocate resources.

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

Scarcity

A

There are not enough resources to satisfy all wants.

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

Opportunity cost

A

The value of the next best alternative foregone (given up) when making a decision.

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

Trade off

A

What is given up when making a choice.

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

Business objectives

A

What a business is trying to achieve e.g. profit, growth, survival, helping the community etc.

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

Stakeholder

A

Anyone interested in the activities or success of a business.

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

Corporate Social Responsibility

A

Where a firm does ‘more’ than the basic minimal legal requirement e.g. uses recycled packaging, plants trees to replace those lost etc.

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

Entrepreneur

A

Someone who has the skills and traits required (in particular the willingness to take calculated risks) to set up a business.

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

Creative destruction

A

Occurs when businesses innovate (something new, better, cheaper) and introduce strong competition. This threatens existing producers that have failed to adapt.

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

Factors of production / resources

A

The inputs to the production process: Capital, which is the stock of manufactured resources used in the production of goods and services;Entrepreneurs, individuals who seek out profitable opportunities for production and take risk in attempt to exploit these; Land, which is all natural resources; Labour, which is the workforce;

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

Non-renewable resources

A

Resources, such as coal or oil, which once exploited cannot be replaced.

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

Renewable resources

A

Resources, such as fish stocks or forests, which can be exploited over and over again because they have the potential to renew themselves.

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

Specialisation

A

When a firm asks workers to do a specific task repeatedly (division of labour) so workers become specialist. This means that for a given amount of input (labour) more is produced. This has close links to productivity.

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

Market

A

A place where buyers and sellers communicate to agree prices for goods and services.

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

Free market economy

A

An economic system which resolves the basic economic problem through the market mechanism aka the invisible hand. The outcome is that the market reaches the natural equilibrium where supply meets demand at a certain price.

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

Demand

A

The quantity that buyers are willing and able to purchase of a good at any given price over a period of time.

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

**Consumer surplus

A

The difference between how much buyers are prepared to pay for a good and what they actually pay.

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

Supply

A

The quantity of goods that suppliers are willing and able to sell at any given price over a period of time.

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

**Producer surplus

A

The difference between the market price which firms receive and the price which they are prepared to supply.

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

Complement

A

A good which is purchased with other goods to satisfy a want.

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

Substitute

A

A good which can be replaced by another to satisfy a want.

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

*Price elasticity of demand

A

The responsiveness of demand to a change in price.

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

*Price inelastic demand

A

Where the price elasticity of demand is less than 0. The responsiveness of demand is proportionally less than the change in price. Demand is infinitely inelastic if price elasticity of demand is zero.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

*Price elastic demand

A

Where the price elasticity of demand is less than -1. The responsiveness of demand is proportionally greater than the chance in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

*Cross elasticity of demand

A

A measure of the responsiveness of quantity demanded on one good to a change in price of another good. It is measured by dividing the percentage change in quantity demanded for one good by the percentage change in price of another good.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

*Income elasticity

A

The responsiveness of demand to a change in income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

*Income elasticity of demand

A

A measure of the responsiveness of quantity demanded to a change in income. It is measured by dividing the percentage change in quantity demanded by the percentage change in income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

*Inferior good

A

A good where demand falls when income increases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

*Normal good

A

A good where demand increases when income increases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

*Luxury good

A

A good where demand increases rapidly when income increases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

**Price elasticity of supply

A

A measure of the responsiveness of quantity supplied to a change in price. It is measured by dividing the percentage change in quantity supplied by the percentage change in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Market research

A

The process of finding out what customers want. Can be quantitative (using numbers) or qualitative (using attitudes/feelings/opinions/emotions). Can be primary (collected yourself) or secondary (using research conducted by others).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Competition

A

Businesses fighting to supply the same customers as you. They may compete by being cheaper or better (extra features, higher quality etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Market mapping

A

The process of identifying how different brands appeal to different market segments / groups of consumers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Differentiation

A

The process of making your product / service / brand different to others in order to gain a competitive advantage.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Adding value

A

How a business persuades the customer to pay more for something than it cost to produce e.g. convenience/speed, quality service, good design/features, uniqueness, branding.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Revenue

A

Money received from sales. Price x quantity = Revenue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Fixed costs

A

Costs that do not change in relation to quantity sold e.g. rent.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Variable costs

A

Costs that change in proportion to quantity sold e.g. raw materials.

41
Q

Total costs

A

Fixed costs + variable costs.

42
Q

Break even point

A

The quantity sold where revenue equals total costs.

43
Q

Margin of safety

A

The difference between your break even point and your sales forecast.

44
Q

Gross Profit

A

What is left of revenue after variable costs have been paid. Revenue – Variable Costs = Gross Profit.

45
Q

Operating Profit

A

What is left of revenue after total costs have been paid. Revenue – Total Costs = Operating Profit.

46
Q

Gross profit margin

A

The percentage of sales revenue left after variable costs have been paid. (Gross profit / sales revenue) x 100.

47
Q

Operating profit margin

A

The percentage of sales revenue left after total costs have been paid. (Operating profit / sales revenue) x 100.

48
Q

Profit and loss account

A

A document that shows the revenues, costs and profits of a business.

49
Q

Cash

A

The money you have ‘in hand’ at a point in time.

50
Q

Cash flow forecast

A

A document that predicts how much cash a business will have at a point in time.

51
Q

Net cash flow

A

The difference between cash inflows and cash outflows in a period of time (normally a month).

52
Q

Opening / closing balance

A

The amount of cash you start / end the month with.

53
Q

Sources of credit

A

See ‘Role of financial sector’ for ones relating to banks. Trade credit, venture capital, crowd funding, peer-to-peer lending, share capital.

54
Q

Market failure

A

When the market fails to allocate resources efficiently (there is a misallocation of resources).

55
Q

Private cost and benefit

A

The cost or benefit of an activity to an individual or firm.

56
Q

Social cost and benefit

A

The cost or benefit of an activity to society.

57
Q

Externality

A

Where the actions of an individual or firm have an impact on society that they do not pay for (or are rewarded for).

58
Q

Negative externality in production

A

Where social costs are greater than private costs e.g. a factory polluting the air.

59
Q

Negative externality in consumption

A

Where social benefits are lower than private benefits e.g. listening to your phone on the train without headphones.

60
Q

Positive externality in production

A

Where social costs are less than private costs e.g. production of solar panels.

61
Q

Positive externality in consumption

A

Where social benefits are greater than private benefits e.g. planting a pretty tree/flower bed in your garden.

62
Q

Merit good

A

A good that has positive externalities AND the consumer lacks information about their own private benefits e.g. education, immunisations.

63
Q

De-merit good

A

A good that has negative externalities AND the consumer lacks information about their own private benefits e.g. smoking in the 1960s, junk food.

64
Q

Market failure

A

Where the free market doesn’t result in an outcome that is at the social equilibrium. This means that there is a misallocation of resources.

65
Q

Public good

A

A good that is non-excludable and non-rivalrous.

66
Q

Quasi-public good

A

A good that does not fully have both characteristics of a public good.

67
Q

Free rider

A

A person or organisation which receives benefits that others have paid for without making any contributions themselves.

68
Q

Spectrum of competition

A

Perfect competition through to monopoly.

69
Q

Barriers to entry / exit

A

Things that stop a firm from joining (or leaving) a market freely e.g. brand loyalty, high start-up costs, sunk costs (more linked to exit), patents, economies of scale of existing suppliers meaning they are far more competitive on price, existing supplier agreements (i.e. no access to raw materials or other factors of production such as technology or labour), regulation.
NB: economies of scale are a barrier but appear more fully in their own right in paper 2.

70
Q

Contestability

A

A market is ‘contestable’ if barriers to entry are reasonably low i.e. firms are able to join and contest.

71
Q

Marginal cost

A

The cost of producing the next unit.

72
Q

Marginal revenue

A

The revenue received from selling another unit.

73
Q

Diminishing marginal returns

A

Where the marginal amount reduces as scale increases.

74
Q

Perfect competition

A

Where there are many buyers and many sellers, the product is homogenous and there is perfect information and no barriers to entry. Firms are attracted to short run abnormal profit, enter freely, drive down the price and in the long run P=MC and only normal profit is made.

75
Q

Imperfect competition

A

As above but more realistic i.e. there are some barriers to entry in the short term and there is a degree of product differentiation. Long run abnormal profits are temporarily protected by barriers to entry but then prices are driven down by new entrants so only normal profits are made.

76
Q

Oligopoly

A 
A handful (3-7) of firms whose behaviour is interdependent.  High barriers to entry prevent new entrants.  There are three states:  stable, price war or illegal collusion.  Price wars are rare because only the consumer wins because all firms will match the price cut.  Therefore, stable oligopoly is common because firms know that price cutting is not wise. This can be described as ‘tacit collusion’ – where firms don’t cut prices because they instinctively know it is not a good idea.  Instead they compete on non-price factors such as quality, convenience or product range etc.  In some cases illegal collusion takes place where firms meet to either set high prices to make long run abnormal profit and/or agree to not compete on certain contracts or in certain areas in order to effectively make the customer face a monopoly supplier.  The firms involved in collusion are often known as a Cartel. 
Remember that you can calculate the n-firm concentration ratio of an oligopoly by adding together the market shares of the n number of firms.
77
Q

Monopoly

A

One seller (a duopoly is two sellers). Very high barriers to entry mean that consumers can only buy from the incumbent supplier. The barriers to entry mean the supplier has no incentive to innovate or reduce prices or improve quality so consumer welfare is low. Long run abnormal profit is made.

78
Q

Monopsony

A

A single buyer. The single buyer of something (e.g. the NHS is practically the single buyer of labour in nursing) has high market power and can use this to gain advantage over the suppliers by offering very low prices on a ‘take it or leave it’ basis.

79
Q

Natural monopoly

A

An occasion where it actually benefits the consumer to have a monopoly. This is because having two suppliers would mean such as loss in economies of scale that actually prices would be higher with competition e.g. you wouldn’t lay two sets of water pipes to everyone’s house as infrastructure costs and maintenance would be the same but only half the revenue each.

80
Q

Price discrimination

A

Where different groups of consumers are charged different prices for the same product e.g. on/off peak, OAP or student discount etc. Sellers are more likely to be able to do this if they have market power.

81
Q

Allocative efficiency

A

Where P=MC and customer satisfaction is maximised.

82
Q

Productive efficiency

A

Where firms produce at the bottom of their average cost curve (i.e. when they have had the chance to exploit their economies of scale).

83
Q

Dynamic efficiency

A

Where firms have the incentive to innovate (to either increase quality/features or reduce costs).

84
Q

Tax

A

Increases the price of consumption in order to reduce its attractiveness for a given marginal private benefit.

85
Q

Subsidy

A

A grant given which lowers the price of a good, usually designed to encourage production or consumption of a good.

86
Q

Regulation

A

Restricting consumption/production of a good or service by law. Also includes regulation to ensure markets are as competitive as possible e.g. preventing collusion and mergers or other restrictive practices e.g. product bundling that are not in the consumers interest (e.g. CMA refusing to approve the Asda-Sainsbury’s proposed merger and don’t forget there is an EU wide equivalent). Some industries attempt ‘self-regulation’ in (cynical) attempt to avoid being more tightly regulated by the government e.g. gambling – “When the Fun Stops, Stop” on all firms’ advertising.

87
Q

Government provision

A

When the government decides to provide the good in an attempt to avoid private firms being able to abuse their market power (or in cases where the private sector is unwilling to provide even if there is demand for the good.

88
Q

Information provision

A

Providing information about the costs or benefits of consumption in an attempt to change behaviour.

89
Q

Tradeable permits

A

A market system that gives individuals or firms the right to consume/produce goods that have negative externalities.

90
Q

Government failure

A

When government intervention has unintended consequences that cause market failures of their own.

91
Q

Uncertainty

A

Any possible chance that is not predictable. There is no way to calculate its likelihood / probability.

92
Q

Risk

A

Changes are expected and economists work to calculate the probabilities (often using historic data and models).

93
Q

Insurance

A

Spreading risk by sharing the costs (i.e. everyone pays their premiums that pay for all of the collective claims).

94
Q

Economic shock

A

Unexpected or unpredictable events that have a major impacts on national and international economies.

95
Q

Role of the financial sector

A

Lending (including assessing creditworthiness), facilitating exchange, provide equity and forward/futures markets.
(lending  sources of finance e.g. bank loan, overdraft, leasing, hire purchase, mortgage)

96
Q

Central bank

A

Responsible for setting monetary policy (Monetary Policy Committee) and regulating the financial sector (Financial Policy Committee and Prudential Regulation Authority). Also is the lender of last resort.

97
Q

Global financial crisis

A

Sub-prime mortgages offered, primarily in the US. Assets owned by financial institutions contained these debts, which had been rated AAA. Downturn meant people weren’t able to repay mortgages because house prices no longer rising. People defaulted on the debts. The AAA assets owned by financial institutions turned out to be almost worthless because the debt inside them wouldn’t be repaid in full. This meant the institutions’ balance sheets took a battering and they could no longer afford to lend. Lack of lending in the economy (the credit crisis) had a big negative impact on businesses and individuals.

98
Q

Moral hazard

A

Knowing that you won’t have to pay for the costs of your reckless actions makes you more prone to taking risks that are unwise e.g. low excesses in insurance make you less bothered about locking your car or knowing that the government would bail them out, the banks acted irresponsibly with lending to sub-prime customers. This is linked to ‘Too big to fail’ - banks were accused of knowing that the government would have to bail them out to prevent an even bigger economic crisis.

Economics B - Key Terms (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions