Paper 1 Revision Flashcards
Ceteris Paribus
where we analyse the impact of two variables on each other but assume all other variables are equal
PPF
a diagram illustrating the maximum quantities that can be produced of 2 goods with a given amount of resources and technology.
Opportunity Cost
The next best alternative foregone
Specialisation
When a firm or country focuses the production of one good or goods of similar qualities
Pros and Cons of Division of labour
Pros:
higher productivity, improved quality of goods/services produced, improved variety for consumers, increased competition through lower prices.
Cons:
Costs include repetitive work (labour loses motivation), higher labour turnover (as work becomes unrewarding) and can lead to structural unemployment.
PED
%change in QD/% Change in Price
XED
% change in QD for good Y/% change in price of good X
Derived Demand
a factor of production is demanded not for what it is but for what it can provide
Productivity
output per unit of input
Incentives
something that motivates a producer or consumer to follow a course of action or to change its behaviour
signalling
Price changes send contrasting messages to consumers and producers about whether to enter or leave a market.
Consumer Surplus
the difference between the price consumers are willing to pay and the price they actually pay.
Tax
a charge levied on a good or service
Progressive Tax
a tax that takes a greater percentage of income from the rich (e.g. income tax).
Regressive Tax
a tax that takes a greater percentage of income from the poor (e.g. tax on necessities such as cigarettes or alcohol). May increase income inequality.
Subsidy
a sum of money provided by government to reduce costs and increase the incentive to produce and consume. Always involves an opportunity cost for the Government
Fixed Costs
costs that do not change with output (capital and fixed contract Labour).
Variable Costs
costs that change with output (raw materials and part-time labour).
Economies of Scale
the benefits a firm experiences where they increase their scale of output. Represented by falling average costs. Sourced internally by the firm or externally by the industry.