Paper 1 Revision Flashcards

1
Q

Ceteris Paribus

A

where we analyse the impact of two variables on each other but assume all other variables are equal

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2
Q

PPF

A

a diagram illustrating the maximum quantities that can be produced of 2 goods with a given amount of resources and technology.

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3
Q

Opportunity Cost

A

The next best alternative foregone

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4
Q

Specialisation

A

When a firm or country focuses the production of one good or goods of similar qualities

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5
Q

Pros and Cons of Division of labour

A

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.

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6
Q

PED

A

%change in QD/% Change in Price

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7
Q

XED

A

% change in QD for good Y/% change in price of good X

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8
Q

Derived Demand

A

a factor of production is demanded not for what it is but for what it can provide

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9
Q

Productivity

A

output per unit of input

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10
Q

Incentives

A

something that motivates a producer or consumer to follow a course of action or to change its behaviour

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11
Q

signalling

A

Price changes send contrasting messages to consumers and producers about whether to enter or leave a market.

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12
Q

Consumer Surplus

A

the difference between the price consumers are willing to pay and the price they actually pay.

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13
Q

Tax

A

a charge levied on a good or service

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14
Q

Progressive Tax

A

a tax that takes a greater percentage of income from the rich (e.g. income tax).

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15
Q

Regressive Tax

A

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.

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16
Q

Subsidy

A

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

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17
Q

Fixed Costs

A

costs that do not change with output (capital and fixed contract Labour).

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18
Q

Variable Costs

A

costs that change with output (raw materials and part-time labour).

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19
Q

Economies of Scale

A

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.

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20
Q

Spare Capacity

A

A point within the PPF where there are unemployed factors of production.

21
Q

Government Intervention

A

the intervention of the Government to solve market failiure

22
Q

Market Failure

A

this refers to a misallocation of resources, where the market fails to allocate resources efficiently

23
Q

Positive Externalities

A

an external benefit; a positive spill-over effect on a third party. Where social benefits exceed private benefits.

24
Q

Net welfare Gain

A

this is where social benefits exceed the social costs.

25
Q

Demerit Goods

A

goods that are over consumed, have negative externalities and consumers fail to recognise the full costs of consumption

26
Q

Asymmetric Information

A

a form of information failure, where one party knows more than another

27
Q

Minimum Prices

A

A legal price floor below which the price cannot fall, set above the equilibrium

28
Q

Maximum Prices

A

a legal price ceiling above which the price cannot rise. Set below the equilibrium

29
Q

Government Failure

A

a situation whereby government intervention leads to an even greater misallocation of resources relative to the free market outcome

30
Q

Principal-Agent Problem

A

when the objectives of the managers differ to the ones of the agents/shareholders

31
Q

Organic Growth

A

growth that occurs from within. Builds on business’ own capabilities and resources.

32
Q

Vertical Integration

A

merger between two firms in the same industry but at different stages of production – backwards or forwards.

33
Q

Horizontal Integration

A

merger between two firms at the same stage of production in the same industry.

34
Q

Profit Maximisation

A

Output Level where MR=MC

35
Q

Revenue Maximisation

A

Where output level is MR=0

36
Q

Sales Maximisation

A

Where the price is set to AC = AR

37
Q

Profit Satisficing

A

Where managers do just enough to satisfy their shareholders and focus on personal or social objectives

38
Q

Productive efficiency

A

Where firms produce at the lowest possible average cost. Where firms produce the most with the least amount of scarce resources.

39
Q

Allocative Efficiency

A

Where customer satisfaction is maximised. May include factors such as a low price, choice and quality of product. Where P=MC.

40
Q

Dynamic Efficiency

A

efficiency that occurs over time with research and development and reinvestment of super normal profits. Improvements in allocative and productive efficiency over time.

41
Q

X-inefficiency

A

organisation slack. Inefficiency caused by unnecessary cost and waste. Where firms operate at a point above the long run average cost curve.

42
Q

Economies of Scale

A

the benefits firms/industries experience as they increase in size/output. It is the fall in long run average costs with increasing scale of production.

43
Q

Diseconomies of Scale

A

a rise in long run average costs of production with increasing scale of production. Can be due to communication problems

44
Q

Internal Economies of Scale

A

economies of scale that arise because a firm increases it’s scale of production. E.g. bulk buying

45
Q

Supernormal Profits

A

profit over and above that of normal profit. Occurs where average revenue operates above average cost at a specific level of output.

46
Q

Perfect Competition

A

a market that has many buyers and sellers. There are free barriers to entry and exit with symmetric (perfect) information.

47
Q

Monopolistic Competition

A
48
Q

MRPl

A