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A-level economics > Revision > Flashcards

Revision Flashcards

1
Q

consumer surplus

A

The difference from what consumers are willing to pay and the actual price they pay

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2
Q

Producer surplus

A

The difference between the price producers produce at and the price they sell at

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3
Q

What is the gradient of an inelastic demand curve

A

steep

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4
Q

What is the gradient of an elastic demand curve

A

shallow/flatter

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5
Q

What is state provision

A

When the government intervenes in the market to supply a good or service

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6
Q

Why does the government use tax revenues to supply state provisioned goods

A

To make sure they are free or largely free at the point of use

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7
Q

What are the benefits of state provision

A

Increased consumption of merit and public goods
Reduce inequalities
Redistribute incomes

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8
Q

What are the disadvantages of state provision

A

Productive inefficiency as there is no incentive to cut costs
Potentially wrong mix of goods being produced
Opportunity costs

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9
Q

Dynamic efficiency

A

When firms improve technology and production methods over time

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10
Q

Static efficiency

A

When all resources are being used at the most efficient manner at a single point in time

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11
Q

Regulation

A

When the government aims to provide effective competition within markets

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12
Q

What should regulation achieve

A

Greater choice
lower prices
protect interest of consumers

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13
Q

examples of regulation

A

Legal aim for smoking - 18
Prohibiting certain classes of drugs
Cant drink and drink over certain limit
Banning diesel cars in city centres

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14
Q

Benefits of regulation

A

Cheap to enforce
easy to understand

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15
Q

Drawbacks of regulation

A

Difficult to find right level of regulation

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16
Q

Regulatory capture

A

When regulators start acting in the interests of the company due to impartial information

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17
Q

Deregulation

A

The removal of regulations

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18
Q

Why might deregulation occur

A

To increase competition by removing barriers to entry in a market

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19
Q

What are the drawbacks of deregulation

A

Difficult to deregulate natural monopolies e.g. utilities
Cant fix some market failures such as neg externalities

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20
Q

What are public goods

A

Ones that their consumption does not stop others from using them and does not reduce the amount available to others

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21
Q

What are the characteristics of public goods

A

non rival and non excludeable

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22
Q

What is non rival

A

ones where their consumption does not reduce the amount available to others

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23
Q

what is non excludeable

A

ones where there consumption does not stop others from using it

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24
Q

What are private goods

A

ones where there consumption stops others from consuming it and reduces the amount available to others

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25
Q

What is a subsidy

A

Government support often financial given to producers and occasionaly consumers

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26
Q

What are the reasons for a subsidy

A

Provide support to poorer families
Reduce training and employment costs
Keep people in jobs
Make health care treatments affordable

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27
Q

What is a direct tax

A

Tax that affects households
e.g. Income tax

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28
Q

What is an indirect tax

A

A tax that only affects households if they buy a good or service e.g. VAT

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29
Q

What is a specific tax

A

Where £ or pence are added on e.g. fuel tax

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30
Q

Ad valorem tax

A

% tax added on

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31
Q

Progressive tax

A

The more you earn the more you pay e.g. income tax

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32
Q

Regressive

A

The less you earn the higher the proportion of income being spent on the tax e.g. VAT

33
Q

Proportional tax

A

Pay the same amount of tax e.g. council tax

34
Q

Price controls

A

When the government sets a maximum or minimum price for a goods or service

35
Q

Price floor

A

A price limit where goods cant be sold below the price - above the free market price

36
Q

Benefits of price floors

A

Guaranteed income (minimum wage)
Encourage production essential goods

37
Q

Drawbacks of price floors

A

Increase prices, encouraging people to seek cheaper goods
Reduce international competitiveness

38
Q

Price ceilings

A

Maximum price limits where prices can not go above - below market price

39
Q

Advantages of price ceilings

A

Reduce monopoly power
Allow more consumers to access g/s

40
Q

Price ceiling issues

A

Creates black markets
Excess demand - shortages and queues
Some consumers may not be able to obtain g/s

41
Q

Marginal cost

A

The cost incurred from from an additional good or service

42
Q

Normal profit

A

When TR=TC, where profit is £0, the minimum profit to keep resources in current use in the long run

43
Q

Super normal/abnormal profit

A

When TR>TC, acting as an incentive for other firms to enter the market

44
Q

Other objectives other than profit

A

Revenue maximisation
Market share
Reduce unit costs/costs
Labour productivity
Quality

45
Q

Profit maximisation

A

MC=MR

46
Q

Allocative efficiency

A

MC=AR

47
Q

Productive efficiency

A

MC=AC, when average total costs are at their lowest

48
Q

Normal profit

A

AR=AC

49
Q

Revenue maximisation

A

MR=0

50
Q

Monopoly

A

When a firm is the main producer of g/s in a market

51
Q

Oligopoly

A

When a few firms have majority market share in an economy

52
Q

Monopolistic competition

A

When many firms in a market produce similar g/s but not exact

53
Q

Perfect competition

A

A hypothetical market where competition is at its greatest, which according to neoclassical theorists leads to the best outcomes for society

54
Q

Concentration ratio

A

refers to % market share which is held by the top firms in the industry

55
Q

Monopoly power

A

When a firm has the ability to control the price it charges by varying the quantity supplied - note doesn’t have to be a monopoly e.g. apple is not a monopoly due to the large competition it faces

56
Q

Dominant monopoly

A

40% or more market share

57
Q

Pure monopoly

A

Market is controlled by one supplier - e.g. national grid - high barriers to entry

58
Q

Legal monopoly

A

Running under a government mandate

59
Q

Natural monopoly

A

When it is most efficient to have one firm in the market e.g. water

60
Q

Monopoly market share

A

25%

61
Q

Market failure

A

Resources aren’t allocated efficiently to meet society’s needs

62
Q

Negative externalities

A

Costs to the third party that aren’t included in the price

63
Q

Positive externalities

A

Benefits to the third party that aren’t included in the price

64
Q

Pure public goods

A

goods where it is impossible to exclude someone from consuming e.g. air we breathe

65
Q

Free-rider problem

A

someone who benefits from a g/s despite not paying for it

66
Q

Quasi public goods

A

takes characteristics from both a private and public good

67
Q

Long run

A

When all FOP are variable

68
Q

Short run

A

When at least one factor of production is fixed

69
Q

Law of diminishing returns

A

In the short run, the productivity of the variable factor will eventually decrease

70
Q

Internal economies of scale

A

Occurs due to increase in the scale of production of the firm

71
Q

External economies of scale

A

Occurs due to an increase in the scale of production of the industry in which a firm operates in

72
Q

Price mechanisms

A

Allocates resources by the interactions between buyers and sellers

73
Q

Incentive

A

Higher prices act as an incentive for firms to increase there supply. Allowing greater revenue and profits to be achieved, achieving utility for firms

74
Q

Signalling

A

Higher prices incentive firms to increase their supply, also signalling consumers to reduce demand

75
Q

Allocative

A

Society is producing g/s that meets the needs of the consumers

76
Q

Rationing

A

Excess demand causing firms to increase the price, this reduced demand as less consumers are willing to meet the new price, hence the supply is rationed for the g/s

77
Q

Benefits of price mechanism

A

Consumers decided what g/s are being produced
Doesn’t costs anyone to operate
prices are kept to minimum
resources are allocated efficiently

78
Q

Drawbacks of price mechanism

A

Inequality in wealth and income likely
Over-provision of demerit goods, under-provision of merit goods - supply won’t be at socially optimal level
Public goods aren’t produced

A-level economics (12 decks)

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