Sac 1 Flashcards
Relative Scarcity
Where the needs and wants are virtually unlimited and exceed the limited resources available to satisfy those wants.
Needs
The goods and services that people believe are necessities of life and include food, clothing , water, health care and shelter.
Wants
Are goods and services that assist us to enjoy a good standard of living, for example iPods, cars or a television. They are things we would like to have rather than what we need to have.
Types of Economic resources
- Capital
- Land
- Labour
Capital
Is machinery, and equipment used to produce other goods.
Land
Is natural resources, things that come from the land, such as water, coal, oil and minerals.
Labour
Is people who work, and provide physical power and mental talent.
Opportunity Cost
Is the value of the next best alternative forgone whenever a choice is made.
A perfectly competitive market
A market structure where there are many buyers and sellers, homogenous products, freedom of entry and exit, perfect information, high mobility of resources and where producers seek to maximise profit while consumers seek to maximise utility.
homogenous
Products that are essentially the same
The law of supply
As the price increases for a good or service there will generally be an increase in the quantity supplied.
Factors that are likely to affect supply and the position on the supply curve:
- Changes in cost of production
- Technological change
- Productivity growth
- Climatic Conditions
The law of demand
As the price of a product increases the quantity demanded will tend to decrease. If the price of a price of a product decreases the quantity demanded will and to increase.
Factors that are likely to affect demand and the position on the demand curve:
- Changes in disposable income
- The price of substitutes and complementary goods
- Preferences and tastes
- Interset rates
- Consumer confidence
The relative price
refers to the price of any one good or service measured in terms of the price of another good or service. It sends clear signals to producers and consumers and directs resources to their highest end use.
The Market Equilibrium
Is a situation where the demand for a good or service is equal to the supply of a good or service.
Shortage
Is when the the demand is greater than the supply
Surplus
Is when the supply is greater than the demand
Price elasticity of demand
Responsiveness of a change in the quantity demanded to a change in price.
( PED ) high
> / elastic
( PED ) low
/< inelastic
Disposable income
= income + government transfers - income tax
Discretionary income
= income + government transfers - tax - essential expenses( utilities, power, water)
Price Change
Is either an expansion or a contraction
Shift
is a factor other than price, and if that factor increases or decrease
Consumer confidence
Is how optimistic people are feeling about the future
Resource allocation
Is the the study of how resources such as land, labour and capital are directed towards the production of goods and services to meet the needs of households, businesses and the government.
Problems of weak competition
- Higher prices where competition is weaker
- May have poor quality service
- Reduced efficiency and economic growth
Impact of pure competition
- The prices of goods and services decrease as other businesses are offering lower prices to try get customers to purchase their product instead
- Living standards can increase or decrease, due to customers being able to afford things was they are lower prices or jobs being cut so the owners still can make a profit of what they’re selling.
Price elasticity of supply
The responsiveness of quantity supplied to changes in price
Subsidy
Is a form of assistance paid to producers to encourage production of certain good or services. eg solar panels
Excise tax
Indirect tax imposed on a producer or retailer but is usually passed on to the customer.
Factors affecting PED
- Degree of necessity
- Availability of substitutes
- Proportion of income and time
Factors affecting PES
- Spare capacity
- Production period
- Durability of goods
Allocative efficiency
Is a type of efficiency measured by how well resources are being allocated in the economy. If resources are allocated efficiently the goods and services will be made in the right quantities and will generally go to those people who value them the most.
Productive efficiency
The volume of output that is produced from a given number of inputs. It refers to how well our factors of production combine to produce goods and services.
Dynamic efficiency
How quickly an economy can reallocate resources to achieve allocative efficiency.
Inter Temporal efficiency
How well resources are allocated over different time periods.
Reasons for Market failure
- Public goods
- Externalities
- Asymmetric Information
- Common access resources
Public goods
Goods or services that are both non-excludable and non-rival in consumption. A person who does not pay for the good cannot be excluded from it and just because one person gets enjoyment from it does not mean it should lessen another’s.
Externality
It is when a third party is affected from a transaction between two or more other parties. Externalities can occur in the production or the consumption of a good or service.
Asymmetric information
When one party has greater information than the other in the exchange of a good or service.
Common access resources
These are goods that are not owned by anyone, usually don’t have a market price and therefore available to anyone even if they have not paid for them. eg fish, air.
