Section 1 and 2 (excluding PED,PES) Flashcards
Scarcity definition
situation where there is not enough to satisfy wants and needs
Define factors of production
resources used to produce goods
Name factors of production (4)
land, labour, capital, enterprise
Define the economic problem (2)
scarcity
unlimited wants but limited resources
Define a free good (2)
good which does not use up any resources in production
has no opportunity cost
Define an economic good (2)
good which uses scarce resources in production
has an opportunity cost
Define land
gifts of nature available for production
Examples of land (2)
timber, coal
Define labour
human effort used in producing goods
Define capital
man-made goods used to produce other goods/services
Examples of capital (2)
factories
machinery
Define enterprise (2)
risk taking and decision making required to set up a business
managed other 3 factors of production
Define occupational mobility
ability to move resource between different uses
Define geographical mobility
ability to move a resource between different locations
Define labour mobility (2)
ability of labour to move locations
ability of labour to switch between different occupations
Define capital mobility (2)
ability to move capital between different locations
ability to move capital between different uses
Define capital depreciation (2)
loss in value of capital from it becoming worn out or obsolete
calculated by replacement value
(Gross) investment definition
spending by firms on capital
Net investment definition (2)
gross investment - depreciation
value of extra capital goods made
Define opportunity cost
next best alternative foregone when a decision is made
Define PPC curve (2)
curve that shows maximum possible output of 2 different goods/services that can be produced with given resources
curve that illustrates opportunity cost
Define microeconomics (2)
study of behaviour of individuals and firms
studies performance of individual markets
Define macroeconomics
study of whole economy
Define economic agents
decision makers/actors in economy
Examples of economic agents (3)
individuals
governments
firms
Define planned economic system (3)
economic system
government makes all key economic decisions
resources are state-owned and allocated by directives
Define a market economic system (3)
system where resources are privately owned
resources allocated by market forces
firms decide what to produce based on consumer demand
Define price mechanism
how supply and demand interacts through price to allocate resources
Define demand
the quantity that consumers are willing and able to purchase at any given price
Define supply
the quantity that produces are willing and able to sell at any given price
Define market equilibrium
situation where quantity demanded is equal to quantity supplied
Define market disequilibrium (2)
situation where quantity demanded is not equal to quantity supplied
surplus or shortage exists at current price
Define contraction in demand/supply
movement along demand/supply curve resulting in decrease of quantity demanded/supplied
Define extension in demand/supply
movement along demand/supply curve resulting in increase of quantity demanded/supplied
Define normal good
product which demand increases when income increases
Define inferior good
product which demand decreases when income increases
Examples of inferior good
spam
Define a substitute good
product that can be used in place of another
Define a complement good
product that can be used together with another product
Define shortage
when quantity demanded exceeds quantity supplied
Define surplus
when quantity supplied exceeds quantity demanded
Define public sector
part of economy controlled by government
Define private sector
part of economy owned/controlled by individuals
Define state-owned enterprises
firms owned by government that sell goods/services
Define privatisation
selling of public sector assets to government
Define market failure
when free market delivers inefficient allocation of resources
Define third parties
those not involved in production/consumption of good/service
Define external costs
costs paid by third parties related to production/consumption of good
Define external benefits
benefits gained by third parties from production/consumption of good/service
Define private costs
costs of production paid by firm
Define private benefits
benefits of consumption enjoyed by consumers
Define social cost
private cost + external cost
Define social optimum (2)
efficient allocation of resources
resources allocated to maximise social welfare
Define merit goods (2)
goods generally good for consumer/wider society
under consumed on free market
Define demerit goods (2)
goods harmful for consumer
overconsumed on free market
Define free rider
someone who consumes good/service without paying for it
Define non-excludable
when it is not possible to stop someone from enjoying good/service
Define public goods
a product which is non-excludable and needs to be provided by government
Define monopoly
a single seller in the market
Define mixed economic system (2)
economy where both public and private sectors play important roles
economy which posseses both qualities of a market economy and a planned economy
Define subsidy
payments by government to producers per unit of good produced
Define nationalisation
when a private sector firm/industry is moved to public sector and becomes under government control
Define capital good
human-made goods used in production
Define consumer good
goods consumed for their own satisfaction
Cause for geographical immobility of labour (5)
difference in price/availability of housing in different areas/countries
family ties
difference in educational system
lack of information - unaware of job opportunities in different place
lack of skill/qualifications
Which factor of production is the most mobile
enterprise
Determinants for quantity of labour (5)
population size
age structure of population
retirement age
school leaving age
attitude ot working women
Define labour force (2)
people working
people actively seeking work
Define productivity
output per factor of production in an hour
Define labour productivity
output per worker in an hour
Determinants of number of hours people work (5)
length of average working day
duration of overtime
length of holidays
amount of times lost through sickness
whether they work full-time or part-time
How to improve quality of labour (4)
better education
better training
more experience
better healthcare
How quality of capital can improve
better technology
How to increase quantity of entrpereneurs (3)
good education system
lower taxes on firm’s profits
reduce government regulations
Improve quality of enterprise (4)
better education
better training
better healthcare
more experience
Reward/Payment of labour
wages
Reward/Payment of land
rent
Reward/Payment of capital
interest
Reward/Payment of enterprise
profit
What does a point inside a PPC curve mean
inidicates unemployed resources
What does a point on a PPC curve mean
shows full use of resources
What does a movement along a PPC curve mean (2)
shows reallocation of resources
opportunity cost involved
What does a bowed out PPC curve show
increasing opportunity cost
What does a linear PPC curve show
constant opportunity cost
What does a outward shift in the PPC curve mean (2)
increase in quantity/quality of resources
increase in productive potential
3 key allocation decisions
what to produce
how to produce it
for whom to produce
What will a fall in price cause for demand
demand will increase as people are more willing and able to buy the good
Determinants of demand (7)
income
price of substitutes
price of complements
advertising campaigns
changes in tastes/fashions
changes in size of population
changes in age of population
Meaning of outward shift in demand curve
increase in demand
Meaning of inward shift in demand curve
decrease in demand
Demand relationship to price (3)
increase in price –> fall in demand
decrease in price –> increase in demand
inverse relationship to price
Supply relationship to price (3)
increase in price —> increase in supply
decrease in price –> decrease in supply
direct relationship to price
Determinants of supply (6)
changes in costs of production (influenced by tax/subsidy)
technology improvements
weather conditions
changes in price of other products (substitute, complements)
disaster/war
discovery/depletion of commodities
Outward shift in supply
increase in supply
Inward shift of supply
decrease in supply
what happens if price is below equilibrium price
excess demand
what happens if price is above equilibrium price
excess supply
What does competition result in (2)
lower prices
higher quality goods
Market economic system advantages (4)
consumers have greater choice
incentives encourage hard work and enterprise
efficient allocation of resources
lowers price and higher quality
Market economic system disadvantages (3)
output not reflect full costs/benefits
private sector firms can abuse their power (monopoly)
causes income inequality
Causes of market failure (7)
failure to take into account all costs/benefits
overconsumption of certain goods - demerit goods
underconsumption of certain goods - merit goods
lack of competition - monopolies
immobility of resources
lack of information - may pay too much
public goods not provided
Mixed economy benefits (4)
governments can encourage consumption of merit goods
governments can dissuade consumption of demerit goods
develop more resources to capital goods
creates more even distribution of income
Definition of maximum price (2)
price set below equilibrium price
allows consumers to be more willing/able to buy certain product
Cause of maximum price (3)
market disequilibrium - shortage
rationing - limit on amount to be consumed
queuing - first come first serve
Define minimum price (2)
encourage production of product
set above equilibrium
Government measures to address market failure (6)
subsidy - can influence production of goods as firms more willing to produce with lower costs
tax - can influence production of goods as firms less willing to produce with greater costs
competition policy - promotes competitive pressure to prevent firms abusing their power
fines and restriction placed on firms which exceed pollution level
direct provision - governments can provide goods they think are essential or beneficial
fairness - financial assistance to the poor and balance out income levels
Effect of subsidy/tax on elastic demand
subsidy/tax will have greater impact on quantity sold with less price
Effect of subsidy/tax on inelastic demand
subsidy/tax will have less impact on quantity sold
Regulation benefits (2)
backed up by law
easy to understand
Regulation disadvantages (2)
regulations have to be followed –> expensive and time consuming
government can become unpopular
Benefits of state-owned enterprises (3)
base their decisions on full costs and benefits involved
ensures that basic industries charge low prices and high quality
government makes planning and coordination easier
Disadvantages of state-owned enterprises (2)
inefficient - high prices and low quality
can be difficult to control as they are large
Example of a free good
sunshine
