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Economics > Section 2: The allocation of resources > Flashcards

Section 2: The allocation of resources Flashcards

1
Q

Define Microeconomics

A

the study of the behaviour and decisions of households and firms, and the performance of individual markets.

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2
Q

Define Macroeconomics

A

the study of the behaviour of the whole economy.

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3
Q

Define Market

A

an arrangement which brings buyers in contact with sellers.

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4
Q

Define Economic agents

A

those who undertake economic activities and make economic decisions.

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5
Q

Define Economic system

A

the institutions, organisations and mechanisms that influence economic behaviour and determine how
resources are allocated.

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6
Q

Define Planned economic system

A

an economic system where the government makes the crucial decisions, land and capital are state-owned and resources are allocated by directives.

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7
Q

Define Directives

A

state instructions given to state-owned enterprises.

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8
Q

Define Mixed economic system

A

an economy in which both the private and public sectors play an important role.

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9
Q

Define Market Economic System

A

an economic system where consumers determine what is produced, resources are allocated by the price mechanism and land and capital are privately owned.

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10
Q

Define Price mechanism

A

the way the decisions made by households and firms interact to decide the allocation of resources.

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11
Q

What happens when there is a increase in demand?

A
  1. Rise in price
  2. Rise in profit
  3. Firms produce more
  4. Hire more workers, use more capital and land
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12
Q

Causes of changes in demand

A
  1. Changes in Income
  2. Changes in price of related products
  3. Advertising Campaigns
  4. Changes in population
  5. Changes in taste and fashion
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13
Q

Causes of changes in supply

A
  1. Changes in cost of production
  2. Improvements in technology
  3. Taxes
  4. Subsidies
  5. Weather conditions
  6. Price of other products
  7. Disasters and wars
  8. Discoveries and depletions of commodities
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14
Q

Define PED

A

a measure of the responsiveness of the quantity demanded to a change in price.

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15
Q

PED formula

A

PED = Percentage change in quantity demanded/ Percentage change in price

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16
Q

Define elastic demand

A

when the quantity demanded changes by a greater percentage than the change in price.

17
Q

Define inelastic demand

A

when the quantity demanded changes by a smaller percentage than the change in price.

18
Q

Determinants of PED

A
  1. Substitute or similar
  2. Proportion of income spent on the product
  3. Necessity and/or luxury
  4. Purchase can be postponed
  5. Addiction
  6. Time period
  7. How market is defined
19
Q

Changes in PED

A

Perfectly elastic demand = infinite
Elastic demand = >1
Unit elasticity = 1
Inelastic demand = <1
Perfectly inelastic demand = 0

20
Q

Define PES

A

a measure of the responsiveness of the quantity supplied to a change in price.

21
Q

Determinants of PES

A
  1. time taken to produce it
  2. cost of altering supply
  3. the feasibility of storing it
22
Q

Define Privatisation

A

the sale of public sector assets to the private sector

23
Q

Advantages of Market Economic System

A
  1. Consumers are sovereign
  2. Price Mechanism
  3. Competitive Pressure
  4. Choice
  5. Efficiency
  6. Low price
  7. High quality
24
Q

Disadvantages of Market Economic System

A
  1. Firms only take into account costs and benefits to themselves
  2. Monopoly may arise
  3. Firms will not make products if people do not pay for them
  4. Advertising can distort consumer choice
  5. Firms may fail to achieve efficiency
  6. Differences in income will increase over time
25
Q

Price Mechanism - function

A
  1. Information on what to produce
  2. Divert resources to the right direction
  3. Punishes those who do not respond to changes in demand
26
Q

Define Allocative efficiency

A

when resources are allocated to produce the right products in the right quantities.

27
Q

Define Productively efficient

A

when products are produced at the lowest possible cost and making full use of resources.

28
Q

Define Dynamic efficiency

A

efficiency occurring over time as a result of investment and innovation.

29
Q

Causes of Market Failure

A
  1. Information failure
  2. Merit and Demerit goods
  3. Public and private goods
  4. Abuse of monopoly power
  5. Immobility of resources
  6. Short-termism
30
Q

Government measures to address market failure

A
  1. Maximum and Minimum price
  2. Subsidies and indirect taxes
  3. Competition policy
  4. Regulation
  5. Nationalisation and privatisation
  6. Direct Provision
  7. Unfairness

Economics (3 decks)

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