Slatman Theme 1 Flashcards
Why is rent expensive
Limited housing supply - demand exceeds supply in popular areas
- high property prices - expensive for landlords to buy the property
- High living costs - landlords increase the price to cover these costs
What is a normative statement?
A subjective statement
What is a positive statement?
Based on evidence e.g “it will lead to a rise in demand”
What does a PPF show?
A PPF shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully exploited
What type of resources are available?
(Cell)
Land resources
Capital resources - production facilities e.g tractors
Labour - workers
Enterprise - entrepreneurs
How can you increase the PPF?
By increasing the land resources, labour resources, capital resources, or enterprise resources
How would you increase the land resource exploitment?
Drilling more oil, more farms, mining
How do you increase your labour resources?
Give more training bonuses to encourage better work, increase immigration, bring in younger employees
How would you increase your capital resources?
Use artificial intelligence, investment
How would you increase your enterprise?
Increased investment in education like universities
What would cause the PPF to move inwards?
- Land resources - a reduction in the production of oil, climate change (extreme weather)
- Labour resources - immigration laws made stricter, lack of attention to staff training, emigration (people moving away so losing highly skilled workers), constant strikes
- Capital resources - technology stops working/machines break, factories leave the UK, rise in resource price (firms can’t afford the new technology)
- Enterprise resources - lack of education investment, emigration
What is division of labour?
Specialisation of labour into separate tasks
This insures higher productivity per worker
Productivity definition
Control your inputs in maximise your outputs
Advantages of division of labour
- higher quality of goods and services
- quicker as specialists know exactly what to do so less time is wasted
- Staff get better and more efficient
Disadvantages of division of labour
- if specialist is absent itcauses issues as no one else can perform their role
- higher wages to be paid
- Hard to replace
- Staff can lose motivation
Absolute advantage definition
Being able to produce more of something than another country (assuming both have the same amount of resources)
Comparative advantage definition
Be able to produce something at a much lower opportunity cost than another country
How would you workout opportunity cost for media if the resources are mechanics and media
Mechanics / media gives u media
Whoever has the lowest opportunity cost has the comparative advantage
What are the functions of money?
A medium of exchange
A measure of value (price tags)
A store of value (weekly wages)
A method of settling debts
What did Karl Marx believe?
he was against the idea of capitalism and capitalists controlling the capital
He believed they were motivated solely by profits
They pay poor wages
The rich get richer and the poor get poorer
And he believed it was better to share the wealth equally
Why was marx right and wrong?
Why the was right:
Lots of people in poverty
The gap between rich and poor is increased
Why he was wrong:
Capitalists take the risk so they deserve the reward
There is a minimum wage, so they get paid fairly now
Consumers benefit from increase profit
What did Adam Smith believe?
The wealth of nations
Self interest - everyone is benefiting from each other’s self interest
Circular flow of income
Risk and reward
Trade leaves us all better off
He was a complete capitalist
Why was Adam Smith right?
The market only produces what’s wanted - no waste
Encourages trade
Firms are efficient (lower cost)
Lots of innovation and new products
Why was Adam Smith wrong?
One person/firm controls everything
Cuts off the poor
Encourages demerit goods
What did Hayek believe?
Only buyers and sellers understand the market
The government shouldn’t intervene with the market
What is the negative impact on the economy of the government introducing a minimum wage?
The cost for a business increases so price of product increases so customer finds alternative goods for lower price in another country
What is a free-market?
Buyers and sellers decide how the market works
What is a centralised economy?
The government decide on production and distribute it
What is a mixed economy?
An economy which has some government intervention
How much competition is in a free-market economy, a command economy, and a mixed economy
Free M - some
Command - none
Mixed economy - some
How many demerit goods are in a market economy, command economy and mixed economy?
FM - some
Command - none
Mixed - some
Negatives of a command economy
Poor efficiency / no strive for quality
No competition - so poor quality and shortages
No entrepreneurs
No profit incentive so no innovations, so the economy will struggle to grow
What is market failure
When the market fails to allocate resources affectively
What are negative externalities
When a third-party is negatively affected by a market transaction
What is the socially optimum point
The money that should’ve been spent to cover the negative externalities
What are the negative externalities of a housing estate?
Increased traffic pollution and less job opportunities
What is a positive externality?
A product which has a positive impact on the third-party
Examples of positive externalities for an electric car
Reduce your carbon emission, which will be beneficial to the people around you
What are subsidies
Subsidies refer to direct payments to the government provide businesses to offset some of their operating costs
What are the benefits for giving subsidies to public transport firms?
Provides people with education
Reduced congestion and carbon footprint
What are the negatives for giving subsidies to public transport firms?
Increased tax having to be paid to cover costs
People will use the subsidy, even if they don’t need it
Less money spent on other essentials like the NHS (opportunity cost)
Produces become reliant on subsidies
Negative externalities of increased supply
Positives of a command economy
Every one is equal - equal wages
There are many public goods available as they are not profit driven
Low unemployment
Less demerit goods
Reasons for providing subsidies for public transport
Provides more people with a way to school
Reduced congestion and carbon footprint
Lower prices so more sales
Cons of paying subsidies
Producers can become “subsidy dependent”
Subsidies can distort resource allocation.
Subsidies can lead to excess production / surpluses.
Environmental risks from excessive production
Opportunity cost as less money spent on other essentials
Increased tax having to be paid to cover costs
What is maximum pricing
When a price is set which the market will not be allowed to go above
Pros of max pricing
More affordable for low income consumers
Consumers can spend more on other necessities
Prevents unfair pricing
More spending elsewhere as they have more money to spend
Against max pricing
Less profits for producer- so less reinvestment
There will be shortages
If firms get a lower price, there may be less incentive to supply the good, and the number of properties on the market declines
Rich will get it even if they don’t need it
What is minimum pricing
Setting a floor price which the market is not allowed to go under
Reasons for minimum pricing
Effective means of reducing consumption
Increased revenue
Cons of minimum pricing
There will be a surplus - incentive function for suppliers to supply more but incentive to consume less
Less affordable
What is flax tax
Imposed on firms but can be passed on through higher prices
Why does a flat tax work
Should decrease the quantity consumed if intended, if inelastic though it won’t change consumption much
Reasons against sugar tax
Too many exceptions
Impacts low income families the most
What is ad valerom
Percentage tax
What is carbon trading
A system of limiting carbon emissions through granting firms permits to emit a certain amount of carbon
Alternatives of using a pollution permit to reduce carbon emissions
Carbon tax
What is consumer surplus
A consumer surplus happens when the price that consumers pay for a product or service is less than the price they’re willing to pay
What is a producer surplus
A producer surplus is the difference between the amount the producer is willing to supply and the actual amount they receive
Why is it important to know your producer and consumer surplus?
Because it allows you to see the welfare gain to society and how much better off we are to certain goods and services
What are the different methods of government intervention
Taxation
Subsidies
Max pricing
Min pricing
Carbon trading
Carbon tax
Making the good a public good ( avoids the free rider problem)
Regulation
Provision of information to reduce asymmetric information
Advantages and disadvantages of the provision of information to reduce market failure
+ consumer can act rationally
- can be expensive to do so opportunity cost
Why is min pricing such an effective way of affecting the market
As prices are higher there is the rationing signal to consumers to reduce consumption.
What’s the purpose of the price mechanisms
To remove shortages and surpluses
