Steeds

Question 1

Basic economic problem

Answer 1

There are unlimited wants but a limited amount of resources

Question 2

Law of diminishing marginal utility

Answer 2

As consumers, the attempt to maximise the benefits of what is consumed
Satisfaction is obtained from surplus or utility
As more is consumed, the satisfaction derived decreases -

Question 3

4 economic agents

Answer 3

Consumers
Government
Employees
Producers/firms

Question 4

Demand theory

Answer 4

Demand- The amount customers are willing and able to pay at a given price.

Question 5

Why does demand fluctuate?

Answer 5

Competition
State of the economy
Seasonality
Trends

Question 6

shifts in the demand curve:

Answer 6

Confidence
Trends
Change in price
Income change

Question 7

Shifts in the supply curve

Answer 7

Government action (taxes/subsidies)
Technology
Cost of production (wages, raw materials)
Natural factors (flood/draught)

Question 8

Economic equilibrium

Answer 8

Found where demand and supply curve meet
Point where everything is purchased
If not met, there is a surplus or shortage

Question 9

Price elasticity of demand

formula, what answer means

Answer 9

PED= % change in quantity demanded
% change in price
if answer 0 and -1 the price is inelastic
if answer -1 and infinity the price is elastic
Inelastic demand curve is very steep
Elastic demand curve is much flatter

Question 10

Determinants of elasticity of demand

Answer 10

Time period- short term/long term
Number and closeness of substitutes
Proportion of income taken up by product
Luxury or necessity 
Habit forming (addiction)

Question 11

Price elasticity of supply

formula, what answer means

Answer 11

PES= % change in quantity supplied
% change in price
>1 elastic
<1 inelastic

Question 12

Determinants of elasticity of supply

Answer 12

Availability of the 4 FOP
Time
Spare capacity

Question 13

4 factors of production (FOP)

Answer 13

Land
Labour
Capital
Enterprise

Question 14

Income elasticity of demand

Definition, formula

Answer 14

The responsiveness of demand due to a change in income
YED= %(change)QD Y= income
%(change)Y

Question 15

Normal/Inferior/luxury good

what answer to formula of YED means

Answer 15

Normal good- demand rises as income rises ALWAYS +
Inferior good- demand falls as income rises ALWAYS -
Luxury good- ‘even better than normal good’. if 2+ then its luxury

Question 16

Cross elasticity of demand

definition

Answer 16

The relative change in demand for one product as the price of the other rises or falls.

Question 17

Cross elasticity of demand

formula, what answer means

Answer 17

%change in QD of product A
%change in price of product B
Positive CED- price for product A increases as demand for product B goes up
Negative CED- as price for product A increases, demand for product B decreases

Question 18

The price mechanism

Answer 18

The interaction of buyers and sellers in free markets enables goods, services and resources to be allocated by prices.

Question 19

The rationing function

Answer 19

When resources are scarce, demand exceeds supply and prices are driven up
Increase in price to discourage demand
Greater the scarcity - greater the price
E.g. Ferraris low volume, high prices

Question 20

The signalling function

Answer 20

Price changes send messages to consumers/produces about whether to enter/leave a market
Rising prices signals to customers to reduce demand. Visa Versa 

Question 21

The incentive Function

Answer 21

Something that motivates the producer/consumers act upon the signal
Higher prices provides an incentive to existing producers to supply more

Question 22

Complete market failure

Answer 22

Occurs when the market simply does not supply products at all “missing markets”

Question 23

Partial market failure

Answer 23

Occurs when the market does function but produces the wrong quantity or product at the wrong price

Question 24

Public good

Answer 24

A good that provides for one provides for everyone

Question 25

3 main characteristics of pure public goods

Answer 25

Non-excludability- The benefits derived from the pure public goods cannot be confined solely to those who paid for it. Nonpayers enjoy the benefits of consumption at no financial cost. “Free rider problem”
Non-rival consumption- consumption by one consumer does not restrict consumption by other consumers
Non-rejectable- The collective supply of a public good for all means that it cannot be rejected by people. E.g. flood defences

Question 26

Quasi public good

Answer 26

Semi public good/near public good. It has some characteristics of a public good and private good. Partially rejectable, excludable etc…

Question 27

Merit goods

Answer 27

Goods/services that the government feels people under consume
The market failure is imperfect information
The government will subsidise or provide free at the point of use

Question 28

Principal agent

Answer 28

When one person/entity makes decisions/takes actions on behalf of another person/entity

Question 29

Demerit goods

Answer 29

A good or service whose consumption is considered unhealthy, degrading or socially undesirable due to perceived negative effects- deemed ‘bad for you’

Question 30

Asymmetric information

Answer 30

This type of market failure exists when one individual/party has much more information than another individual/party