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Economics Edexel > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

Ceteris paribus

A

All things being equal

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2
Q

Basic Economic problem

A

Wants are unlimited but resources are finite = choice need to be made

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3
Q

Capital goods

A

Goods that are used in production of other goods

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4
Q

Choice

A

The alternative uses of scarce resources

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5
Q

Scarce resources

A

Limited in supply = choices need to be made

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6
Q

Entrepreneurs

A

Seek profitable opportunities and take risks to combine the other factors of production

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7
Q

Free goods

A

Unlimited supply = no opportunity cost

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8
Q

Consumer goods

A

Goods/services used to satisfy their needs + wants

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9
Q

Barter

A

Swapping goods without use of money

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10
Q

Division of labour

A

Specialization of workers who perform different tasks to make a good/service

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11
Q

Specialization

A

Production of limited range of goods = not efficient = have trade surplus with others

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12
Q

Economic welfare

A

Level of well-being of living standards people have

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13
Q

Utility

A

The satisfaction derived from consuming a good

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14
Q

What are the conditions of demand?

A

Factors other than price, e.g. income and price other goods = change in demand = shift demand curve

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15
Q

Consumer surplus

A

Difference between the price the consumer is willing to pay and the price they actually pay

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16
Q

Diminishing marginal utility

A

When the extra benefit gained from consumption of a good declines as more units are consumed

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17
Q

Elastic demand

A
  • PED greater than 1

* The responsiveness of demand is proportionally greater than the change in price

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18
Q

Inelastic demand

A
  • PED less than 1

* The responsiveness of demand is proportionally less than the change in price

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19
Q

Inferior good

A
  • -YED

* Demand falls when income increases

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20
Q

Normal good

A
  • +YED

* Demand increases when income increases

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21
Q

Substitute good

A
  • +XED

* Good that can be replaced by another to satisfy a want

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22
Q

Complementary good

A
  • -XED

* A good which is bought with other goods to satisfy a want

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23
Q

YED

A

Measure of responsiveness of QD to change in income ( given in %)

24
Q

XED

A

Measure of responsiveness of QD of one good to change in price of another good (given in %)

25
Q

What are the conditions of supply?

A

Factors other than price e.g. income or price of other goods = change in supply

26
Q

Long run

A

Period of time when all factor inputs can be varied but the state of tech is constant

27
Q

Short run

A

Period of time when at least one factor input to the production process is varied

28
Q

PES

A

Measure of responsiveness of QS to change in price

29
Q

Producer surplus

A

Difference between price the producer is willing to charge and the price they actually charge.

30
Q

Firms

A

A for-profit business

31
Q

Unitary price elastic good

A

PED/PES = 1

32
Q

Free market forces

A

Act to reduce price when excess supply and increase price when excess demand

33
Q

Equilibrium price/quantity

A

Where demand = supply … no more market forces bringing change in price

34
Q

What are the functions of the price mechanism?

A
  • Incentives
  • Rations goods
  • Signals to firms
35
Q

Incentive function

A

Incentives (encourages) to change price to increase profit

E.g. increase price = buyers buy less and sellers produce more; vice versa

36
Q

Rationing function

A

More or less being produced= changes in price… increasing or limiting quantity demanded by buyers

Rations excess demand/supply

37
Q

Signaling function

A

Changes in price = Signals to/ information given to buyers + sellers influence decisions to buy + sell

38
Q

Market failure

A

An inefficient allocation of scarce resources in a free market due to not allocating resources in best interest to society

39
Q

Externalities

A

The cost/benefit a third party receives from an economic transaction outside of market mechanism

40
Q

External cost/benefit

A

Cost/benefit to a third party not involved in the economic activity

41
Q

Private cost/benefit

A

Cost/benefit to individual participating in economic activity

42
Q

Negative externalities of production

A

Social costs of producing one good are bigger than the private cost of producing the good

43
Q

Positive externalities of production

A

Social benefits of consuming a good are bigger than the private benefits of consuming the good

44
Q

Private cost

A

Any cost that person/firm pays in order to buy/produce goods

45
Q

Social cost

A

Total cost to society

46
Q

Free rider

A

Person which receives benefits that others have paid for without making any contribution

47
Q

Private good

A

Is rivalry and excludability

48
Q

Public good

A

Is non-rivalry and non-excludability

49
Q

Asymmetric informationq

A

Buyers + sellers have different amounts of infomation

50
Q

Price Mechanism

A

The interaction of demand + supply to allocate resources

51
Q

Demand

A

The quantity of a good/service consumers are willing and able to buy and a given price in a give time period

52
Q

Supply

A

The quantity of a good/service producers are willing and able to produce at a give price in a given time period

53
Q

What are the non- price factors that shift the supply curve?

A 
Productivity
Indirect taxes 
No. of firms
Tech
Subsidy
Weather
Cost of production
54
Q

What are the non- price factors that shift the demand curve?

A 
Population
Advertising 
Substitutes price
Income
Fashion/tastes
Interest rates
Complements price
55
Q

Derived demand

A

a demand for a commodity, service, etc. which is a consequence of the demand for something else.

Economics Edexel (1 decks)

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