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Economics > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

Positive Economics

A

Factual economics that is able to be proven

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2
Q

Normative Economics

A

Opinionated economics with no factual evidence to back it up

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3
Q

Utility

A

Amount of satisfaction gained from the use of a product/service

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4
Q

Diminishing Marginal Utility

A

Decreasing change in satisfaction from consuming extra units

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5
Q

Production Possibility Frontier

A

The maximum output combinations of two goods and economy can achieve when resources are fully utilised and employment is maximum efficiency

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6
Q

Factors of production

A

Resources that are the building blocks of the economy : Land, Labour, Capital, Enterprise

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7
Q

Basic Economic Problem

A

Problem of scarcity- unlimited wants but limited resources

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8
Q

3 Main Market Systems

A

Command economy (Government controlled), Free Market ( No government intervention), Mixed economy

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9
Q

Demand

A

Amount of a product consumers will buy at a certain price

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10
Q

Impact on demand curve if price of good changes

A

You move along the curve

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11
Q

Expansion of demand

A

Rise in demand only due to a fall in price

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12
Q

Contraction of demand

A

Fall in demand due to a rise in price

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13
Q

Impact of demand curve due to any factor other than price

A

Shift in the curve

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14
Q

Factors that could shift the demand curve

A

Population, Advertising, Seasonality, Interest Rates

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15
Q

Price Elasticity of Demand

A

The responsiveness of demand due to a change in price

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16
Q

Price elastic for demand

A

Where %change in demand is greater than %change in price (-1 or less)

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17
Q

Price inelastic of demand

A

Where %change in price is greater than %change in demand (between 0 and -1)

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18
Q

Price elasticity of demand calculation

A

% Change in Quantity Demand divided by % Change in Average Price

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19
Q

Supply

A

Amount of a product producers will supply at a certain price

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20
Q

Impact on supply curve if price of good changes

A

Move along the curve

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21
Q

Expansion of supply

A

Increase in supply due to a rise in price

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22
Q

Contraction of supply

A

Decrease in supply due to a decrease in price

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23
Q

Impact on supply curve if any factor other than price changes

A

Shift in the curve

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24
Q

Factors that could shift the supply curve

A

Costs of production (Wages), Government (taxes/subsidies), Natural factors (flood), Technology

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25
Q

Price elasticity of supply

A

Responsiveness of supply due to a change in price

26
Q

Price elastic of supply

A

Where % change in supply is greater than a % change in price ( greater than 1)

27
Q

Price inelastic of supply

A

Where % change in supply is less than % change in price ( between 0 and 1)

28
Q

Price elastic of supply calculation

A

% change in quantity supplied divided by % change in average price

29
Q

Excess demand

A

Where demand is greater than supply

30
Q

Excess supply

A

Where supply is greater than demand

31
Q

Impact on price and output if government taxes production

A

Prices will increase as taxes will be passed on, decreasing output as demand will increase

32
Q

Ceterus Paribus

A

Everything else being equal

33
Q

How does the government use price elasticity of demand?

A

To make decision on taxation and regulation - inelastic products can be taxed more ( cigarettes )

34
Q

The Market mechanism

A

The decisions of consumers/businesses interacting to determine the allocation of resources

35
Q

3 Functions of the Price Mechanism

A

Rationing function, Signalling Function, Incentive Function

36
Q

Rationing Function

A

Greater scarcity, higher the price, more rationed the product is

37
Q

Signalling function

A

Price increases, more produced but less demand. Price decreases, less produced but more demand

38
Q

Incentive function

A

Higher price, incentive to produce more. Lower price, incentive to purchase more

39
Q

Substitute good

A

An alternative good that is very similar( or the same but different brand) that would effect the price of a good

40
Q

Complementary good

A

A good that works well or is used with a certain product

41
Q

Income elasticity of demand

A

The responsiveness of demand to a change in income

42
Q

Cross elasticity of demand

A

Responsiveness of demand of one good to changes in price of a related good

43
Q

Income elasticity of demand calculation

A

% change in quantity demand divided by % change of income

44
Q

What does a negative value in income elasticity of demand mean?

A

Good is inferior, when income increases demand is likely to decrease

45
Q

What does a positive value mean in income elasticity of demand?

A

Good is normal or luxury, increase in income increases demand ( any value 2+ is a luxury good )

46
Q

Cross Elasticity Calculation

A

% change of quantity demand for Good A divided by % change of price for Good B

47
Q

Negative value in cross elasticity meaning

A

The goods are compliments for each other

48
Q

Positive value in cross elasticity meaning

A

The goods are substitutes for each other

49
Q

3 Ways firms can use elasticity’s

A

Determine risks, know the quality of good, know if they are diversifying goods

50
Q

Public goods

A

Goods that if provided for one, are provided for everyone

51
Q

Characteristics of a public good

A

Non-excludable, Non-rejectable, Non-rival consumption

52
Q

Merit Good

A

Goods/services that will benefit both the individual and the society - government feels that they’ll be under consumed

53
Q

Asymmetric information

A

Where one party has greater knowledge of the market than another ( and uses it to manipulate it to their advantage )

54
Q

Principal Agent

A

An arrangement where one entity legally appoints another to act on its behalf

55
Q

Positive Externality

A

A positive effect on a third party outside the product

56
Q

Negative externality

A

A negative effect on a third party outside the externality I.e drunk driving on alcohol

57
Q

Demerit good

A

Goods /services that will have negative impacts on the individual and society and the government feels if not regulated will be over consumed

58
Q

Ways the government can promote a positive externality

A

Advertisement, offer deals to use them, increase costs of alternatives

59
Q

Free rider problem

A

Public goods being overused by people who underpay for them

60
Q

Consumer surplus

A

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

61
Q

Government failure

A

When government intervention leads to a net welfare loss in society

62
Q

Producer Surplus

A

The difference between the price the produce is willing to charge against the price they actually charge

Economics (7 decks)

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