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Theme 1 Flashcards

1
Q

what’s the basic economic problem

A

the problem of scarcity because of consumers unlimited needs and wants and their being limited resources

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2
Q

what is ceteris paribus

A

assuming everything else being. equal

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3
Q

what’s a positive statement

A

one which can be supported with evidence and facts

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4
Q

what’s a normative statement.

A

one which is value based and involves opinions

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5
Q

understand the distinction between renewable and non-renewable resources

A

renewable resources are ones which never run out whereas non-renewable are ones that are finite and can run out

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6
Q

what do the 4 economic agents aim to maximise ( businesses, government, consumers, workers )

A

businesses - profit
government - social welfare
consumers - satisfaction. from the product
workers - income

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7
Q

what’s a production possibility frontier

A

shows the maximum possible combination of 2 good or services an economy can achieve when all resources are fully and efficiently utilised

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8
Q

ways to increase the PPF long-term

A

pay workers more
apprenticeships
immigration
entourage innovation
better software

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9
Q

explain a capital good

A

physical assets a company uses to produce goods and. services for consumers

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10
Q

explain a consumer good

A

Goods bought and demanded by household and individuals

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11
Q

explain absolute advantage

A

being able to produce more of something than another country

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12
Q

explain comparative advantage

A

being able to produce something at a much lower opportunity cost than another country

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13
Q

explain specialisation

A

each employee in the workforce focuses on one area of the production and becomes efficient at it

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14
Q

benefits of specialisation

A

greater economic efficiency
consumer benefits
opportunities for growth for competitive sectors
surplus can be exported
increases scale of production

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15
Q

drawbacks of specialisation.

A

rise of worker alienation
risk of disruption to production ( if a worker is ill )
competition
becomes boring / repetitive
risk of over-specialisation
resources can run out

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16
Q

explain division of labour

A

the specialisation of labour into separate tasks to ensure high worker productivity

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17
Q

drawbacks of division of labour

A

liability of workers
absences in the workforce
staff want higher wages
less versatility
can become repetitive / boring
can be expensive to train workers.

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18
Q

benefits of division of labour

A

increased output
less waste
lower unit costs

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19
Q

what are the functions of money

A

a medium of exchange ( between suppliers and customers )
a measure of value ( price tags )
a store of value (. weekly wages )
a method of settling debts

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20
Q

explain law of diminishing marginal utility

A

as the amount consumed of a commodity increases, the utility. derived by the consumer declines

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21
Q

explain marginal utility

A

the change in satisfaction from consuming an extra unit

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22
Q

explain total utility

A

the total satisfaction from a given level of consumption

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23
Q

what causes a shift in the demand curve

A

income / wealth
population
price of substitutes and compliments
seasonality / fashion / trends
interest rates

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24
Q

what causes a movement up or down the demand curve.

A

a change in price

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25
what causes a shift in the supply curve
cost in production - wages government - taxes natural factors - recent flooding technology - changes / improvements
26
what does it mean if the market is at equilibrium
where producers and consumers are happy with a price
27
explain derived demand
demand for one. item is related to the demand for another item
28
what's the price mechanism
the interaction of buyers and sellers in free market which enables goods services and resources to be allocated by prices
29
explain the rationing function
resources are scarce so demand EXCEEDS supply so prices rise
30
explain the signalling function
prices rise so it signals to firms to produce more but consumers buy less
31
explain the incentive function
higher prices provide an incentive to EXISTING producers to supply more because they provide the possibility of more revenue and profits
32
what's price elasticity of demand
the. responsiveness of demand to a change in price
33
what's the formula for price elasticity of demand
% change in quantity demanded ------------------------------------------------ % change in price
34
unitary elastic figure
1
35
perfectly elastic figure
infinte
36
perfectly inelastic figure
0
37
determinants of price elasticity of demand
time period. - the longer the time the more elastic number of substitutes - the more of them the more elastic proportion of income - the smaller the more inelastic whether its a. luxury or necessity good habit forming
38
what's price elasticity of supply
the responsiveness of supply to a change in price
39
price elasticity of supply formula
% change in quantity supplied --------------------------------------------- % change in price
40
unit elastic figure
1
41
elastic figure
less than 1
42
inelastic figure
greater than. 1
43
determinants of price elasticity of supply
land - availability of raw materials Labour - training of employees capital - availability and accessibility to technology enterprise - skills of managers time spare capacity spare stock and components
44
what's income elasticity of demand
the responsiveness of demand to a change in income
45
income elasticity of demand formula
% change in quantity demanded ------------------------------------------------ % change in income
46
what's a normal good
demand rises as income rises POSITIVE value
47
what's an inferior good
demand falls as income falls NEGATIVE value
48
luxury good figure
greater than 2
49
what's cross elasticity of demand
the responsiveness of demand of one good to changes in the price of a related good
50
cross elasticity of demand formula.
% change in QD of good A -------------------------------------------- %. change in price of good B
51
substitute good figure
positive value
52
complement good figure
negative value
53
explain why economic agents may not be rational
limited capacity to calculate all costs and benefit off a decision often act reciprocally than in self interest lack self control and seek immediate satisfaction
54
explain consumer surplus
the difference between what. consumers are willing to pay and what they actually pay
55
explain producer surplus
the difference between what price producers are willing to accept and what they actually receive
56
explain asymmetrical information
one party has more knowledge than another and use it to influence the market
57
ways to solve asymmetrical information.
find a second opinion as a consumer government carry out inspections on the business, start introducing fines enforce quality standards they have to meet
58
explain information gaps
one party in an industry has a real lack of good knowledge
59
explain equity issues
when some people have considerably unequal access to income and wealth
60
explain wealth
measures the value of all the assets of worth owned by a person
61
explain income
a flow of money going into factors of production.
62
explain what a negative externality is
a negative effect on a third party outside the externality
63
explain what a positive externality is
a product which has a positive impact on the third party, at the moment they are under valued and under consumed
64
explain subsidies
the direct payments that governments provide businesses to offset some of their operating costs
65
advantages of subsidies
keeps the price down encourages merit goods and positive externalities reduces the cost of capital investment
66
drawbacks of subsidies
firms may become dependent on them very expensive for the government opportunity cost elsewhere - investment in education risk of fraud
67
explain minimum pricing.
setting a floor price. which the market isn't allowed to go under
68
explain maximum pricing
when a price is set which the. market aren't allowed to go above
69
explain a public good
a good that if you provide for one, you provide the good for everyone
70
explain complete market failure
market doesn't supply products at all
71
explain potential market failure
the market does function but produces the wrong quantity or price of the product
72
explain non-excludability
When you can’t stop someone from accessing the good and someone can’t choose not to access the good
73
explain non-rival consumption
One persons use of the good doesn’t stop someone else from using the good
74
explain non-rejectable
the collective supply if a public good for all means that it cant be rejected by people
75
explain the free rider problem
when someones benefitting from the consumption of a public goods wihtout paying for it - street lights
76
explain quasi-public goods
one that has some of the characteristics of a public good but not all - public beach / playing field
77
explain merit goods
those goods and. services that the government feels that people will under-consume
78
explain de-merit goods
a good that if it isn't regulated it will be over-consumed

Economics (4 decks)

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