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Economics > Theme 1 > Flashcards

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
Q

what causes a shift in the supply curve

A

cost in production - wages
government - taxes
natural factors - recent flooding
technology - changes / improvements

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26
Q

what does it mean if the market is at equilibrium

A

where producers and consumers are happy with a price

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27
Q

explain derived demand

A

demand for one. item is related to the demand for another item

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28
Q

what’s the price mechanism

A

the interaction of buyers and sellers in free market which enables goods services and resources to be allocated by prices

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29
Q

explain the rationing function

A

resources are scarce so demand EXCEEDS supply so prices rise

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30
Q

explain the signalling function

A

prices rise so it signals to firms to produce more but consumers buy less

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31
Q

explain the incentive function

A

higher prices provide an incentive to EXISTING producers to supply more because they provide the possibility of more revenue and profits

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32
Q

what’s price elasticity of demand

A

the. responsiveness of demand to a change in price

33
Q

what’s the formula for price elasticity of demand

A

% change in price

34
Q

unitary elastic figure

A

1

35
Q

perfectly elastic figure

A

infinte

36
Q

perfectly inelastic figure

A

0

37
Q

determinants of price elasticity of demand

A

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
Q

what’s price elasticity of supply

A

the responsiveness of supply to a change in price

39
Q

price elasticity of supply formula

A

% change in price

40
Q

unit elastic figure

A

1

41
Q

elastic figure

A

less than 1

42
Q

inelastic figure

A

greater than. 1

43
Q

determinants of price elasticity of supply

A

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
Q

what’s income elasticity of demand

A

the responsiveness of demand to a change in income

45
Q

income elasticity of demand formula

A

% change in income

46
Q

what’s a normal good

A

demand rises as income rises
POSITIVE value

47
Q

what’s an inferior good

A

demand falls as income falls
NEGATIVE value

48
Q

luxury good figure

A

greater than 2

49
Q

what’s cross elasticity of demand

A

the responsiveness of demand of one good to changes in the price of a related good

50
Q

cross elasticity of demand formula.

A

%. change in price of good B

51
Q

substitute good figure

A

positive value

52
Q

complement good figure

A

negative value

53
Q

explain why economic agents may not be rational

A

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
Q

explain consumer surplus

A

the difference between what. consumers are willing to pay and what they actually pay

55
Q

explain producer surplus

A

the difference between what price producers are willing to accept and what they actually receive

56
Q

explain asymmetrical information

A

one party has more knowledge than another and use it to influence the market

57
Q

ways to solve asymmetrical information.

A

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
Q

explain information gaps

A

one party in an industry has a real lack of good knowledge

59
Q

explain equity issues

A

when some people have considerably unequal access to income and wealth

60
Q

explain wealth

A

measures the value of all the assets of worth owned by a person

61
Q

explain income

A

a flow of money going into factors of production.

62
Q

explain what a negative externality is

A

a negative effect on a third party outside the externality

63
Q

explain what a positive externality is

A

a product which has a positive impact on the third party, at the moment they are under valued and under consumed

64
Q

explain subsidies

A

the direct payments that governments provide businesses to offset some of their operating costs

65
Q

advantages of subsidies

A

keeps the price down
encourages merit goods and positive externalities
reduces the cost of capital investment

66
Q

drawbacks of subsidies

A

firms may become dependent on them
very expensive for the government
opportunity cost elsewhere - investment in education
risk of fraud

67
Q

explain minimum pricing.

A

setting a floor price. which the market isn’t allowed to go under

68
Q

explain maximum pricing

A

when a price is set which the. market aren’t allowed to go above

69
Q

explain a public good

A

a good that if you provide for one, you provide the good for everyone

70
Q

explain complete market failure

A

market doesn’t supply products at all

71
Q

explain potential market failure

A

the market does function but produces the wrong quantity or price of the product

72
Q

explain non-excludability

A

When you can’t stop someone from accessing the good and someone can’t choose not to access the good

73
Q

explain non-rival consumption

A

One persons use of the good doesn’t stop someone else from using the good

74
Q

explain non-rejectable

A

the collective supply if a public good for all means that it cant be rejected by people

75
Q

explain the free rider problem

A

when someones benefitting from the consumption of a public goods wihtout paying for it - street lights

76
Q

explain quasi-public goods

A

one that has some of the characteristics of a public good but not all - public beach / playing field

77
Q

explain merit goods

A

those goods and. services that the government feels that people will under-consume

78
Q

explain de-merit goods

A

a good that if it isn’t regulated it will be over-consumed

Economics (4 decks)

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