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Economics > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

What are the four economic agents?

A

Government, consumers, firms and employees.

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2
Q

what are the three economic questions?

A

What to produce? How to produce? For whom to produce?

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3
Q

Marginal - additional (law)

A

each additional unit of a good or service is consumed, marginal utility decreases

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4
Q

Total utility

A

The total satisfaction from a given level of consumption

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5
Q

Demand

A

An insistent and immediate request, made as of right

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6
Q

Why is there shifts in the demand curve

A

Population, advertising , income , change of price of a supplementary good

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7
Q

What does Supply curve show ?

A

The relationship between the price and supply

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8
Q

Why are there shifts in the supply curve

A

Costs of production:
-wages, raw materials
Government:
-taxes, subsidies
Natural factors

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9
Q

The equilibrium or market clearing

A

Price is found where the demand and supply curve meet. At this point all the product that is supplied onto the market will be purchased

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10
Q

Price elasticity of demand

A

The responsiveness if demand to changes in price

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11
Q

Price elasticity of demand formula

A

PED= %change in quantity demanded / %change in price

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12
Q

If the answer is between 0-1 what is the relationship?

A

Inelastic

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13
Q

If the answer is between -1 and infinity what is the relationship?

A

Elastic

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14
Q

What is PED elasticity

A

Where the % change in demand is greater than the % change in price

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15
Q

What is meant by inelastic price elasticity of demand

A

Here the % change in demand is less than the % change in price.

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16
Q

Outcome of elasticity of demand

A

Time period, number of subsidies, luxury or necessity

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17
Q

PES formula

A

PES = % change in supply / % change in price

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18
Q

Ceteris paribus

A

Everything stays the same

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19
Q

Outcome of elasticity of supply

A

4 factors of production:land, labour, capital, enterprise
Time, space capacity

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20
Q

Income elasticity of demand

A

How much demand changes when income does

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21
Q

Normal good

A

Demand rises as income rises and vice versa (positive)

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22
Q

Inferior good

A

Demand falls as income rises and vice versa

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23
Q

Cross elasticity

A

The responsiveness of demand of one good to change in the price of a related good - either a substitute or a complement

24
Q

Price mechanism

A

The interaction of buyers and sellers in free markets enable goods and services to be allocated by prices

25
Q

Rationing function

A

If price rises it rations the amount of people who can afford it and so rations the material used as not many of the product will be made.

26
Q

Signalling function

A

Price changes send contrasting messages to consumers and producers about whether to enter or leave the market. _ rising prices givea signal to consumers to reduce demand or withdraw from a market completely they will give a signal to a new market.

27
Q

Incentive function

A

Prices provide an incentive to existing produces to supply more to make a larger profit

28
Q

Rational decision making

A

When making decisions people aim to maximise their own welfare. - lack of self control

29
Q

Market failure

A

The resources are unable to effectively allocated.

30
Q

What are merit good?

A

A good that is underconsumed by people eg.education.

31
Q

A principal

A

Agent is an arrangement in which one entity legally apoints another to act on its behalf

32
Q

Asymmetric information

A

An individual has more information than another individual and uses it to their advantage.

33
Q

Information gaps

A

Most market failure occur because of information gaps.

34
Q

Caters paribus

A

All other things being equal

35
Q

Production possibility frontiers

A

Capital resources, entrepreneurs, labour, land resources

36
Q

Why does opportunity cost arise?

A

Resources are scarce.

37
Q

What is a ppt? - production possibility frontier

A

A production possibility frontiers is the maximum output of a combination of a 2 products being produced through scarce resources

38
Q

Capital resources

A

refer to all the man-made assets that are used to manufacture goods. For example machines, buildings and tools.

39
Q

What is Enterprise

A

Allowing more immigrants that have different knowledge Into the country

40
Q

Labour

A

Invest more money into education to get more skills

41
Q

Land resources

A

More intensive farming

42
Q

Absolute advantage

A

Being able to produce none of something than another country

43
Q

Comparative advantage

A

occurs when a country can produce a good or service at a lower opportunity cost than another country

44
Q

Adam smith

A

The wealth of nations, self interest, risk & reward

45
Q

Why was smith right?

A

Profit as demand goes up so does price, free will, lots of innovation and new products

46
Q

Why was smith wrong?

A

Benefit system, cuts off the poor, charities

47
Q

Frederick Hayek

A

Only buyers & sellers understand the market, the government mighttry to help

48
Q

Types of economies

A

Centralised, free market, nixed, traditional.

49
Q

Negative externalities

A

When a third party is a negative affected by a market transaction

50
Q

Subsidies

A

Refers to direct payments that government provide business to offset some of their operating costs

51
Q

Flat tax

A

Imposed on firms but can be passed in through higher prices

52
Q

Carbon trading

A

A system of limiting carbon emissions through granting firms permits to emit a certain amount of carbon

53
Q

Consumer surplus

A

Difference between the total amount that consumers are willing to pay and the total amount they can afford

54
Q

Producer surplus

A

The difference between the amount the producer is willing to supply and the actual amount they receive

55
Q

Externalities

A

costs or benefits that are external to a transaction-‐ they are third party effects which are ignored by the price mechanism.

56
Q

What does inelastic mean?

A

the static quantity of a good or service when its price changes.

Economics (4 decks)

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