Theme 1 Flashcards
Define Ceteris Paribus
All things are equal
What is a Positive Statement
A state the is factual and can be tested
What is a Normative Statement
A statement that hold Valued Judgement
What are the Factors of Production
- Captial
- Enterprise
- Land
- Labour
Define Opportunity Cost
Giving up the next best alternative when making a decision
State three factors that affect PPF
- Technology
- Population
- Size of Work Force
What is a Command Economy
An economy where resources are owned and allocated by the government
What is a Free Market Economy
An economy where the government has little/ no control
What are 2 Advantages of a Free Market Economy
- Increased Efficiency of resources
- Greater flexibility to changes in consumer wants
- Competition
What are 2 Disadvantages of a Free Market Economy
- Can lead to Monopolies
- Inequality
- Externalities
What are 2 Benefits of a Command Economy
- Greater Equality
- Full employment
What are 2 Disadvantages of a Command Economy
- No Consumer Sovereignty (All decisions are made by the state)
- Inefficiencies
Define Specialisation
Focusing on the production of one good or service
State 2 Benefits of Division of Labour
- Increased Quality
- Lower Labour Costs
- Increased Speed
State 2 Drawbacks of Division of Labour
- Boredom
- Loss of skill is some is absent
Define Division of Labour
Splitting a task into smaller manageable tasks
What are the 4 Functions of Money
- Means of Exchange
- Measure of Value
- Store of Value
- Measure of Deferred Payments
What is meant by Means of Exchange as a Function of Money
The ability for consumers to get a good or service they wish to buy
What is meant by Store of value as a Function of Money
The ability to save money allowing them to are future purchases
What is meant by Means of Deferred Payment as a Function of Money
The ability to buy a good or service using credit
What is meant by a Measure of Value as a Function of Money
The ability to assess the value of different goods and compare the prices
What are 3 Factors that can cause consumers to act Irrationally
- Herd Mentality
- Computational Weakness
- Habitual Behaviour
What are 6 factor that affect Demand
- Trends
- Income
- Price of Substitutes
- Price of Complements
- Size op Population
- Amount for Advertising
Name 5 Factors that affect Supply
- Barriers to Entry
- Resources
- Inventory
- Time
- Spare Capacity
Define Price Elasticity of Demand
The responsiveness of Demand where there is a change in Price
What is the formula for PED
PED = % Change in Demand / % Change in Price
What are the 6 factors that affect PED
- Proportion of Income
- Luxury
- Addictiveness
- Necessity
- Trends
- Substitutes
Define Price Elasticity of Supply
The responsiveness os Supply to a change in Price
What is the equation for PES
PES = % change in Quality Supplied / % change in Price
Define Cross Elasticity of Demand
The responsiveness on Supply in Good A due to a in Price of Good B
What is the Equation for XED
XED = % Change in Quantity Supplied of Good A / % Change in Price of Good B
What numerical value does a Substitute Good have
Positive
What Numerical value does a Complementary Good have
Negative
What 5 Factors affect PES.
- Barriers to Entry
- Resources
- Inventory
- Time
- Spare Capacity
Define Income Elasticity of Demand
The responsiveness of Demand to a Change in Income
What is a Normal Good
A Good where Income rise Demand Rises
What is a Inferior Good
A Good where Income rises Demand falls
What are the 3 Price Mechanisms
- Rationing
- Signalling
- Incentive
