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Economics A-level > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

What is utility?

A

The amount of satisfaction a person gets from consumption of a certain item (also known as total utility)

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2
Q

What is marginal utility?

A

The change in satisfaction from consuming 1 more unit

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3
Q

What factors shift the demand curve?

A

Income
Population changes
Changes in price of other goods
Changes in fashion

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4
Q

When demand increases which way does the demand curve shift?

A

Right

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5
Q

When demand decreases which way does the demand curve shift?

A

Left

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6
Q

Factors that shift the supply curve

A

Change in cost of production
Natural factors
Government taxes

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7
Q

When supply increases which way does the supply curve shift?

A

Right

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8
Q

When supply decreases which way does the supply curve shift?

A

Left

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9
Q

What is equilibrium (Market cleaning)?

A

Where the supply and demand curves meet. At this point all of the product supplied onto the market should be bought

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10
Q

What is derived demand?

A

Whend the demand for x comes from the demand for y

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11
Q

What is price elasticity of demand?

A

The responsiveness in demand to changes in price

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12
Q

What is the price elasticity of demand (Ped) equation?

A

Change in quantity demanded
Ped=. ——————————————-
%Change in price

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13
Q

What are elastic values in numbers?

A

Greater than 1

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14
Q

What are inelastic values numerically?

A

Between 0 and 1

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15
Q

What is 1 unitary elastic?

A

% Change in quantity demanded is the same as % change in price. (see graph)

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16
Q

What is 0 perfectly inelastic?

A

% Change in quantity demanded stays the same no matter the price (see graph)

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17
Q

What is infinite perfectly elastic?

A

% Change in quantity demanded drops off completely if there’s any change in price. (see graph)

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18
Q

What are the determinants of elasticity of demand?

A
  1. Time period, the longer the time under consideration the more elastic a product is likely to be
  2. Number and closeness of substitutes
  3. Proportion of income
  4. Is it luxury or necessity
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19
Q

What is income elasticity of demand (Yed)?

A

The responsiveness in demand to changes in income

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20
Q

What is a normal good?

A

Demand and income increase or decrease simultaneously

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21
Q

What is an inferior good?

A

Demand and income are indirectly proportional

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22
Q

How is a normal good shown with notation?

A

It has a positive sign

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23
Q

How is a luxury good denoted?

A

A value over 2 and a positive sign

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24
Q

What is inferior good notation?

A

Has a negative sign

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25
Q

What is income elasticity of demand (Yed) equation?

A

% Change in QD of good
Yed=. ————————————
% Change in income

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26
Q

What is cross elasticity of demand (Xed) ?

A

The responsiveness of demand for a good to change in price of a related good

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27
Q

What is the cross elasticity of demand (Xed) equation?

A

% Change in QD of good A
Xed=. ————————————-
% Change in price if good B

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28
Q

What is ceteris paribus?

A

All other things being equal

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29
Q

What is a normative statement?

A

A statement based on opinions and values

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30
Q

What is a positive statement?

A

A statement which can be supported by evidence and fact

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31
Q

What is a capital good?

A

Goods used to achieve a finished product eg machines, production equipment, vehicles for transport

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32
Q

What is a consumer good?

A

Finished product

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33
Q

What are the four factors of production? (CELL)

A

Capital
Enterprise
Land
Labour

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34
Q

What is a PPF?

A

The maximum possible output combinations of two goods / services an economy can achieve when all resources are fully utilised (see graph)

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35
Q

What is division/specialisation of labour?

A

Specialising workers into different tasks

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36
Q

Advantages of the division of labour

A

-Workers become highly skilled at job
-Less mistakes are made
-Quicker/more efficient
-Higher productivity

37
Q

Division of labour disadvantages

A

-Job can become boring and repetitive to worker
-If a specialised worker leaves their job a less skilled worker replaces them
-Workers demand higher wages for better quality work
-Who can cover the worker if theyre ill

38
Q

What is country specialisation?

A

When counries specialise their resources into producing a limited range of goods and services

39
Q

What is absolute advantage?

A

Being able to produce more of something than another country (assuming both have the same amount of resources available)

40
Q

What is comparative advantage?

A

Being able to produce something at a lower opportunity cost than another country (ceteris paribus)

41
Q

Country specialisation advantages

A

Fully use resources
Increased output
Increased quality
Allows exports

42
Q

Country specialisation disadvantages

A

Risk of a worldwide recession
Risk of over-specialising (one industry)
Overuse natural resources

43
Q

What is opportunity cost?

A

What you up in order to acheive something else

44
Q

What is consumer surplus?

A

The difference between the total amount the consumer is willing to pay and what they actually pay

45
Q

What is producer surplus?

A

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

46
Q

Explain scarcity

A

Unlimited wants and limited resources

47
Q

What is flat tax?

A

Imposed on firms, but can be passed on through higher prices

48
Q

What is ad valorem tax?

A

Unit tax (percentage tax) VAT is an example of this

49
Q

What are the determinants of elasticity of supply?

A
  1. Availability of the 4 factors of production (CELL)
  2. Time
  3. Spare capacity
  4. Spare stock and components
50
Q

What are the 3 functions of the price mechanism?

A

Signalling
Incentive
Rationing

51
Q

What is the price mechanism?

A

The interaction of buyers and sellers in free markets allows resources, products and services to be allocated by price

52
Q

Explain the rationing function

A

When resources are scarce, demand exceeds supply and prices are driven up. This prices rise helps discourage demand and conserve resources

53
Q

Explain the signalling function

A

Price changes send contrasting messages to consumers and producers. Increased price leads to consumers reducing demand. Decreased price leads to consumers to re enter markets

54
Q

Explain the incentive function

A

If prices are higher it provides producers with an incentive to increase production in order to make profit

55
Q

Why can’t you make science experiments in economics?

A

Because you can’t keep variables constant

56
Q

What is a free market (Adam Smith)?

A

Where buyers and sellers decide without government intervention

57
Q

Why is a free market a good idea? (Adam Smith’s argument)

A

-The market produces what consumers want
-Motivates people to take risks(not restricted by government law/tax)
-Acting in self interest leads to production of goods there is. high demand for to make profit
-Rewards effort and high quality goods

58
Q

Why is free market a bad idea?

A

-Heirarchy is formed
-Monopolies are formed reducing competition
-Greed/profiteering

59
Q

What is a demerit good?

A

Goods that give off negative externalities

60
Q

What is the centralised/command economy? (Karl Marx)

A

The government decide on production and distribute it

61
Q

What was Marx’s argument?

A

Capitalists control the capital leading to inequality and poorer wages. Poor wages means less spending and capitalists will fail in the long term

62
Q

Why was Marx’s argument fair?

A

-Individuals shouldn’t hold too much power
-Less inequality

63
Q

Why was Marx’s argument bad?

A

-Doesn’t reward hard work
-Rewards laziness
-Money invested into business can serve the population

64
Q

What is a mixed economy?

A

Partial government intervention

65
Q

What did Friedrich Hayek say?

A

-Government involvement ruins the market
-Intervention leads to short term booms resulting in going bust and government investment isn’t sustainable

66
Q

Functions of money

A

-Medium of exchange
-Measure of value
-Store of value
-Method of settling debts

67
Q

2 main parts of rational decision making kinda

A

Producers want to maximise profit and consumers want to maximise utility

68
Q

What is the principal agent?

A

The relationship where one entity legally appoints another to act on its behalf

69
Q

What is a merit good

A

A good that gives of positive externalities. The government believes these goods need to be encouraged

70
Q

3 ways the government encourages the purchase of merit goods

A

-Free at the point of use
-Subsidies
-Laws

71
Q

What is a quasi public good?

A

A near public good

72
Q
A
73
Q

What is the free rider problem?

A

Type of market failure where people don’t benefit from goods they pay for (public goods)

74
Q

Xed types of good

A

Complimentary, substitute and unrelated.

75
Q

Price elasticity of supply equation

A

% Change in quantity supplied
PES = ——————————————
% Change in price

76
Q

What is price elasticity of supply?

A

The responsiveness of a supply of a good or service after a change in its market price.

77
Q

Why would consumers not behave rationally?

A

-Assymetrical information
-Habitual behaviour
-Computation problems
-Peer pressure

78
Q

What is market failure

A

The market failing to allocate goods and services correctly

79
Q

Types of market failure

A

-Information gaps
-Externalities
-Under provision of public goods

80
Q

Qualities of a public good (explain)

A
  1. Non-rival: supply of the good isn’t affected by consumption
  2. Non-excludable: no group/person is excluded from using it
  3. Non-rejectable: collective supply of good can’t be rejected by people
81
Q

All graphs you have to know for theme 1

A

-PPF
-Country specialisation graph
-Producer and consumer surplus
-Producer and consumer tax
-Ad valorem tax graph
-Negative/positive externalities graph
-Min/max pricing
-Subsidy graph
-Utility curve
-Types of elasticity graphs

82
Q

Parts of a negative externalities graph

A

-MSC (marginal social cost)
-MPC (marginal private cost)
-MPB (marginal private benefit)
-Social optimum

83
Q

Types of government intervention

A

-Indirect taxes (ad valorem and specific)
-Subsidies
-Min and max pricing
-Provision of public goods
-Tradable pollution permits

84
Q

Positives of pollution permits

A

-Rewards eco friendly action
-Government source of revenue
-Reduced negative externalities

85
Q

Problems of pollution permits

A

-Some businesses have to pollute to make profit
-Reduced emissions can reduce profit
-Some business aren’t affected by fine

86
Q

What is government failure?

A

When government involvement results in a net welfare loss

87
Q

What is welfare?

A

Overall economic well-being

88
Q

Types of government failure

A

-Distortion of price signals ( e.g. inefficient subsidies)
-Unintended consequences
-Information gaps
-Excessive administration costs

89
Q
A

Economics A-level (2 decks)

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