Theme 1 Flashcards
What does “Ceteris paribus” mean?
all other things being equal
What is the economic problem?
Wants are unlimited resources are scarce - scarcity.
what is a positive statement
objective, factual and an absence of judgement
what is a normative statement?
This is subjective, opinionated and has judgement in its decision
what is an opportunity cost?
The next best alternative while the other options are forgone
What is a PPF?
a production possibility frontier is the model that conveys the maximum potential production that can occur is all resources are fully employed
What is specialisation?
when each worker is given a specific task in a production process to increase worker productivity and lower AC ~ Concept was discovered by Adam Smith
what is a free market economy?
This is when the market is in control of the economy and private individuals/ businesses try to allocate resources efficiently.
-Ignores inequality
-Can lead to increased output
what is a Command Economy?
this is when the govt allocates resources and distributes them to where they believe is in most need of them
- May limit democracy
-easier coordination of resources during time of crisis
What is a mixed economy?
This is when the market is controlled by both govt and forces of Supply and Demand
What are the functions of money?
Unit of account
Means of exchange
Legal tender
Store of value
What is rational decision making?
Consumers ~ maximising utility
Firms ~ maximising Profits
Govt ~ Maximising social welfare
What is demand?
The willing and ableness of a consumer to buy a certain good or service at a given time
What are the factors that effect Demand?
Population
advertising
related goods
expectations
income
taste/ trends
seasons
What is diminishing marginal utility
The more buyers are offered the less satisfied they are with the latest purchase compared tot he first. This shows an additional unit added can decrease the rational decision making
What are the types of demand?
Derived demand ~ when 1 good is linked to another
Composite demand ~ when the good demanded has more than one function
What is PED?
This is price elasticity of demand which shows the responsiveness to demand regarding a change in price
What is the formula for PED?
Δ in quantity/ Δ in Price
What are the types of PED?
Elastic ~ relatively responsive (x>1)
Inelastic ~ not responsive (X<1)
unitary ~ ped=1
Perfectly inelastic= (X=0)
perfectly inelastic = (x= ∞)
factors that influence PED?
Necessity
substitutes
habit
durability
What is the tax burden?
Tax can be passed on a good which the producer chooses to pass on the firm to keep consumers buying the product if its elastic or put the tax on the consumer if the product is inelastic. Hence consumer or producer burden is created
What is YED?
the responsiveness of a good to a change in income
formula for YED?
Δ in quantity / Δ in income