Theme 1 Flashcards
Define External Benefits
External Benefits are where third parties not involved in a transaction benefit from a good
Define PPF
Curve showing maximum potential output assuming all available resources are used fully
Define a Public good
Goods which are non-excludable and non-rivalrous
What are goods which have a negative YED?
Inferior
What are goods which have a YED of 0-1?
Normal and income inelastic
What are goods which have a YED of >1?
Luxury
What are goods which have a negative XED?
Complimentary
What are goods which have a positive XED?
Substitutes
Define division of labour
Production of a good is broken down into different tasks and labour allocated to each task
How does division of labour increase productivity?
Workers become more skilled in particular tasks through repetition / less time wasted moving from one task to another
What are goods which have a negative XED?
Complimentary
What are goods which have a positive XED?
Substitutes
Define specialisation?
When labour allocate all their time to producing just one good or service
Define subsidy
Government grant to firms to increase production or lower price
Define ad valorem tax
Tax set as a percentage of a good
Define specific tax and what do they do on a diagram?
Tax which is a fixed amount per unit of good and it causes a parallel shift in the supply curve
Define excess supply
When QS exceeds QD
Outline one advantage of specialisation
High productivity as workers most skilled at producing goods, increased efficiency and output so higher profits for domestic firms
Outline one disadvantage of specialisation
Creates reliance on one export if they become uncompetitive, profits of domestic firms will decrease leading to unemployment and lower living standards
Outline one disadvantage of division of labour
Worker boredom increases due to repetition, workers may not be focussed, absenteeism increases leading to reduced productivity
Explain the function of money in improving specialisation?
Money acts as a medium of exchange, meaning it allows workers to be paid in exchange for their high skilled work, which they can use to buy goods and services
Explain one reason why house prices fall
High unemployment, consumers have low disposable income so can not afford to buy a house, demand falls price drops
How do tradable pollution permit lead to reduced usage of coal?
Firms making lots of pollution will have to buy many permits, incentivising them to look for cleaner ways to generate electricity so they can sell permits and lower costs
Give examples of land as a factor of production
All natural resources such as raw materials, fossil fuels, fertile soil and wind
Give examples of labour as a factor of production
All those involved in the production of goods and services
Give examples of capital as a factor of production
Any man made aid to production e.g. factory buildings, machinery
Explain enterprise as a factor of production
Brings together the other factors of production so goods and services can be produced and takes risks involved in production
Explain the rationing function of the price mechanism
It will ensure quantity demanded exactly equals quantity supplied
Explain the incentive function of the price mechanism
Prospect of making a profit acts as an incentive to firms to produce goods and services
Explain the signalling function of the price mechanism
Signals to producers to increase or decrease amount supplied
Explain the ‘change in wants’ function of the price mechanism
A change in demand will be reflected by a change in price
