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Economics > Theme 1 AO1 > Flashcards

Theme 1 AO1 Flashcards

microeconomics

1
Q

what is price elasticity of demand

A

a measure of how demand of a good changes in response to a change in price

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2
Q

what is price elasticity of supply

A

a measure of the quantity supplied of a good in response to a change in price

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3
Q

what is cross price elasticity

A

a measure of how demand of one good changes in relation to a price change of another good

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4
Q

what is specialisation

A

narrowing production to only a few specific goods

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5
Q

what is a public good

A

a good that is both non-rivalrous and non-excludable

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6
Q

what is government intervention

A

any government action that aims to change the equilibrium in a market

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7
Q

what is a free market

A

where prices of goods and services in a market are determined by buyers and sellers

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8
Q

what is a mixed economy

A

an economy that combines elements of the free markets and government intervention

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9
Q

What is a direct tax?

A

A tax that goes straight from the payee to the government.

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10
Q

What is indirect tax?

A

Tax that is collected by an intermediary before it is received by the government.

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11
Q

What is government failure?

A

When a government tries to intervene to correct market failure but ends up creating a net welfare loss.

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12
Q

What is a free market?

A

When the market is driven by profit and the market allocates resources. There is a limited role for the government as the private sector dominates.

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13
Q

What is a mixed economy?

A

A market with both profit driven markets and government intervention in the economy.

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14
Q

What is a planned/command economy?

A

Where most resources are owned by the government, the state allocates resources and there is little role for market prices.

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15
Q

What is a maximum price?

A

A price set by the government on a specific good or service that the sellers can charge or can be sold under that price.

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16
Q

What causes movements along the demand curve?

A

A change in price.

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17
Q

What causes a shift in the demand demand curve?

A

A change in factors other than price. Ex: Income, consumer preferences, prices of related goods.

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18
Q

What is diminishing marginal utility (DMU)?

A

As a consumer consumes more units of a good or service, the additional satisfaction (utility) is decreased.

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19
Q

Why does the demand curve slope downwards?

A

As price decreases, quantity demanded increases as the marginal utility exceeds the price.

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20
Q

What is Ad valorem valorem tax?

A

A percentage of the value of the product is taxed indirectly.

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21
Q

What is specific tax?

A

The same tax is placed on each item regardless of the size or value.

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22
Q

What is a subsidy?

A

A grant from the government to incentivise firms to increase production or reduce prices.

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23
Q

What causes a movement along the supply curve?

A

When quantity supplied changes in response to a change in price of the good or service.

24
Q

What causes the shift of the supply curve?

A

When something occurs other than a change in price.

25
Q

What does marginal private cost mean?

A

The cost to the business of producing an additional unit.

26
Q

What does marginal social cost mean?

A

The cost to society of producing/ consuming one extra good.

27
Q

How do governments remove negative externalities of production?

A

By raising taxes for the business to the level of MSC.

28
Q

What factors cause a shift in the supply curve?

A

Production costs, Technological advancements, Government regulations, Natural disasters, Anticipation, Resource availability.

29
Q

What is income elasticity of demand?

A

The measure of how demand changes for a product in response to a change in consumer incomes.

30
Q

What is the formula for PED?

A

Percent change in quantity demanded/ percent change in price.

31
Q

What is the formula for XED?

A

percentage change in demand for good A/ percent change in price for good B

32
Q

What is the formula for YED?

A

Percent change in quantity demanded/ percent change in income.

33
Q

In regards to PED, what is the relatively elastic value?

A

> 1.

34
Q

In regards to PED, what is the relatively inelastic value?

A

< 1

35
Q

In regards to PED, what is the perfectly elastic value?

A

infinity.

36
Q

In regards to PED, what is the perfectly inelastic value?

A

zero.

37
Q

In regards to YED, what is the value for normal goods?

A

0< YED <1

38
Q

In regards to YED, what is the value for luxury goods?

A

YED > 1

39
Q

In regards to YED, what is the value for inferior goods?

A

YED < 0

40
Q

In regards to XED, what is the value for complementary goods?

A

XED < 0

41
Q

In regards to XED, what is the value for substitute goods?

A

XED > 0

42
Q

In regards to XED, what is the value for unrelated goods?

A

XED = 0

43
Q

What factors influence elasticities of demand?

A

Availability of substitutes, necessity vs luxury, time horizon, habit (addiction).

44
Q

How would a firm use elasticities of demand?

A

To determine prices and predict revenue changes.

45
Q

How would the government use elasticities of demand?

A

To make taxation and subsidy decisions and influence the production and consumption levels of different goods.

46
Q

What is the relationship between elasticity of demand and total revenue for businesses?

A

Price increase for elastic good = decrease in TR. Increase for inelastic good = increase in TR (to a point).

47
Q

What is the formula for price elasticity of supply?

A

Percent change in quantity supplied/ percent change in price.

48
Q

In regards to PES, what is the value of perfectly elastic?

A

Infinity.

49
Q

In regards to PES, what is the value of perfectly inelastic?

A

Zero.

50
Q

In regards to PES, what is the value of relatively elastic?

A

PES > 1

51
Q

In regards to PES, what is the value of relatively inelastic?

A

0 < PES < 1

52
Q

What factors influence PES?

A

Time horizon ( elasticity changes between the short and long run), Resource availability, Production technology, Perishability.

53
Q

What is the difference between short and long run in regards to PES.

A

Product will have an inelastic PES during the short run as there is limited flexibility in production levels, In the long run, there is more flexibility and PES is going to be more elastic.

54
Q

What are trade pollution permits?

A

Market based permits allocated to firms.
Firms can buy and sell them. They allow a firm to produce a certain amount of pollution.

55
Q

What is state provision of public goods?

A

This is where the government will provide public goods and this is typically funded by taxation.

56
Q

What is the provision of information?

A

This is when the government provides information to consumers to help them make informed decisions. This improves market efficiency and helps protect consumers.

57
Q

What is regulation?

A

Government rules and standards to ensure market participants follow specific guidelines.

Economics (15 decks)

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