Theme 1 - Introduction To Markets And Market Failure Flashcards
Ceteris Paribus
The assumption that everything else will remain the same
What are economic models?
A simplified description of reality
Economics seeks to…
…meet society’s needs and wants
Reasons for high rent prices (5)
- limited housing supply
- high property prices
- high living costs
- different regions
- housing market instability
Basic economic problem
Unlimited wants but limited resources
The 4 types of markets
Centrally planned
Mixed
Free enterprise
Traditional
The 4 economic agents (and what they aim to achieve)
Government - maximise social welfare
Consumers - maximise their satisfaction
Workers/employees - maximise the benefits of work
Firms/businesses - maximise profit
Definition of utility
The economic term for satisfaction/value
Definition of marginal
Additional
Definition of marginal utility
The change in satisfaction from consuming an extra unit
Definition of total utility
The total satisfaction derived
Definition of demand
The amount of a product people are willing and able to buy at a given point
Demand and price have a … relationship
Inverse
Change in price…
Move along the curve
Change in any other factors (except price)…
Shift graph left/right
Definition of expansion
Lowering of the price leads to an increase in demand
Definition of contraction
Increase of the price leads to a decrease in demand
Main factors that shift the demand curve (6)
- population
- advertising
- income/money
- change in price of complementary goods
- change in price of substitute goods
- trends/fashion
The supply curve is the…
…correlation between the cost of a good/service and the quantity supplied for a given period.
Definition of a normative statement
Subjective statements that are based on an opinion (e.g. I think, it might, you should)
Definition of positive statement
Objective statements that can be tested/measured and are based evidence (e.g. will)
What are the 4 resources?
- Capital
- Enterprise (entrepreneurs)
- Land
- Labour
Definition of opportunity cost
The loss of other alternatives when one alternative is chosen
What does PPF (graph) stand for?
Production Possibility Frontier