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micro economics > theme 1 Micro eco > Flashcards

theme 1 Micro eco Flashcards

1
Q

the economic problem

A

humans have infinite wants and needs, but only have finite resources to fulfil them

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2
Q

the factors of production

A

Land, Labour, Capital, Enterprise

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3
Q

Opportunity cost

A

The next best opportunity forgone

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4
Q

PPF

A

shows the maximum level of output of two goods that an economy can make in a certain period of time

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5
Q

specialisation

A

when a person, firm or even country, concentrates on producing or doing just one thing

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6
Q

The division of Labour

A

Production of a complex good or service is broken down into lots of smaller and simpler tasks for different workers or machines

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7
Q

The market

A

A place where buyers and sellers brought together to exchange goods and services for a price

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8
Q

Free market economy

A

all the resources are allocated by the market forces of supply and demand

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9
Q

Centrally planned economy

A

All resources are allocated by the government

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10
Q

utility

A

satisfaction that consumers get from a good or services that they buy

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11
Q

demand

A

that amount of a product that consumers are willing and able to purchase at any given price

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12
Q

PASIFIC

A

Non-price factors that influence demand

Population
Advertising
substitute goods 
income tax 
fashion & trend
interest rate 
complimentary goods
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13
Q

PINTSWC

A

Non-price factors influence supply

Productivity 
Indirect taxes 
Number of firms 
technology 
subsidies 
weather 
cost of production
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14
Q

PED Equation

A

(%QD / %P) - value is always negative

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15
Q

PED < 1

A

price inelastic - a change in price results in a smaller change in demand

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16
Q

PED > 1

A

Price elastic - a change in price results in a greater change in demand

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17
Q

factors influencing PED

A 
Time 
competition 
branding 
% of income the good takes 
habit forming goods
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18
Q

Factors influencing YED

A

Necessitates and luxury goods

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19
Q

Normal goods

A

When income increases, demand for normal goods goes up

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20
Q

inferior goods

A

When incomes increases, demand for inferior goods fall

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21
Q

XED equations

A

(%QD good B / % P good A)

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22
Q

substitute goods

A

goods that are very similar an are close substitutes for each other

POSTIVE XED

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23
Q

Complimentary Goods

A

Goods that go together well or are actually used in consumption together.

NEGATIVE XED

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24
Q

Supply

A

The amount of a product which suppliers will offer to the market at a given price

25
Q

PES

A

(%QS / %P) Value is always positive

26
Q

Price Mechanism

A

The way in which prices respond to changes in supply or demand, so that a new equilibrium is reached and the market clears

27
Q

equilibrium

A

when supply is equal to demand

28
Q

Total revenue

A

Price X quantity

29
Q

Excess demand

A

when demand exceeds supply - there is a market shortage

30
Q

Excess supply

A

When supply exceeds demand - there are unsold goods in the market

31
Q

Producer surplus

A

The extra amount of money that producers are paid, above what they would be willing to take

32
Q

Consumer Surplus

A

The extra amount of money consumers are prepared to pay for a good, above what they actually pay

33
Q

Direct Tax

A

A tax that is paid straight from your income

34
Q

indirect tax

A

A tax that can be passed onto another individual

35
Q

Ad valorum tax

A

A tax that increases by a certain %

36
Q

Tax Incidence

A

This is the idea of who actaully pays the tax, the consumer or the producer

37
Q

subsidy

A

A grant given to a firm to encourage the firm to produce more/ or lower the price of a good

38
Q

Reasons for irrational behaviour

A
  • Influence of others
  • Habitual goods
  • Computational Problems
  • Inertia
39
Q

Market Failure

A

When the free market causes an inefficient allocation of resources.

40
Q

Externalities

A

These are costs or benefits that are ignored in a market exchange

41
Q

Private costs

A

These are costs involved that only the individual and the producer cares about

42
Q

External costs

A

Costs to the 3rd party, that either the producer or consumer pay

43
Q

Social costs

A

Private cost + external costs

44
Q

Social optimum equilibrium

A

Where marginal social costs equal marginal social benefits

45
Q

Public goods

A

goods that are non-rivalrous and non-excludable

46
Q

Non-excludable

A

When you have produced the good and sold it to one person, it is impossible to stop other people from using it

47
Q

Non-rivalrous

A

That as more and more people use it the amount available to others is not reduced

48
Q

The free rider problem

A

If you provide a good to one person you have provided it all. People will just come along and use it without paying

49
Q

Asymmetric information

A

When consumers and producers often have different amounts of information. one group will have advantage by knowing more.

50
Q

Symmetric information

A

When both consumers and producers have perfect information about the good they are exchanging

51
Q

Ad valorum tax

A

Tax which accounts for a % of price

52
Q

specific tax

A

A tax on a fixed amount of each unit of good or service sold

53
Q

Subsidy

A

A government grant given to firms whic reduces cost of production, increasing supply

54
Q

Maximum price

A

A price ceiling - when the Gov sets a price that it will not allow the market price to rise above

55
Q

Minimum price

A

A price floor - When the Gov sets a price that it will not let price fall below

56
Q

Tradable Pollution Permits

A

These give companies a legal right to pollute a certain amount per fixed time span and can sell their surplus pollution permits

57
Q

Gov regulation

A

Making laws, such as health and safety

58
Q

Gov Failure

A

when a Government intervention leads to a net welfare lose

micro economics (2 decks)

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