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Economics > Theme 1 (Need To Learn ) > Flashcards

Theme 1 (Need To Learn ) Flashcards

1
Q

Problem of Scarcity

A

Relative concept as scarcity is in relation to demand

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2
Q

Disadvantages of specialisation

A

Boring (leads to poor quality), one delay causes domino effect, creates structural unemployment

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3
Q

Functions of money

A

Medium of exchange, measure/store of value, method for deferred payment

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4
Q

Adam Smith argument

A

‘Invisible hand’, free market works best as resources allocated to everyone’s advantage

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5
Q

Fredrick Hayek argument

A

State control of an economy leads to a loss of freedom

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6
Q

Karl Marx Theory

A

Workers always bound to rise against employers, command economy better

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7
Q

Advantages of a command economy

A

Less inequality, less resource wastage, government motivated by wellbeing , provides long-term planning

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8
Q

Disadvantages of command economy

A

Less motivation, less entrepreneurship, increased corruption

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9
Q

Underlying assumptions of rational decisions

A

Consumers maximise utility, firms maximise profits, government maximise social welfare

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10
Q

Factors influencing PED

A

availability of substitutes, addictive, time, necessity, % of income

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11
Q

Significance of PED

A

Determines effect of taxes/subsidies

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12
Q

Significance of YED

A

Businesses know how sales impacted by income

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13
Q

Factors shifting the supply curve

A

Costs of production, weather, price of other goods, technology, taxes/subsidies, producer cartels

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14
Q

Factors influencing PES

A

Spare capacity, ease of entry into market, short-term fixed factors of production, long-term variable, availability of substitutes, availability of factors of production

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15
Q

Price mechanism

A

Functions allocation resources/prices

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16
Q

Rationing function

A

Price increases - resources rationed to those who can afford it (example in house market, shops and 1973 oil embargo)

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17
Q

Signalling function

A

Price indicates where resources should be moved ( I.e house building if prices go up )

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18
Q

Incentive function

A

Money an incentive for people to work hard - also price incentive for when to buy/sell a good

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19
Q

Consumer surplus

A

Always above equilibrium, shows welfare gain for consumers

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20
Q

Producer Surplus

A

Always below equilibrium, shows economic gain for producers

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21
Q

Ad Valorem Tax

A

Tax increase in proportion to value of good (VAT)

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22
Q

Specific tax

A

Amount added to price of good (excise duties )

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23
Q

Incidence of tax

A

If PED elastic or PES inelastic, supplier pays majority of tax. If PED inelastic of PES elastic, consumer pays majority of tax

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24
Q

Consumer behaviour

A

Usually rational, can be influenced by habits

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25
Q

Market failure

A

Causes a loss in social welfare

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26
Q

Externality market failure

A

Leads to overproduction of negative goods

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27
Q

Other types of market failure

A

Under-provision of public goods, information gaps

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28
Q

Government control of externalities

A

Taxes (negative ) or subsidies ( positive ), trade pollution permits, regulation, provision of gold through tax revenue, provision of information

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29
Q

Free-rider problem

A

Benefiting from a good without paying ( I,e unemployed with public good )

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30
Q

Issues with information gaps

A

Leads to mis-allocation of resources due to producers taking advantage of asymmetric information

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31
Q

Effects of Indirect taxation

A

Causes a fall in supply, increases government revenue - used on goods with negative externalities

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32
Q

Disadvantages of indirect taxation

A

Creation of a black market, regressive, conflicts with growth, doesn’t work if demand for the good is very inelastic

33
Q

Advantages of a subsidy

A

Maximise welfare, increase equality

34
Q

Disadvantages of a subsidy

A

Opportunity cost, increases inefficient business, difficult to remove

35
Q

Advantages of a Tradable pollution Permit

A

Limits amount of pollution, incriminates companies exceeding

36
Q

Disadvantages of Tradable Pollution Permits

A

Expensive to monitor, raise costs for businesses

37
Q

Consequences of government intervention

A

Can worsen conditions, keep inefficient business running, lead to excess demand/supply, administration costs

38
Q

Impacts of regulation

A

Advantage - overcome market failure, Disadvantage - expensive, regulatory capture, firms pass costs onto consumers

39
Q

Advantages of a free market economy

A

Greater consumer choice, higher motivation for profits, competition creates productive efficiency, higher growth

40
Q

Disadvantages of a free market economy

A

Higher inequality, lack of regulation of demerit goods, monopolies, issues with externalities

41
Q

What is a mixed economy?

A

A combination of both command economy and free market, governments usually have been 40-60% of control, have 4 roles

42
Q

Roles of the government in a mixed economy

A

Create rules for the economy , supplement and modify the price system ( don’t want overconsumption of demerit goods), redistribute income, stabilise the economy

43
Q

Producer cartels

A

Firms come together to decrease supply to increase profits

44
Q

Advantages of government provision of public goods

A

Corrects market failure, brings equality, further benefits (I.e NHS creates healthy workforce)

45
Q

Disadvantages of government providing public goods

A

Expensive, high opportunity cost, government may be inefficient, corruption within the government may cause issues

46
Q

Renewable resource

A

A resource that can be replaced

47
Q

Non-renewable resource

A

Resource that can’t be replaced

48
Q

Opportunity cost

A

Where the use of one good results in a cost of not using another good

49
Q

Causes of economic decline

A

Natural disasters, natural resources running out, decrease of quantity/quality of labour

50
Q

How can the PPF curve change shape?

A

When there is an increase/decreased in the ability to only produce consumer or capital goods, and output of the other good isn’t effected

51
Q

Division of labour

A

When labour becomes specialise in a particular part of the industrialisation process

52
Q

Adam Smith’s belief over specialisation

A

Specialisation could increase growth as it would boost labour productivity

53
Q

Advantages of specialisation

A

Increased labour productivity, higher quality goods/services, time not wasted, cheaper training

54
Q

Advantages of specialisation for a country

A

Theory of comparative advantage, greater global output + lower prices

55
Q

Disadvantages of specialisation for a country

A

Over-dependence of one export, could run out of resources needed for the good, high interdependence of countries meaning global economy could crash due to war in one country

56
Q

Free market meaning

A

Resources allocated through the price mechanism

57
Q

Factors causing the demand curve to shift

A

Population, income, availability of related goods, advertising, seasonality, expectation of future

58
Q

Diminishing marginal utility

A

The satisfaction derived from the consumption of an additional unit of the gold will decrease as more of the good is consumed

59
Q

How could subsidies be ineffective?

A

If the good is highly inelastic , output won’t increase

60
Q

XED

A

Cross elasticity of demand

61
Q

What does it mean if XED is greater than 0?

A

The goods are substitutes

62
Q

What does it mean if XED is less than 0?

A

The goods are compliments

63
Q

Significance of XED

A

Firms know how price changes by other firms effect them

64
Q

Excess demand impact on firms

A

Encourages firms to raise prices

65
Q

Excess supply

A

Encourages firms to put goods on sale

66
Q

More inelastic demand

A

More consumer surplus

67
Q

More inelastic supply

A

More producer surplus

68
Q

Impacts of tax

A

Producer costs rise + supply decreases, increases price for consumers

69
Q

External costs/benefits

A

The impact on a third party due to consumption of a good ( difference between social cost/benefit and private cost/benefit)

70
Q

Characteristics of a public good

A

Non-rejectable, non-rival consumption, non p-excludable

71
Q

Why are public goods provide by the government?

A

Private producers won’t produce them as unsure if they will make profits due to them being non excludable

72
Q

Advantages of indirect taxation

A

Improves social welfare, increases government revenue which could be used to improve externality

73
Q

Advantages of a max/min price

A

Considers externalities, can reduce poverty

74
Q

Maximum price reasoning

A

Price suppliers can’t charge above, stops exploitation of consumers from monopolies

75
Q

Minimum price reasoning

A

Usually set on goods with negative externalities to discourage consumption

76
Q

Disadvantages of max/min price

A

Causes excess supply/demand, leads to creation of black markets, difficult to know where to set the price

77
Q

Advantages of government providing consumers information

A

Helps rational behaviour, reduces exploitation by firms, can be used to benefit other policies

78
Q

Disadvantages of government providing information to consumers

A

May not listen to government, can be expensive to get data

Economics (7 decks)

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