Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Edexcel Economics B > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

What are the characteristics of a market with perfect competition?

A
  • Many competitors
  • Homogenous products
  • Firms are price takers
  • Profits for firms likely to be small due to small market share
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the characteristics of a market with Monopolistic competition?

A
  • Many small, independent firms with small market share
  • Differentiated products
  • Imperfect information for buyers and sellers
  • Compete using non-price competition
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the characteristics of an Oligopoly?

A
  • Dominated by a small number of firms, each with a large market share
  • Product differentiation
  • Compete using non-price competition
  • High barriers to entry
  • Firms are interdependent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the characteristics of a Monopoly?

A
  • Only seller in the market
  • Price maker
  • Price discrimination
  • Profit maximisation (firms make supernormal profits in both the short and long run)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How do you calculate Total Costs?

A

Total Costs = Total Variable Costs - Total Fixed Costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are fixed costs?

A

Do not vary with output e.g. rent, advertising, capital good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are variable costs?

A
  • All factor inputs can change in the long run
  • Change with output
  • e.g. cost of raw materials increase as output increases
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How do you calculate Total Revenue?

A

Price x quantity sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do you calculate Average Revenue (AKA price per unit)?

A

Total Revenue / Quantity sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the Marginal Revenue?

A

The extra revenue earned from the sale of one extra unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do you calculate Profit?

A

Total Revenue - Total Costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is break-even?

A

Where TR = TC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are some facts about the UK rail industry?

A
  • Contribute £10bn per annum to GDP
  • Employs 216,000 people
  • £4.2bn in government subsidies
  • 1.73bn passenger journeys per year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are some arguments for nationalisation of the UK rail industry?

A
  • Rail network is considered to be a natural monopoly suited to state control to achieve EOS
  • Rail fares can be controlled to improve affordability
  • Profits flow to the taxpayer rather than to shareholders of private train companies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are some arguments against the nationalisation of the UK rail industry?

A
  • State-controlled monopoly might experience diseconomies of scale due to lack of competition
  • nearly 1/2 of all passenger fares are already regulated in the UK
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are some arguments for privatisation of the UK rail industry?

A
  • Competition on lines is more important than who owns the railway
  • Private sector firms are more likely to improve dynamic efficiency
  • Possible to regulate more fares on services run by private train operating companies (no need to change ownership)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are some arguments against privatisation of the UK rail industry?

A
  • Rail system in the UK is close to full capacity
  • Franchise has a monopoly (can increase price to yield consumer surplus)
  • Even with regulation, rail fares have increased by more than 120% since 1995
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What may happen if there was nothing was done to improve the efficiency of the rail system?

A
  • Negative externalities (more traffic, more use of cars, more pollution, less tourism, less productive economy due to less transport for workers)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the reasons for government intervention?

A
  • Correct percieved market failure
  • Achieve a more equitable distribution of income and wealth
  • Improve the short and long-term performance of the economy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How do the government intervene in markets?

A
  • Regulating the Market
  • Taxes and subsidies
  • State ownership/funding and provision
  • Maximum and Minimum prices
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the definition of market failure?

A

When the price mechanism is distorted and causes a misallocation of scarce resources causing society to suffer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is an externality?

A

The effects that producing or consuming a good or service has on 3rd parties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are withdrawals in the circular flow of income?

A
  • Savings (by consumers)
  • Taxes
  • Imports
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are injections into the circular flow of income?

A
  • Investment (by firms)
  • more government spending
  • exports
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

When is the economy in equilibrium?

A

When the rate of injections = rate of withdrawals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are the components of Aggregate Demand?

A

AD = C + I + G + (X-M)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What % of GDP is Consumer Spending, and what affects it?

A
  • 60% (largest)
  • Interest rates (lower I.R. = more spending)
  • Consumer confidence
  • levels of unemployment
  • levels of personal taxation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What % of GDP is Investment, and what affects it?

A
  • 15% of GDP (smallest)
  • Business expectations and confidence
  • Interest rates (lower I.R. = more investing)
  • levels of corporation tax
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What % of GDP is Government spending, and what affects it?

A
  • 18-20% of GDP
  • Government priorities and macroeconomic objectives
  • Stage in economic cycle
  • Fiscal policy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What affects the balance of trade? (X-M)

A
  • 2nd largest % of GDP
  • Exchange rate (SPICED/WPIDEC)
  • International competitiveness
  • Stage of global economy
  • Protectionism
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What causes an outward shift of the AD curve?

A
  • If there’s a rise in C/I/G/X
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is the trade-off for having a strong currency?

A

A strong currency = exports are more expensive and imports are cheaper, so there will be a fall in net exports (reduction in AD).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is the effect the multiplier effect on aggregate demand?

A

Injections into the economy = AD curve shifts to the right

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What is an absolute advantage?

A

A country will have an absolute advantage when its output of a product is greater per unit of resource used than any other country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What is a comparative advantage?

A

A country has a comparative advantage if the opportunity cost of producing a good is lower than the opportunity cost for other countries.

36
Q

What would cause a shift in the LRAS curve?

A
  • Technological advancements
  • Changes in Education and skills
  • Changes in government regulation
  • Demographic changes and migration
  • Increased competition
37
Q

What causes cost-push inflation?

A

When there are increases in the costs of production e.g. minimum wage

38
Q

What is full capacity output?

A

The maximum amount of goods and services in the economy that can produce when all of its resources are employed

39
Q

What causes demand-pull inflation?

A

When aggregate demand outplaces aggregate supply (means firms are more willing to charge more for their goods/services)

40
Q

What does a Strong Pound mean?

A
  • Imports are cheaper
  • Exports are smaller
  • AD curve shifts to the left
41
Q

What does a Weak Pound mean?

A
  • Imports are smaller
  • Exports are cheaper
  • AD curve shifts to the right
42
Q

What are the main economic objectives of the UK?

A
  • Low unemployment (less than 5%)
  • Economic growth
  • Low and stable rate of inflation (2%
  • Current account equilibrium
43
Q

What are the demand-side policies?

A

Monetary and Fiscal policy

44
Q

What is monetary policy?

A
  • Conducted by BofE and MPC (Monetary policy committee)

- Controls supply of money in the economy using interest rates and QE

45
Q

What is fiscal policy?

A
  • Conducted by the government

- Uses government spending and revenues from taxation to influence AD

46
Q

What is inflationary fiscal policy?

A
  • Makes economies grow and shifts AD to the right

- Needed during recession

47
Q

What is deflationary fiscal policy?

A
  • Increases interest rates
  • moves AD2 to AD (back to equilibrium)
  • Prevents hyperinflation
48
Q

What are the types of UK tax?

A
  • Income tax (direct)
  • Council tax (direct)
  • Corporation tax (20%) (direct)
  • Inheritance tax (direct)
  • VAT (indirect)
49
Q

Where does the UK government spend the tax revenue?

A
  • Pensions
  • Welfare
  • Health
  • Education etc.
50
Q

What are the limitations of fiscal policy?

A
  • Imperfect information about the economy
  • Time lag
  • Size of multiplier
  • High interest rates (mean fiscal policy may not be effective at increasing demand)
51
Q

What is Quantitative Easing?

A
  • Increases the money supply so firms and consumers can spend more
  • Used to stimulate AD when interest rates are already low
  • Involves the BofE ‘creating new money’
52
Q

What are the benefits of QE?

A
  • Brings up the rate of inflation (rather than decreasing interest rates) means the currency will be kept weak which increases the competitiveness of UK firms and boosts exports
  • Should boost confidence in and economy during recession
53
Q

What is the trade-off between the environment and competitiveness?

A
  • If a firm wants to be more competitive, they may build more factories (to benefit from EOS) = causes more pollution.
  • If a firm wants to be more environmentally friendly, their costs of production would increase = may increase price of goods
54
Q

What is the trade-off between progressive taxes and inflation?

A
  • Progressive taxation would tax the richer so should decrease inequality
  • Reducing inequality could lead to higher I.R. so higher inflation
  • E.g. higher VAT rate increases the price of goods for firms and consumers
55
Q

What is the trade-off between Low interest rates and inequality?

A
  • Low I.R. = cheaper loans + may reduce inequality

- Low I.R. = savers only receive a small return on their savings (more inequality)

56
Q

What is the definition of supply-side policies?

A

All measures that can increase the total productive capacity of the economy.

57
Q

What is the difference between market-based and interventionist policies?

A
  • Market-based policies limit the intervention of the government and allow the free market to eliminate imbalances. The forces of supply and demand are used.
  • Interventionist policies rely on the government intervening in the market.
58
Q

What are some market-based policies?

A
  • Increase incentives = reduce income and corporation tax
  • Promote competition =deregulate or privatise
  • Reform labour market = remove NMW to allow free market forces to allocate wages
59
Q

What are some interventionist policies?

A
  • Improve competition = competition law
  • Reform labour market = improve the geographical mobility of labour by subsidising the relocation of workers and improving the availability of job vacancy information.
  • Improve skills of labour force = subsidise training, spend more on education and healthcare.
60
Q

What is the impact of BREXIT (a risk)?

A
  • The outcome of leaving the EU is unpredictable
  • UK exporters may face higher tariffs in European countries = sales fall = AD shifts left
  • firms may have to make employees redundant
  • less exports = exchange rate will depreciate
  • exports become cheaper = more competitive
61
Q

What is the definition of a shock?

A

Unexpected event that has a major effect on the national economy

62
Q

What is a forward market?

A

Make it possible to buy a foreign currency at a price agreed today for delivery on a specific future day (insurance against an unfavourable change in the exchange rate)

63
Q

What are the pros for using forward markets?

A
  • Removes uncertainty

- Gives firms certainty over how much capital they can have

64
Q

What are the cons of using forward markets?

A

Potentially costly as firms could have saved if they waited

65
Q

What is money?

A

A medium of exchange that acts as a measure of value and is the standard of deferred payment.
- Inflation can make it less effective

66
Q

What are the characteristics of money?

A
  • Acceptable
  • Portable
  • Durable
  • Divisible
  • Limited in supply
  • Difficult to forge
67
Q

What is liquidity?

A

The ease at which money can be transferred into cash

68
Q

What is the money market?

A

Where financial assets are bought and sold and where IOU’s are less than or equal to a year.

69
Q

Why do the Bank of England control the supply of money?

A

To meet their inflation target of 2%

70
Q

How do reserve requirements affect the supply of money?

A

Reducing the reserve supply to lower interest rates and increase money supply in economy (theoretical in UK but used in USA)

71
Q

How does the discount or bank rate affect the supply of money?

A
  • The rate at which commercial banks borrow from the BofE or each other is 0.5%.
  • If BofE reduces the discount rate, then it’s cheaper to borrow from BofE so less money is being sucked out of the money supply.
72
Q

How do open market operations affect the supply of money?

A
  • Buy bonds which replaces paper with cash to increase money supply (reduces I.R.)
  • Selling bonds replaces cash with paper (decreases money supply + increases I.R.)
73
Q

What is the role of the central bank?

A
  • implement monetary policy
  • act as a banker to the government
  • act as a lender of last resort to the banks
  • regulate the financial system
74
Q

Why is financial stability crucial for confidence in the financial system to remain high?

A

Prevents a run on the banks

75
Q

What is a moral hazard?

A

When people take risks because they won’t suffer the consequences themselves if things go wrong.

76
Q

Who regulates the UK banking industry?

A
  • Prudential Regulation Authority (PRA): promotes the safety and stability of banks, building societies, investment firms and credit unions, and ensures policyholders are protected.
  • Financial Conduct Authority (FCA): regulates financial firms to ensure they are being honest to consumers and promotes competition.
77
Q

What are some unintended consequences of a ban on market rigging?

A
  • Could use tacit collusion

- Could raise prices

78
Q

What are some unintended consequences of preventing the sale of unsuitable products?

A
  • People might sell illegally

- Rise in black markets

79
Q

What are some unintended consequences of deregulation?

A
  • Market failure
  • A systemic crisis + bank run
  • Consumers have less confidence (reduces AD)
80
Q

What is regulatory capture?

A

Firms covered by regulatory bodies, such as utility companies, can sometimes influence the decisions of the regulator to ensure that the outcomes favour the companies and not the consumers.
E.g. a regulated industry might pressurise their regulatory body into making decisions that benefit them.

81
Q

What is asymmetric information?

A

When one party knows more than the other

82
Q

What is the current UK interest rate?

A

0.5%

83
Q

Where in the world are there high-interest rates?

A 
USA = 1.75%
Argentina = 40%
84
Q

Where in the world is there high consumer confidence?

A
  • USA
  • Eurozone
  • due to low unemployment
85
Q

Where in the world is there low consumer confidence?

A
  • Japan and China due to trump’s protectionism

- UK due to BREXIT

86
Q

Where in the world is there a weak exchange rate?

A
  • US dollar (uncertainty due to Trump)

- Pound (due to BREXIT)

Edexcel Economics B (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions