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Economics 2.0 > Topic 2: Allocation of Resources > Flashcards

Topic 2: Allocation of Resources Flashcards

1
Q

Microeconomics

A

The study of individual economic units like households, firms and industries

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2
Q

Macroeconmics

A

The study of the Economy as a whole, including national output and inflation

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3
Q

Define the Market System

A

The market system allocates resources through the interaction of buyers and sellers, driven by supply and demand

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4
Q

The three key resource allocation questions

A

What to produce: Based on consumer demand

How to produce: Using the most efficient production methods

For whom to produce: Determined by individuals’ ability to pay

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5
Q

What is the Price Mechanism

A

The price Mechanism is how prices adjust to allocate scarce resources efficiently through changes in supply and demand (e.g A shortage of smartphones leads to higher prices, encouraging more production)

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6
Q

Define Demand

A

Demand is the quantity of a good or service that consumers are willing and able to buy at different prices over a period of time

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7
Q

What causes a shift in the demand curve

A

Changes in income

Price of substitute goods or complements

Changes in tastes/preferences

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8
Q

What is the difference between indivudual demand and market demand

A

Individual Demand: Demand by one comsumer

Market Demand: The total demand of all consumers for a good/service

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9
Q

What are movmentes along the demand curve

A

Extension in demand: Increase in quantity demanded due to a lower price

Contraction in demand: Decrease in quantity demanded due to a higher price

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10
Q

Define Supply

A

Supply is the quantity of a good or service that producers are willing and able to sell at different prices over a period of time

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11
Q

What causes a shift in the supply curve

A

Changes in production costs
Technological advancements
Government taxes or subsidies

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12
Q

What are movements along the supply curve

A

Extension in supply: Increase in quantity supplied due to a higher price

Contraction in supply: Decrease in quantity supplied due to a lower price

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13
Q

What is market equilibrium

A

Market equilibrium occurs where demand equals supply, determining the equilibrium price and quantity

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14
Q

What is market disequilibrium

A

Shortage: Demand exceeds supply, causing upward pressure on prices

Surplus: Supply exceeds demand, causing downward pressure on prices

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15
Q

What casues price changes

A

Changes in demand: Seasonal trends or income changes

Changes in supply: Natural disasters or new technology

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16
Q

What are the consequences of price changes

A

Higher prices: Consumers buy less, producers supply more

Lower prices: Consumers buy more, producers supply less

17
Q

What is price elasticity of demand (PED)

A

PED measures how responsive the quantity of demanded is to a change in price

18
Q

How is price elasticity of demand (PED) calculated

A

PED = (% change in quantity demanded) / (% change in price)

19
Q

What are the determinants of price elasticity of demand

A

Availability of substitutes
Proportions of income spent
Necessity vs luxury goods

20
Q

How does price elasticity of demand affect total revenue

A

Elastic demand: Price increase decreases total revenue
Inelastic demand: Price increase increases total revenue

21
Q

What is price elasticity of supply (PES)

A

Price elasticity of supply measures how responsive the quantity supplied is to a change in price

22
Q

How is price elasticity of supply calculated

A

PES = (% change in quantity supplied) / (% change in price)

23
Q

What determines price elasticity of demand

A

Availability of resources
Time period for production
Flexibility of production methods

24
Q

What is a market economic system

A

A market economic system relies on supply and demand to allocate resources with minimal government intervention

25
Q

What is market failure

A

Market failure occurs when resources are not allocated efficiently

26
Q

Define a mixed economic system

A

A mixed economic system comines market forces and government intervention to allocate resources

27
Q
A

Economics 2.0 (2 decks)

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