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Economics Unit 1 > Unit 1 > Flashcards

Unit 1 Flashcards

1
Q

What is a positive statement?

A

Objective and can be backed up with evidence

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2
Q

What is a normative statement?

A

A value judgement based on a persons opinion

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3
Q

What is the wealth effect?

A

People have more money so spend more money on better quality goods

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4
Q

4 factors of production?

A

Land, labour, capital, enterprise

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5
Q

Name an example of land

A

Natural gas, oil, wheat etc

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6
Q

Example of labour

A

Engineers

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7
Q

Example of capital

A

Tractor, design software

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8
Q

Example of enterprise

A

Universities

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9
Q

What does the primary and secondary employment involve?

A 
Primary= collection of natural resources
Secondary= production of goods from these resources
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10
Q

What does the PPF show?

A

The point when an economy is most efficient and produces the most it can with the resources available. Opportunity cost

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11
Q

Why would the PPF curve shift?

A

Outwards if new factors of production found

Inwards if factors of production lost

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12
Q

Why are workers specialised in a job?

A

Give efficiency, better quality goods, greater output, higher prices

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13
Q

What is an absolute advantage?

A

Producing more with the same resources as another country

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14
Q

What is a comparative advantage?

A

Producing at a lower opportunity cost

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15
Q

What is a free market?

A

The market can do what it likes and fixes itself without any government intervention

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16
Q

Mixed economy

A

Combination of free market and government intervention

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17
Q

Command economy

A

All resources distributed by the government

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18
Q

Advantages of free market

A

Competition between firms- resources not wasted,more choice for consumers, consumers determine what goods are produced, clears excess supply

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19
Q

Disadvantages of free market

A

Services that are not profitable will not be produced eg. Rural bus routes, large firms still dominate over small firms, profit is put before environment

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20
Q

What is a public good?

A

Goods and services provided for everyone by the government

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21
Q

Advantages of command economy

A

Reduced poverty, healthcare for everyone, higher literacy rate due to free education

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22
Q

Problems with command economy

A

No reason to work hard as everyone can still get by, corrupt government

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23
Q

What is consumer surplus?

A

Difference between price you have to pay and price you are willing to pay

24
Q

What is producer surplus?

A

Difference between what you are willing to sell a good at and what they were actually sold at

25
Q

What is a subsidy?

A

Payment made to encourage more production

26
Q

Why do the government subsidise us?

A

Need for more skilled workers, higher incomes for more tax

27
Q

What is an indirect tax?

A

A tax passed on to another group eg. VAT from government to producer to consumer

28
Q

What is a minimum price?

A

Guaranteed price that is set which cannot be dropped below

29
Q

Benefits of minimum price

A

Tax revenue, reduce externalities, suppliers get a fair price

30
Q

Problems of minimum pricing

A

Producers cannot make as much profit as before, businesses may lose customers, poor become poorer, consumers pay more

31
Q

What is an external cost?

A

Cost to a third party outside the transaction

32
Q

How do you measure unemployment?

A

Claimant count- unemployed but seeking a job and available for work
International labour organisation- 16-70 out of work for 4 weeks

33
Q

What is inflation?

A

A general price rise

34
Q

Effects of high inflation

A

Fall in income, high interest rates, less competitive businesses, business uncertainty

35
Q

Macroeconomic objectives

A

Reduce unemployment, inflation between 1%-2%, economic growth,improve BoP, environmental sustainability, reduce,equality gap, reduce debt

36
Q

What is nominal GDP?

A

GDP without inflation

37
Q

What is real GDP?

A

GDP with inflation

38
Q

What is the multiplier effect?

A

Increase in final income arising from new injection of spending

39
Q

What is supply side policies?

A

Government attempt to increase productivity (supply) by shifting aggregate supply to the right

40
Q

Name some supply side policies

A

More schools and universities, cuts in social welfare, better infrastructure, invest in healthcare for workers,increase immigration, subsidy

41
Q

Problems with supply side policies

A

Time lag- years for university degree, not useful if goods are non competitive and Monday wants them

42
Q

What is quantitative easing?

A

Introducing new money to stimulate the economy

43
Q

Problem with quantitative easing?

A

Inflation

44
Q

What is asymmetrical info?

A

Principle agent has more information than the consumer

45
Q

What is market failure?

A

When allocation of goods and services is not efficient

46
Q

What can the government do to solve market failure eg. Tobacco

A

Raise tax to make it harder to sustain living on, advertisement, education in schools, regulations

47
Q

Why do things to solve market failure in tobacco fail?

A

High tax leads to people turning to the black market for cheaper goods, people are stubborn and do not care, people do not abide by laws

48
Q

Types of market failure

A

No public goods, demerit good- good that’s is bad for you eg. Tobacco, poor wages, lack of information, externalities

49
Q

What is a normal good?

A

Income increases so does demand

50
Q

What is an inferior good?

A

Increase in income leads to fall in demand- more money means better quality goods so value range demand falls

51
Q

What is the price mechanism?

A

Where demand and supply determine the prices of the goods

52
Q

What is the free rider problem?

A

When someone uses a public good but allows others to pay for it

53
Q

What is a merit good?

A

One that is under provided by the market eg. Education

Produces positive externalities

54
Q

What is a demerit good?

A

Over provided by mechanism like tobacco or alcohol. Gives off negative externalities

55
Q

What is government failure?

A

When the government intervenes in the market but makes it worse

56
Q

Types of government failure?

A

Inadequate information, conflicting objectives,market distortion- subsidy to increase production but demand does not increase so you have excess supply

57
Q

What is direct tax?

A

A tax paid directly to the government eg income tax

Economics Unit 1 (1 decks)

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