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National 5: Economics > Unit 1 - Economics of the Market > Flashcards

Unit 1 - Economics of the Market Flashcards

1
Q

Basic Economic Problem

A

Scarcity - arises because human wants for goods and services are unlimited due to greed. However resources are limited. Therefore all countries, rich and poor, are affected by scarcity.

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2
Q

Resources

A

Used to produce goods and services - i.e factors of production (Land, Labour, Capital and Enterprise)

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3
Q

Land

A

Naturally occurring resources, such as oil. Also includes minerals from the land or anything from the sea/air or sunlight etc.

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4
Q

Labour

A

The human workforce available to produce goods and services. Can be manual - e.g. working in a factory, or mental - e.g. designing/planning

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5
Q

Capital

A

Man-made resources that are used to produce goods and services. They are not wanted for themselves - they aid production.

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6
Q

Fixed Capital

A

Resources that can be used again and again over a long period of time For example a nail gun or robotic machinery.

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7
Q

Working Capital

A

Resources that are used up in the production process. i.e raw materials such as aluminium.

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8
Q

Enterprise

A

Refers to the decisions and risks taken by the entrepreneur (This is the business know-how) The entrepreneur decides what to produce? how to produce? and for whom to produce? They combine the other three factors of production (inputs) to produce goods and services (outputs) in the most profitable way.

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9
Q

Need

A

Essential for survival - e.g. water

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10
Q

Want

A

Non-essential for survival i.e. Something that makes life more pleasant - e.g. WiFi

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11
Q

Opportunity Cost - Definition

A

Sacrifice of the next best alternative foregone

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12
Q

Opportunity Cost - Individual

A

Aim to maximise our satisfaction (utility) but we are limited by our budget. For example, If I choose to buy a laptop, then the opportunity cost may be the utility I would have gained having bought a tablet instead.

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13
Q

Opportunity Cost - Firm

A

Aim to maximise profit but limited by the amount of factors of production it has. For example, producing a laptop may have the opportunity cost of the profit that would have been made if a tablet was produced instead

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14
Q

Opportunity Cost - Government

A

Aim to maximise welfare of its citizens but limited by taxation revenue. For example, providing schools may have the opportunity cost of hospitals.

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15
Q

Reasons to Spend (Individual)

A

To purchase goods/services that give them utility

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16
Q

Reasons to Save (Individual)

A

To help purchase an expensive item (that they cannot afford now) in the future - instead of borrowing to buy now. Also, someone may save to protect against uncertainty - e.g. losing their job.

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17
Q

Reasons to Borrow (Individual)

A

To help them buy a good or service now. For example, most people cannot afford to purchase a house straight away and it would take a long time to save for one. So, they take out a mortgage (which is a loan for a house) This means that they can buy the house now and pay it off over time

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18
Q

Income

A

Money made from the factors of production. For example, most people earn an income by working - this is known as their wage or salary.

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19
Q

Disposable Income

A

The money a consumer has left to spend of goods ands services after deductions such as income tax, and national insurance have been made.

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20
Q

Discretionary Income

A

Disposable income minus essential bills such as mortgage, gas, electricity, heating etc. i.e. The money a consumer has left to spend on “luxury” goods/services - e.g. eating out

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21
Q

Interest Rate

A

The price of money. This is the % charge on borrowing and the % returns on savings.

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22
Q

Interest Rate Rises - Impact on Individuals

A

More likely to save - greater returns

Less likely to borrow - more to be paid back

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23
Q

Interest Rate Falls - Impact on Individuals

A

Less likely to save - lower returns

More likely to borrow - less to be paid back

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24
Q

Borrowing

A

Involves someone (such as a bank) agreeing to give you a sum of money which you have to pay back over time. Money is paid back with interest so you pay back more than you borrowed

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25
Q

Savings

A

An option to take with discretionary income. In return for savings, banks will give interest - so your money will grown in value each year.

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26
Q

Savings - Instant Access Savings Account

A

Bank account that allows you to access money whenever you want and you can save as much as you want.

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27
Q

Instant Access Savings Account - Benefits

A

Can access money very quickly and easily

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28
Q

Instant Access Savings Account - Disadvantages

A

Very low rate of interest on savings

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29
Q

Savings - Regular Savings Account

A

Bank account that gets you to commit to saving a certain amount each month.

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30
Q

Regular Savings Account - Benefits

A

Encourages you to save a certain amount each month

Pays a higher rate of interest than an instant access account.

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31
Q

Regular Savings Account - Disadvantages

A

You can lose money if you withdraw from the account

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32
Q

Savings - New Individual Savings Account (New ISA)

A

Allows you to save money and not pay tax on your interest.

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33
Q

NISA - Benefits

A

Pays a good rate of interest

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34
Q

NISA - Disadvantages

A

You can only save up to £20,000 per annum

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35
Q

Savings - Premium Bonds

A

Interest decided by lottery. Can be bought from post office

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36
Q

Premium Bonds - Benefits

A

Can win anything from £25 to £1,000,000 each month. They are very safe because they are provided by the government.

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37
Q

Premium Bonds - Disadvantages

A

Very low odds of winning (1 in 30,000 chance of winning £25 per £1 Bond) and minimum holding is £100

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38
Q

Borrowing - Overdraft

A

Form of loan from the bank - allows you to take out more money (out of your current account) than you have. Must be agreed with the bank and the maximum figure is set - known as the overdraft limit

39
Q

Overdraft - Benefits

A

Easily arranged and flexible

40
Q

Overdraft - Disadvantages

A

Interest charged on amount borrowed
Daily rate is charged for each day you are overdrawn
Interest rates can be quite high

41
Q

Borrowing - Bank Loan

A

A fixed sum of money is borrowed and paid back over a fixed period of time. A fixed amount is paid back each month and interest is added to the amount to be repaid.

42
Q

Bank Loan - Benefits

A

Interest rate is fixed
Fixed amount paid each month
Fairly easy to obtain

43
Q

Bank Loan - Disadvantages

A

Must keep making payments

Interest rates may be high

44
Q

Borrowing - Mortgage

A

A loan on on property only. You have to pay it back with interest. Usually paid back over a long time - e.g. 25 years

45
Q

Mortgage - Benefits

A

Substantial amount of money can be borrowed - to buy a house

46
Q

Mortgage - Disadvantages

A

If payments are not kept up then the property may be repossessed
The amount paid each month may go up and down - but this depends on the type of mortgage you have.

47
Q

Borrowing - Credit Card

A

A card you can use to purchase items and pay for them at a later date. There will be a limit on how much you can spend, known as your credit limit. Cash can also be obtained

48
Q

Credit Card - Benefits

A

Quick and easy to make purchases
You can buy goods without using your own money
You can buy goods that you may not have the cash to afford at the time

49
Q

Credit Card - Disadvantages

A

Will pay a higher rate of interest back on debt

Debt can accumulate easily because it is easy to overspend.

50
Q

Borrowing - Hire Purchase

A

Used to buy large items, such as a car. You agree to pay set amounts for the use of the product until full amount is cleared or product replaced by a newer model.

51
Q

Hire Purchase - Benefits

A

Quick and easy to set up

Fixed amount paid monthly

52
Q

Hire Purchase - Disadvantages

A

Loan company owns the item you have purchased until the agreement is fully paid.
If payments are missed then the item may be repossessed

53
Q

Borrowing - Pay Day Loan

A

Short-term loans which allow people to access cash that will be paid back when they receive their wages.

54
Q

Pay Day Loan - Benefits

A

Quick and easy to obtain

Can provide a quick solution to cash-flow problems

55
Q

Pay Day Loan - Disadvantages

A

Companies charge extremely high rates of interest

Can create a larger, long-term debt issue

56
Q

Total Utility

A

Total satisfaction someone receives from the consumption of all units of a good or service

57
Q

Marginal Utility

A

The added satisfaction gained from the consumption of one additional unit of a good or service

58
Q

Utility

A

Total satisfaction someone receives from consuming a good or service

59
Q

Demand Curve Shape - Diminishing Marginal Utility

A

A decline in the extra satisfaction gained from the consumption of additional units of a good or service

60
Q

Demand Curve Shape - Substitution Effect

A

If the price of a good rises, the we will switch demand to a substitute (similar) good. Thus, as prices rise, quantity demanded decreases

61
Q

Demand Curve Shape - Income Effect

A

If real incomes fall then the quantity of goods and services we can buy falls - due to a fall in purchasing power. If the price of a good rises, then we can buy less of it due to reduced purchasing power

62
Q

Determinants of Demand

A 
Population
Advertising
Substitutes (price of)
Interest Rates 
Fashion and Trends
Income Tax
Complementary Goods (price of)
63
Q

Substitute Goods

A

Alternative goods, i.e the next best alternative on a consumer’s scale of preference (based on utility gained)

64
Q

Complementary Goods

A

Goods that are consumed together - e.g. consoles and games.

So if the price of one rises, demand for both will fall

65
Q

Effective Demand

A

The quantity of a good or service which consumers are willing and able to buy at a particular price

66
Q

Supply

A

The quantity of a good or service that firms are willing and able to provide (or supply) at a particular price

67
Q

Supply Curve Shape - Law of Supply

A

As price rises firms (who are motivated by profit) will supply more. Also are price rises, a greater number of firms will enter the market to supply.

68
Q

Law of Demand

A

As the price of a good or service increases, consumers will demand less of it

69
Q

Determinants of Supply

A 
Productivity
Indirect Tax
Number of Firms
Technology
Subsidies
Weather
Costs of Production
70
Q

Market

A

Where buyers and seller come together to agree on a price and exchange goods and services.

71
Q

Fixed Costs

A

Costs that do not change with output - e.g. rent of land and salaries

72
Q

Variable Costs

A

Costs that change directly with output - e.g. raw materials and wages

73
Q

Short Run

A

Period of time where at least one factor of production is fixed

74
Q

Long Run

A

All factors of production are variable - therefore costs are variable

75
Q

Total Cost

A

Variable Costs + Fixed Costs

76
Q

How to lower costs

A 
Reduce wages
Invest in technology
Find cheaper suppliers
Improving training
Greater specialisation
77
Q

AFC

A

Average Fixed Cost. Fixed cost per unit of output

Calculated using AFC = FC/O

78
Q

AVC

A

Average Variable Cost. Variable cost per unit of output

Calculated using AVC = VC/O

79
Q

ATC

A

Average Total Cost. Total cost per unit of output.

Calculated using ATC = TC/O = AFC + AVC

80
Q

Total (Sales) Revenue

A

The total receipts from sales of a given quantity of goods or services
Calculated using TR = No. of units sold x Price of 1 unit

81
Q

Average (Sales) Revenue

A

Revenue per unit of output.

Calculated using AR = TR/O

82
Q

Profit/Loss

A

Calculated using Total Revenue - Total Costs.
Positive = Profit
Negative = Loss

83
Q

Interest Rates Fall - Impact on Households

A

Mortgage payments would decrease so the family would have more discretionary income to spend at the end of each month
Borrowing becomes cheaper so households borrow more and spend more
Income from savings is reduced so the family budget would decrease

84
Q

Interest Rates Rise - Impact on Households

A

Mortgage payments would increase, so the family would have less discretionary income at the end of each month to spend
Borrowing becomes dearer so households borrow less and spend less
Income from savings is increased, so the family budget would increase

85
Q

Income Tax Rises - Impact on Consumers

A

Reduces disposable income therefore consumers have less to save
Reduces disposable income therefore people will dip into savings to fund regular spending
Reduces disposable income therefore consumers have less to spend

86
Q

Income Tax Falls - Impact on Consumers

A

Increases disposable income therefore consumers have more to save
Increases disposable income therefore people will not dip into savings to fund regular spending
Increases disposable income therefore consumers have more to spend

87
Q

Unemployment - Impact on Budget

A

Reduce amount of disposable income available for spending.

Even if not made unemployed, if unemployment is rising, we are likely to see greater levels of precautionary saving.

88
Q

Factors affecting Consumer Confidence

A 
Uncertainty in the economy ie recession 
Changing rates of Inflation 
Changing rates of income tax 
Changing rates of unemployment 
Changing interest rates 
Changes in government borrowing 
Growth 
Exchange rate fluctuations
89
Q

Planning for uncertainty

A 
Saving more 
Spending less 
Not borrowing 
Avoiding use of credit card 
Keeping to a budget
90
Q

Economic Systems - Free Market

A

Consumer demand decides what to produce
Firms arrange factors of production so they produce what is demanded at minimum cost - to maximise profit
Those who can afford it buy the good/services
This is the most efficient system - producing goods and services that people most want at minimum cost

91
Q

Economic Systems - Planned/Command

A

Government decides what to produce
Government give factories quotas on what to produce
Everyone gets equal entitlement to goods/services

92
Q

Sectors of Industry - Primary

A

The acquiring of raw materials i.e. resource extraction

e.g. coal mining, oil drilling, farming etc

93
Q

Sectors of Industry - Secondary

A

The manufacturing and assembly process

e.g. car production, oil refining, food production, making paper

94
Q

Sectors of Industry - Tertiary

A

The commercial services that support the production and distribution process i.e. providing a service
e.g. financial services such as banking

National 5: Economics (3 decks)

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