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Economics > Unit 1 The Market System > Flashcards

Unit 1 The Market System Flashcards

1
Q

What is the basic economic problem?

A

What To Produce

How to produce

For whom to produce

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2
Q

What is scarcity

A

high demand low supply

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3
Q

what is production possibility curve (PPC)

A

economic model used to illustrate what to produce

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4
Q

define microeconomics

A

microeconomics study of small economic systems that are part of national or international systems

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5
Q

define effective demand

A

Willingness and ability of consumers purchasing an item at a given price

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6
Q

What is the law of demand

A

Price and quantity demanded are inversely proportional

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7
Q

what is the elasticity of a good with an elasticity between 0-1

A

inelastic

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8
Q

what is the elasticity of a good with an elasticity of infinity

A

perfectly elastic

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9
Q

define ‘elastic’

A

change in demand / supply more proportionate to the change in price / income

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10
Q

4 factors which influences the elasticity of supply

A

availability of factors of production

availability of stocks

space capacity

time

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11
Q

what is the elasticity of a good with an elasticity of 0

A

perfectly inelastic

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12
Q

what is the elasticity of a good with an elasticity of 1

A

unitary elastic

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13
Q

what does an outward shift in the PPC indicate

A

positive economic growth

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14
Q

formula for PED

A

percentage change in quantity demanded / percentage change in price

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15
Q

define ‘wholesalers’

A

person or company that sells goods in large quantities to businesses, rather than to the general public

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16
Q

8 factors which may shift the demand curve

A

consumer incomes

taxes on incomes

price of substitutes

price of complements

change in tastes and fashion

advertising

population changes

other factors (such as weather, pandemic, etc)

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17
Q

what is the law of supply?

A

price and quantity supplied have a proportionate relationship

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18
Q

define ‘complement’

A

two things which go together (eg- car and petrol)

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19
Q

define equilibrium price (also known as market clearing price)

A

the price where supply and demand is the same

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20
Q

1 advantage of subsidies

A

moderation of supply and demand

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21
Q

define fast moving consumer goods (FMCG)

A

goods, especially food, that sell very quickly and in large amounts

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22
Q

what causes movement in the demand curve

A

change in price

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23
Q

what happens to the demand curve with a change in price?

A

expands if the price decreases, contracts if the price increases

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24
Q

1 disadvantage of subsidies

A

potential increase in taxes

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25
Q

what is the elasticity of a good with an elasticity between 1 and infinity

A

elastic

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26
Q

define ‘unitary elastic’

A

change in demand / supply proportionate to the change in price / income

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27
Q

what are The four factors of production

A

Land

Labour

Capital

Enterprise

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28
Q

define Opportunity cost

A

cost of the next best alternative given up (when making a choice)

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29
Q

what is positive economic growth

A

increase in the output of goods and services by a nation

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30
Q

what is a shift in the demand curve

A

change in quantity demanded at the same price

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31
Q

define the term ‘supply’

A

amount that producers are willing to offer for sale at different prices at a given period of time

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32
Q

define price elasticity of supply

A

the responsiveness of the quantity supplied to a change in price

33
Q

define ‘perfectly inelastic’

A

change in quantity completely unresponsive to change in price/ income

34
Q

define ‘inelastic’

A

change in demand / supply less proportionate to the change in price / income

35
Q

define ‘perfectly elastic’

A

increase in price gets the demand to zero

36
Q

define price elasticity of demand

A

the responsiveness of the quantity demanded to a change in price

37
Q

5 factors which which may decrease supply

A

costs of production increase

technology becomes outdated

sellers expect bad things in the future

sellers leave the market

opportunities in different markets are good

38
Q

4 factors of positive economic growth

A

New Technology

Improved efficiency

Improved Education and training

New resources

39
Q

5 reasons why consumers can be irrational

A

Limited ability to calculate

emotion overtakes logic

importance of social networks

desire for instant rewards

people stick to default choices

40
Q

what happens when the price of a product is not at its equilibrium?

A

there is either an excess supply or excess demand

41
Q

define negative economic growth

A

increase in the level output by a nation

42
Q

4 factors which affect PED

A

availability of substitutes

degree of necessity

proportion of income spent on a product

time period

43
Q

what are subsidies?

A

fund given by government or any other authority in order to help an industry or business, or to pay for a public service

44
Q

5 factors which shift the supply curve

A

cost of production

indirect taxes

subsidies

changes in technology

natural factors

45
Q

define GDP (gross domestic product)

A

market value of all final goods and services produced in a period (usually yearly), an internationally recognised measure of national income

46
Q

how does time period effect the elasticity of supply

A

the shorter time period, the more difficult firms find it to switch from making one product to another

47
Q

how does existence of spare capacity effect the elasticity of supply

A

the more capacity there is in the industry, the easier it should be to increase output if price goes up, this makes supply more elastic

48
Q

how does ease of storing stocks effect the elasticity of supply

A

if it is easy to store goods, then if price rises the firm can sell these stocks and supply is more elastic

49
Q

how does length of production period effect the elasticity of supply

A

the quicker a good is to produce, the easier it will be to respond to a change in price

50
Q

what is the income elasticity of a normal good

A

0-1

51
Q

what is the income elasticity of a luxary good

A

> 1

52
Q

what is the income elasticity of an inferior good

A

decimal value or less than -1

53
Q

what is the formula for income elasticity of demand

A

change in quantity demanded / change in income

54
Q

what is the relationship of inferior goods and change in income

A

inversely proportionate

55
Q

what is a negative/ de-merit good, provide examples

A

goods with negative impact which tend to be inelastic
examples include alcohol, tobacco and illegal drugs

56
Q

what leads to market failure

A

resources not being used effectively —> basic economic problem —> market failure

57
Q

what are 5 causes of market failure

A

externalities

missing markets

lack of competition

factor immobility

lack of information

58
Q

what are externalities?

A

cost or benefit incurred by external stakeholders based on the actions of a business

59
Q

what are the two types of goods?

A

public goods

merit goods

60
Q

what is a merit good

A

goods that are under-provided by the private sector

61
Q

what is a public good

A

goods that are not likely to be provided by the private sector

62
Q

what are the two characteristics of public goods

A

non rivalry

non excludability

63
Q

what is non excludability in a public good

A

a good from which any consumer cannot be excluded from its consumption (eg- police service)

64
Q

what is non rivalry in a public good

A

consumption of a public good by one individual cannot reduce the amount available to others (eg police)

65
Q

define ‘economy’

A

system that attempts to solve the basic economic problem

66
Q

define private sector

A

provision of goods and services by businesses owned by an individual or group of individuals

67
Q

what are the aims 4 of a business in the private sector

A

survival, growth, profit, social responsibility

68
Q

what are the 3 places ownership in the private sector derived from

A

sole trader, partnership, companies

69
Q

define public sector

A

government organizations that provide goods and services for the economy

70
Q

what are the 4 aims of the public sector

A

minimizing cost, social cost and benefit, profit in few nations, improving quality of services

71
Q

what are the 4 places ownership in the public sector is derived from

A

central government departments

local authority

SOE or PC

other public sector organizations

72
Q

what is the aim of an economic system

A

solve the basic economic problem

73
Q

what are the 3 types of economy

A

Market / free enterprise economy (mostly private)

command / planned economy (mostly public)

mixed economy

74
Q

define external costs (externalities)

A

negative spillover effects of consumption or production – they affect third parties in a negative way

75
Q

define external benefits

A

positive spillover effects of consumption or production – they bring benefits to third parties

76
Q

define private costs

A

costs of an economic activity to individuals and firms

77
Q

define private benefits (externalities)

A

rewards to third parties of an economic activity, such as consumption or production

78
Q

define social benefits

A

benefits of an economic activity to society as well as to the individual or firm

79
Q

define social costs

A

costs of an economic activity to society as well as the individual or firm

Economics (2 decks)

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