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Economics > Unit 2 (2.7-2.11) > Flashcards

Unit 2 (2.7-2.11) Flashcards

1
Q

What is Price Elasticity of Demand

A

measures the percentage change in quantity demanded in relation to percentage change in price

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2
Q

Formula for PED

A

%change in quantity demanded/%change in price

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3
Q

what happens when the PED is infinity

A

product is completely price elastic( a change in price leads to an infinite change in quantity demanded)

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4
Q

what happens when the PED is >1

A

its is price elastic. a change in price leads to a greater change in quantity demanded

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5
Q

what happens when the PED =1

A

it is unit elastic. A change in price leads to the same change in quantity demanded

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6
Q

what happens when the PED is <1

A

it is price inelastic. a change in price leads to a smaller change in quantity demanded

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7
Q

what happens when the PED is 0

A

completely price inelastic. a change in price leads to no change in quantity demanded

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8
Q

what is the nature of a demand curve if PED=<1

A

it is a steeper curve

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9
Q

what is the nature of the PED if PED>1

A

it is a gentle curve

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10
Q

What will the producer do if product is price inelastic(demand)

A

will increase the price to increase revenue

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11
Q

what will the producer do if demand if price elastic

A

producer will lower the price to increase revenue

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12
Q

What factors affect the PED

A

number of substitutes available
Branding(consumers arent sensitive to price)
percentage of income spent on product
time

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13
Q

significance of PED for firms

A

allows them to calculate impact of price changes
this allows them to plan stock and staff levels
forecast sales,cash flow,profit

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14
Q

what is Price elasticity of supply

A

measures the percentage change in quantity supplied in response to a percentage change in price

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15
Q

how to calculate PES

A

percentage change in quantity supplied/percentage change in price

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16
Q

factors of PES

A

capacity available
factor substitution(easy for factors from one production switch to another)
time
stocks

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17
Q

What is the private sector

A

refers to businesses owned by private individuals

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18
Q

what is the public sector

A

refers to businesses owned by the government.They can have social objectives

19
Q

In a free market economy, who answers the basic economic questions

A

decisions are made by firms and households in the private sector

20
Q

In a command or planned economy, who answers the basic eco questions

A

answers by the government allocating resources

21
Q

what is a mixed economy

A

when there is both a public and private sector.Questions are solved by both

22
Q

what is nationalisation

A

when a government takes over a private sector business

23
Q

what is privatisation

A

when a business is handed over to private ownership from the government

24
Q

Advantages of planned economies

A

can pursue social objectives and take account of social costs
can overcome market failure( monopoly power and provide public goods)

25
Q

disadvantages of planned economies

A

removes profit incentive which can lead to lack of innovation and enterprise
government has to make many decisions and may not make the right ones

26
Q

advantages of free market economies

A

incentive to be profitable means firms innovate
doesnt need a government to decide what to do so costs are reduced

27
Q

disadvantages of free market economies

A

may only focus on private costs and benefits
price can fluctuate as supply and demand change which can cause instability

28
Q

what is market failure

A

the inefficient distribution of goods and services within the free market

29
Q

What are public goods

A

they are non-diminishable(if someone consumes more of a product it does not reduce the amount available for others)
non-excludable(you cannot prevent someone from consuming the product)

30
Q

what is the free rider problem

A

where people use a public good or resource without paying their share of the cost

31
Q

what are merit goods

A

they are better for the individual than the individual may realise

32
Q

what are demerit goods

A

they are worse for the individual than the individual may realise

33
Q

what are private benefits and private costs

A

they are benefits and costs that are generated by businesses. They do not reflect the full costs and benefits to society

34
Q

what is social costs

A

private costs+external costs

35
Q

what is social benefit

A

private benefit+external benefit

36
Q

What is a monopoly

A

when one firm dominates the market. Monopolies can b price makers

37
Q

how can government overcome market failures

A

by intervening in the economy

38
Q

what is a maximum price

A

set by the government to limit the price that can be charged in the market

39
Q

what happens if the maximum price is set below the equilibrium price

A

it will create a shortage

40
Q

what is a minimum price

A

set by the government to limit how low the price can go in a market( wages)
a minimum price set about the equilibrium price will create a surplus

41
Q

What is indirect taxation

A

they may be imposed on producers to make them take account of the external costs of their production or to make consumers aware

42
Q

what are subsidies

A

they may be used to pay producers to reduce their costs if there are social benefits to production or they may be paid to consumers to encourage consumption

43
Q

what are regulations

A

forces businesses to act in certain ways( for example take account of health and safety measures)

44
Q

what are regulations

A

forces businesses to act in certain ways( for example take account of health and safety measures)

Economics (9 decks)

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