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Economics > Unit 2: The allocation of resources > Flashcards

Unit 2: The allocation of resources Flashcards

1
Q

3 factors that cause the demand curve to slope downwards.

A

Substitution effect
Income effect
Diminishing marginal utility

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2
Q

Why does the supply curve slope downwards?

A

Labour Opportunity Cost Leisure

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3
Q

What impacts quantity supplied?

A

Price

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4
Q

List 8 non-price factors that affect supply.

A 
I - Input Prices
G - Global factors
O - Other goods and services
T - Taxation 
P - No. of producers
E - Expectations
T - Technology
S - Subsidies
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5
Q

What are public goods?

A

Non - diminishable
Non - excludable
Causes free-rider problems

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6
Q

List 3 main sectors in an economy.

A

Primary - involves in the production of raw materials
Secondary - the manufacturing sector
Tertiary - the services sector

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7
Q

What is microeconomics?

A

Microeconomics deals with the choices of a single individual, firm

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8
Q

What is macroeconomics?

A

Macroeconomics deals with the actions of the economy as a whole

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9
Q

List 3 economic systems and explain each of them.

A

Free Market Economy - it is an economic system where private firms and individuals make decisions and the price mechanism affects both buyers and sellers who negotiate prices. Government doesn’t make decisions .
Mixed Market Economy - it is an economic system where the ownership of scarce resources and the decisions on how to use them are split between private and public sector firms
Planned Economy - government makes all the decisions

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10
Q

What is market failure?

A

Market failure occurs when the market forces of supply and demand fail to allocate the resources in the most efficient way and when social costs are greater than social benefits.

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11
Q

Name the 5 ways of market failure.

A 
Externalities
Public goods
Merit and Demerit goods
Monopoly
Asymmetric Information 
Which causes inequality
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12
Q

What are social costs ?

A

Social costs are private cost + external costs.

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13
Q

Name 3 types of demand.

A

Individual Demand, Market Demand and Effective Demand

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14
Q

What is individual demand?

A

It looks at demand of one person for a product at different market prices.

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15
Q

What is market demand?

A

It is the total demand for a product at each price in a market.

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16
Q

What is effective demand?

A

It must have the means and desire to purchase the product.

17
Q

List the factors that effects demand.

A 
S - Price of substitutes
E - Future Expectations
P - Population
T - Taste 
I - Income
C - Price of Compliments
18
Q

Define surplus and shortage .

A

Surplus - excess supply

Shortage - excess demand

19
Q

List the 5 factors that affect PED.

A

No of substitutes
Type of Good
Period of Time
Cost of switching into a different supplier ( long term/short term contract)
Proportion of consumer’s income spent of the product

20
Q

List the 3 factors affecting PES.

A

Time for producing the product
Availability and mobility of resources
- having stock or unused machinery

21
Q

formula to calculate PES

A

PES = %change in QS/ %change in P

22
Q

List the 4 macroeconomic polices ( government intervention ) to correct market failure.

A

The direct provision of goods and services ( providing free public schools / hospitals )
Adding price controls - maximum prices below the equilibrium to encourage demand of merit goods , minimum prices above the equilibrium to discourage demand of demerit goods.
Adding taxes to reduce consumption of demerit goods such as cigarettes
Granting subsidies to reduce costs and increase supply

23
Q

What is consumer surplus?

A

Consumer Surplus = buyer’s maximum - price

24
Q

What is producer surplus ?

A

Producer Surplus = price - seller’s minimum

25
Q

List 7 types of government failure. ( problems caused by government intervention )

A

Time Lags - long time to agree and have an impact
Price controls encourage black markets
firms will be less controlling their costs if subsidies are granted
regulations increase costs and prices
the quality provided by the public sector is poor, inefficient
conflicts of interest, direct provision of goods ands services will need to paid from the money gained from taxes
government officials might accept bribery.

26
Q

What is consumption expenditure ?

A

It is spending on goods and services to satisfy wants and needs

27
Q

What is Pareto efficiency ?

A

It occurs when resources are allocated in a way that it is impossible to reallocate the resources to make anyone else better off.

28
Q

What is utility ?

A

The satisfaction gained from consuming a product

29
Q

What is production efficiency?

A

It occurs when production takes place at lowest possible unit cost.

30
Q

What is semi-finished goods?

A

It is partially finished goods that are used in the production of other goods

31
Q

What are services ?

A

Services are something that fulfills a need

32
Q

What is working capital?

A

They are raw materials

33
Q

What is allocative efficiency?

A

Resources are allocated in the most efficient way from the society’s point of view

34
Q

Name the 3 main decision makers involved in microeconomics?

A

The invisible hand, the price mechanism and the demand and supply interaction.

35
Q

Define PES

A

PES is price elasticity of supply, it is the responsiveness of quantity supplied to a change in price of a product.

36
Q

Define PED

A

PED is price elasticity of demand, it is the responsiveness of quantity demanded to a change in price of a product .

37
Q

What is perfectly elastic demand.

A

When the quantity demanded of a product is completely changed by a change in price.

38
Q

What is perfectly inelastic demand.

A

When the quantity demanded of a product is completely not changed by a change in price.

Economics (3 decks)

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