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Economics A level Edexcel > Y1 Microeconomics > Flashcards

Y1 Microeconomics Flashcards

1
Q

What does PED, YED, XED and PES stand for?

A

Price elasticity of demand
Income elasticity of demand
Cross elasticity of demand
Price elasticity of supply

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2
Q

What is the law of diminishing utility?

A

Marginal (additional) satisfaction/utility decreases after each use

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3
Q

What does PED represent on a graph

A

the steepness of demand slope (reciprocal gradient)

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4
Q

PED = 0 –> describe the shape of the graph

A

vertical demand

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5
Q

PED = -infinity –> describe the shape of the graph

A

horizontal demand

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6
Q

What is the formula for PED?

A

Proporionate change in Qty/proportionate change in price

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7
Q

What are the three factors that affect PED?

A

Luxury vs Necessity
Qty of substitutes
% of income

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8
Q

Describe the characteristics of a good with inelastic demand

A

Necessity, few substitutes, small % of income

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9
Q

Describe the characteristics of a good with elastic demand

A

Luxury, many substitutes, large % of income

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10
Q

PED is always…

A

negative

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11
Q

What is total revenue

A

price x quantity

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12
Q

A firm is going to increase its prices. Why might into want to ensure its products are inelastic

A

As this would mean the market is less sensitive to price changes so revenue would increase

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13
Q

What is another word for elasticity?

A

Sensitivity

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14
Q

What is the formula for YED?

A

Proportionate change in quantity/ proportionate change

in income

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15
Q

How are YED and XED different from PED with reference to a demand-supply diagram

A

YED and XED are curve shifts but PED is about gradient on a DEMAND-SUPPLY DIAGRAM

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16
Q

Name of a product with +YED

A

Normal good (superior if YED>1)

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17
Q

Name of a product with -YED

A

Inferior good

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18
Q

Name of product YED = 0

A

Necessity

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19
Q

Formula for XED

A

Proportionate change in quantity demanded of one good/proportionate change in price of another

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20
Q

Name of two products with +XED

A

Substitute

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21
Q

Name of two products with -XED

A

Complements

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22
Q

Name of two goods with XED=0

A

unrelated

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23
Q

What is an extension?

A

A shift along a curve increasing quantity

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24
Q

What is a contraction?

A

Shift along a curve decreasing quantity

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25
Q

What must PES always be?

A

Positive

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26
Q

What does PES represent

A

the steepness of the supply curve (reciprocal of the proportionate gradient)

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27
Q

Shape and name for PES>1?

A

elastic

horizontal

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28
Q

Shape and name for PES = 1?

A

Unitary

y=x

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29
Q

Shape and name for PES<1?

A

Inelastic

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30
Q

What determines PES?

A

Spare capacity
Available stocks
Time (SR or LR)

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31
Q

What does CPPC stand for?

A

Costs
Price of other goods (joint or competitive supply)
Productivity
Climate
(sometimes new entrants is included but that is fake news)

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32
Q

What is a supplier’s main objective?

A

Profit

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33
Q

What does IPPAFEL

A 
Income
Population
Price of other goods (compliments/substitutes)
Advertising
Fashion
Expectations
Legislation
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34
Q

What are the three functions of the price mechanism?

A

S signal
I incentive
R Ration/allocate

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35
Q

Where is the consumer surplus?

A

Triangle between demand and equilibrium price line

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36
Q

Where is the producer surplus?

A

Triangle between supply and equilibrium price line

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37
Q

What is a producer/consumer surplus an indication of?

A

The consumer/producer welfare

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38
Q

What is a consumer/producer surplus?

A

Difference between market price and what is bought/supplied

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39
Q

What are the primary functions of money (4)?

A

a medium of exchange
unit of account
store of value
Method of deferred payment

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40
Q

Name three types of market failure

A

public goods
Externalities
Asymmetric Information

41
Q

What is a moral hazard?

A

When an economically irrational decision is made, knowing that the misfortune will fall on another economic agent.

42
Q

What is the principal-agent problem?

A

The agent buys goods on behalf of the principle, misallocating the resources due to the information gap.

43
Q

Name some ways of reducing the information gaps

A

Certification, warranties, using unbiased expert advice

44
Q

What are the characteristics of public goods?

A

Non-diminishable

Non-excludable

45
Q

Whats the Free Rider Problem?

A

People can receive the benefits of some goods without paying for it

46
Q

What is a PPF?

A

A diagram to show the maximum output combinations of 2 goods that an economy can produce using its current resources efficiently

47
Q

Opportunity Cost?

A

Sacrificed benefits of the next best alternative

48
Q

What are the factors of production?

A

Land, Labour, Capital, Enterprise

49
Q

Disadvantages of a free market (3)?

A 
Monopolies
Income inequality
Externalities (and any market failures)
High risk for citizens 
Erratic business cycles
50
Q

Advantages of a free market (3)?

A

Effecient (business have to remain competitive)
Political freedom
Choice
Higher quality (competitive)

51
Q

What’s the opposite of a free market economy?

A

Command Economy

52
Q

What are the determinates of PED?

A

Percentage of income, necessity v luxury, qty of substitutes

53
Q

Determinates of PES?

A

Spare capacity
Available Stocks
Time scale

54
Q

How do you draw a tax? Where are the C and P incidences?

A

Shift in S curve left, join equilibrium line down to old s curve and then join with price axis.
Note that consumer incidence is above old equilibrium price and producer part is below

55
Q

What are the three economic legends in Micro?

A

Adam Smith
Friedrich Hayek
Karl Marx

56
Q

What did Karl Marx believe in?

A

Planned economy

Capitalism leads to monopolies leads to exploitation leads to revolutions from the proletariats

57
Q

What did Hayek believe?

A

Completely free market for freedom
Price mechanism can allocate
Fair

58
Q

What did Adam Smith believe? (2 key ideas)

A

Invisible hand
Free market
Need for government to prevent monopolies and enforce propety law
Specialisation and the division of labour

59
Q

What replaces the demand curve on a externalities diagram?

A

Marginal social benefits and Marginal private benefits

60
Q

What replaces the supply curve on a externalites diagram?

A

Marginal private costs and marginal social costs

61
Q

On a demerit good diagram on which side is the WLT?

A

The right side of the equilibrium

62
Q

On a merit good diagram on which side is the WLT

A

the left side of the equilibrium

63
Q

What are the basic economic questions (3)

A

What is produced
For whom is it produced
How is it produced

64
Q

Name some common examples of irrational behaviour (3)

A

Habitual beheaviour
Inertia (fear of change)
Impulse buying

65
Q

Name some other slightly more wacky examples of consumer behaviour (go on do it I dare you) (4)

A

Poor Computation
Relative v Absolute (people calc propotional savings not real)
Peer Pressure
Overvaluing effect (Consumers struggle to compare stuff they’ve made to other products)

66
Q

What is a positive statement?

A

An phrase that can be proved or disproved by evidence

67
Q

What is a normative statement

A

value judgement e.g. “should”

68
Q

What is Hayek’s communication network?

A

The way a market functions through the price mechanism (SIR) and allocates resources efficiently as a result

69
Q

Define ceteris paribus

A

All other things being equal

70
Q

What is capital (2)?

A

NOT MONEY

Capital is a man made resource used for production (like a hammer)

71
Q

What is the basic economic problem?

A

Infinite wants and finite resources

72
Q

Changes in what shift the PPF out?

A

Quantity or Quality

73
Q

Wealth =

A

Capital + money

74
Q

Investment definition

A

purchase or production of capital goods

75
Q

Define depreciation

A

Loss of value of goods over time

76
Q

Why is a curved PPF more realistic

A

As it is unusual for a good’s resources to be a perfect substitute for each other

77
Q

What is Fiat money

A

Money that does not have intrisic value (i.e. not gold or silver but paper money)

78
Q

What is a near money?

A

An asset that can quickly be liquidated into money

79
Q

What does specialisation go best with?

A

TRADE

80
Q

What are the advantages of specialisation AND trade? (3)

A 
lower costs
imporved skills/productivity
specialist tools can be bought
higher variety for consumers
time is saved
workers can do jobs they are best at
81
Q

What are the disadvantages of specialisation AND trade (3)

A

Repeitive work lowers motivation
high tunrover as workers get bored
Potential for structural unemployment
Over specialisation may break if one part fails
small market can’t survive and be specialised

82
Q

What is the law of diminshing marginal utility?

A

Decreasing additional satisfaction after each unit is consumed

83
Q

What is disposable income

A

income less taxes plus benefits

84
Q

Discretionary income?

A

Party money (disposable less necessity costs)

85
Q

What is signal in price mechanism

A

Observation

86
Q

What is incentive?

A

Process of thinking, judging and evalutating

87
Q

What is the rationing part of SIR

A

Allocation of resources

88
Q

With a tax what four things should be analysed

A

New price and qty
Increase in price compared tax size
Incidence (proportion) of tax passed on to consumer/producer
Government revenue

89
Q

What is complete market failure?

A

A missing market

90
Q

What is partial market failure?

A

Underconsumed or overconsumed

91
Q

Formula for society (social)?

A

internal + external

All parties

92
Q

What has negative externalities?

A

Demerit good

93
Q

When is social benefit>private benefit?

A

merit good

94
Q

What is a quasi-public good

A

Either excludable and non-diminishable

or diminishable and non-excludable

95
Q

What is adverse selection also known as?

A

Principle agent problem

96
Q

Name five types of government intervention?

A

Tax, trade pollution permits, propety rights, regulation, price setting

97
Q

What are some common flaws in government intervention? (4)

A

Cost to taxpayer
Information gap (difficult to quantise market failure)
opportunity costs/conflicitng objectives
admin costss

98
Q

What is regulatory capture?

A

Monopolists mislead the regulators so they are less harsh with their red tape

99
Q

What is policy myopia?

A

Shortsightedness political decisions

Economics A level Edexcel (6 decks)

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