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Economics A Level > Year 12 > Flashcards

Year 12 Flashcards

1
Q

What do consumers aim to maximise

A

They aim to maximise their own satisfaction and utitilitys

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2
Q

What do businesses aim to maximise

A

Profit

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3
Q

Equitably meaning

A

Fairly

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4
Q

What does equally mean

A

Distributing something at the same quantity

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5
Q

What are normative statements

A

Subjective statements ie. They carry only a value judgment - more of an opinion

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6
Q

Positive statement

A

Objective statements that can be proven or tested

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7
Q

What are the 3 economic agents

A

Individuals inc. households, businesses and Governments

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8
Q

What do we assume the government wants to maximise

A

Improve the economic and social welfare of citizens

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9
Q

What does coterie paribus mean

A

All else being equal

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10
Q

What is Micro economics

A

The study of economics at the level of the individual firm, industry or consumer / household.

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11
Q

What is the basic economic problem

A

Scarcity

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12
Q

What do free market economists believe

A

The market forces (supply and demand) should allocate resources in society. Problems should be left to the market

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13
Q

What do interventionists believe

A

Things shouldn’t be left to the market alone. They believe the Government should get involved with allocation resources within society.

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14
Q

What is a social science

A

A science that study’s the way which people behave and influence the world around us

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15
Q

What are the 4 factors of production

A

Land, labour, capital, enterprise

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16
Q

What are the 3 main economic questions

A

What to produce? , How to produce? , for whom?

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17
Q

What is opportunity cost

A

Measures the cost of a choice made in terms of the next best alternative foregone or sacrificed.

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18
Q

What is the PPF curve

A

Production possibility frontier. Labour and capital on the axis. It’s a curve that shows the way to maximise the use of the 4 factors of production

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19
Q

Free markets characteristic

A

Markets allocate resources using supply and demand. Driven by a profit motive. Limited role for the government. Private sector dominates

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20
Q

Mixed economy characteristics

A

Mix of state and private ownership. Government will intervene in the markets. Mix will vary from country to country

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21
Q

Command economy characteristics

A

Most resources are state owned. Planning allocates resources. Little role for market prices

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22
Q

How is economics a social science?

A

As we can not be sure in which people in business will respond to the changing circumstances around them. Subject based on the way people act

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23
Q

What do we assume rational consumers want?

A

Want to maximise their satisfaction or utility welfare by choosing how to spend their income

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24
Q

What do we assume producers/firms want?

A

Wish to maximise profits by producing at the lowest costs.

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25
Q

What do we assume the government wants?

A

Wishes to improve the economic and social welfare of citizens.

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26
Q

What is ceteris parings?

A

Where all else being equal

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27
Q

What is a PPF curve?

A

Production possibility frontier. Any point that lands on this curve is being efficient as it maximises the use of the 4 factors of production. A point that lies within is inefficient.

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28
Q

How is productivity calculated?

A

The total output divided by the number of people.

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29
Q

How can the PPF curve shift inwards (being less efficient)

A

Natural disasters. Destruction caused by war or conflict. Large scale outward labour migration. Trending decline in productivity.

30
Q

What are some examples of rational behaviour of individuals?

A

Law of demand: demanding more of something when price is reduced. Demanding less of something when price increases.

31
Q

What is the law of diminishing marginal utility?

A

That as consumption increases the satisfaction derived from each additional unit decreases. This can be shown as a curve going up and the reaching a point and then a decrease.

32
Q

Why might a consumer not be able to maximise their utility?

A

Limited income, budget constraints, limited time available.

33
Q

Definition of demand?

A

Wanting something and being able to pay for it

34
Q

Why do people not always act rationally?

A

Lack of information, availability bias, anchoring etc.

35
Q

What is the rule of thumb?

A

A method of procedure based on experience and common sense.

36
Q

What is an example of nudging?

A

The way in which a supermarket is arranged. E.g during Easter, eggs will be at the front.

37
Q

What is behavioural economics?

A

Mixes insights of psychology with economics. Looks at problems through the eye of a human rather than the eye of an economist.

38
Q

What is bounded rationality?

A

When instead of striving to make the “best” choices, we often settle on making merely satisfactory choices. Use rule of thumb when making choices and decisions.

39
Q

Definition of heuristics?

A

Mental shortcuts or rule of thumb for decision making to help people make a quick, satisfactory, but perhaps not perfect answer to a complex question.

40
Q

What is default bias in choices?

A

Where people prefer to carry on behaving as they have always done. Doesn’t involve any cognitive effort which makes it easier for consumer. For example, driving.

41
Q

What is choice architecture?

A

When we make decisions affected by the layout or sequencing range of choices that are available. For example smart building designs make it more attractive.

42
Q

What is herd behaviour?

A

Basing our decisions by following other people.

43
Q

What is anchoring?

A

Where value is often set by anchors or imprints in our mind which we use as mental reference points when we are making decisions. An example would be a big price drop campaign by supermarkets. Or buying a product in one shop because it was cheaper than the last store u was in.

44
Q

What is priming and an example?

A

When our behaviour is influenced by cues that work subconsciously and prime us to behave or choose in certain ways. Example Will Smith movie number chosen of American football player.

45
Q

What is framing?

A

Framing a question or offering in a different way then generates a new response because it’s changed the comparison set it is viewed in.

46
Q

What is asymmetric framing?

A

Involves including an obviously inferior 3rd choice a hyper-expensive 3rd option rather than a simple expensive/cheap choice can guide consumers.

47
Q

What is availability bias?

A

When a consumer/people judge the likelihood of an event happening. Most consumers are very poor at risk assessments.

48
Q

Behavioural economics commitment..?

A

The more public our position the less likely we are to change it. Feel strongly about activities we have already made a commitment to.

49
Q

Example of behavioural economics in action?

A

Cash incentives to stop smoking.

50
Q

What are behavioural nudges?

A

They are an alternative route to using taxes and subsidies to influence choice. For example eliminating or restricting choices such as ban of smoking in public places.

51
Q

What’s an example of a financial disincentive?

A

Higher taxes on de merit goods such as cigarettes.

52
Q

What are the main functions of the price mechanism?

A

Allocate, rationing, signalling (price adjustment) and incentives.

53
Q

What is the rationing function of the price mechanism?

A

When there is a shortage of a product, price will rise and deter some consumers from buying the product

54
Q

What is the signalling function of the price mechanism?

A

Where changes in price provides information to both producers and consumers about changes in the market and conditions.

55
Q

What are interest rates?

A

The cost of borrowing money

56
Q

How do you calculate price elasticity of demand?

A

Percentage change in demand / percentage change in price

57
Q

How do you calculate income elasticity of demand?

A

Percentage change in quantity of demand / percentage change in real income

58
Q

What is nominal income?

A

Your income without taking into account the rate of inflatiom

59
Q

What is real income?

A

Your income whilst taking into account rate of inflatiom

60
Q

What is disposable income?

A

disposable income refers to the amount of money an individual or household has available to spend or save after accounting for taxes and adjusting for inflation

61
Q

What is the income elasticity of normal goods, normal luxuries, normal necessities and inferior products?

A

Normal goods - positive income elasticity. Luxuries - income elasticity higher than +1. Necessities higher than 0, less than 1. Inferior products - negative income elasticity.

62
Q

Why are inferior goods counter-cyclical?

A

Because they are products whose demand varies inversely. Ie. Demand rises during a recession. Example of inferior good is Lidls own brand etc.

63
Q

What will happen to demand of inferior goods as real incomes rise?

A

The demand for inferior goods will fall causing an inward shift of demand curve.

64
Q

What is cross price elasticity of demand?

A

Measures the responsiveness of demand for good X following a change in the price of good Y (where Y is a related good). With cross price elasticity, we are able to make an important distinction between substitute and complimentary goods.

65
Q

What is a marginal cost?

A

Marginal cost: additional costs of producing each extra unit.

66
Q

How would you calculate total costs?

A

Fixed costs add variable costs

67
Q

Where can the profit maximisation be found on a graph?

A

Where marginal cost is equal to marginal revenue

68
Q

Where is the point of supernormal profits?

A

It is where marginal revenue is equal to marginal costs. Until it reaches the average revenue line of the sales revenue maximisation grap or ATC.

69
Q

What calculation would you do to find the price of a good?

A

Total revenue / quantity

70
Q

How do you find the profit per unit?

A

Average revenue - average costs

71
Q

How do you find average revenue

A

Total revenue / quantity sold

72
Q

How do you calculate price elasticity of demand?

A

%change in quantity of demand / % change in price

Economics A Level (1 decks)

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