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Economics > IGCSE EDEXCEL ECONOMICS FULL > Flashcards

IGCSE EDEXCEL ECONOMICS FULL Flashcards

1
Q

What is the Basic Economic Problem?

A

Unlimited Wants

Finite Resources

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2
Q

What are Needs?

A

The Basic Requirements needed for Human Survival

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3
Q

What Economic Decisions have to be made when overcoming the basic economic problem?

A

What to produce
How to Produce
For Whom to Produce

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4
Q

What is Opportunity Cost?

A

The next best alternative forgone

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5
Q

What are Scarce Resources?

A

Amount of resources available when supply is limited

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6
Q

What is Distributiuon?

A

Act of sharing things among a large group of people in a planned way

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7
Q

What are Choices?

A

Deciding between alternative uses of scarce resources

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8
Q

what is expenditure?

A

spending by a government

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9
Q

What graph illustrates the idea of opportunity cost?

A

PPC diagram

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10
Q

Why is it never possible to operate outside of the PPC diagram?

A

The country/government/firm does not have the resources to produce that amount of goods.

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11
Q

Why might Economic Growth occur?

A

New Technology –> Increases productive potential. Usually Faster and more reliable in production and therefore more output can be produced

Improved Efficiency –> Over time resources are used more efficently. These more efficent methods replace the old ones and more outputs can be produced with fewer resources

Education and Training –> A country’s economy becomes more productive as the proportion of educated workers increases. Educated workers can work more efficently on tasks that require skills. However a country has to find the right balance between academic and vocational education

New Resources –> New Resources more Productive –> Increases Production.

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12
Q

When Might the PPC fall inwards?

A

Negative Economic Growth

. Country runs out of Natural Resources
. Productive Potential reduced by weather patterns
. If highly skilled workers move overseas
. Wars, Conflicts and Natural Disasters

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13
Q

What are Capital Goods?

A

Capital Goods –> those purchased by firms and used to produce other goods such as factories, machinery, tools and equipment

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14
Q

What are Consumer Goods?

A

Consumer Goods –> those purchased by households such as food, confectionery, cars, tablets and furniture

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15
Q

What is PPC diagram?

A

A line that shows the different combinations of two goods an economy can produce if all resources are used up

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16
Q

What is Revenue?

A

Money that a business receives over a period of time, especially from selling goods or services

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17
Q

What are the Reasons Consumers may not always Maximise Benefit?

A

. Consumers may have difficulty in calculating the benefits from consuming a product. (Measuring Sactisfactory gained is very difficult)

. Some consumers develop buying habits that may affect their ability to make rational choices. (Some people stay loyal to a particular brand)

. Some people are influenced by the behaviour of others (children may purchase the same brands as their parents as they trust that their parents or they are familiar with the brand)

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18
Q

Reasons why Producers may not always Maximise their Benefits?

A

.Some Producers have alternative business objectives. Although profit may be important to them, other issues may also be important. (Producing high quality goods, or increasing the quality of customer service requires higher costs and therefore lower profits)

. Some Commericals are Non-Profit Organisations

.An increasing minority of businesses are being set up as social enterprises. These are organisations that operate commercially but aim to maximise improvements in human or environemntal well-being

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19
Q

What will prevent Consumers and Producers from maximising their businesses?

A

If they do not have access to all the information available. For example, if a consumer does not know that a particular product can be purchased at a lower price in another location they wont maximise their benefit

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20
Q

What is Demand?

A

The Amount of a good that will be bought at a given price over a period of time.

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21
Q

What is Effective Demand?

A

How much would be bought (that is, how much people can afford to buy and would actually buy) at any given price.

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22
Q

What is the relationship between Demand and Price?

A

Inverse Relationship
As Price Increases Demand Decreases
As Price Decreases Demand Increases

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23
Q

What is the Shift in Demand Curve?

A

Movement to the left or right of the entire demand curve when there is a change in any factor affecting demand except for the price

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24
Q

What factors May Shift Demand?

A 
Advertising
Income
Demographic Changes
Price of Complements (Some goods are bought together (complementary goods) so if the price of one increases the demand for both will decrease)
Price of Substitutes
Fashion and Tastes (New Trends)
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25
Q

When There is an Increase in Income what happens to the Demand?

A

Generally, when Disposable Income rises, demand for goods will also rise. For example, if someone has an increased income they will have more disposable income to buy a car. These are Normal Goods (Goods where when Incomes Rise Demand also Rises)

However, a minority of goods are inferior goods. this means that the quantity demanded will actually fall when incomes rise. For Example, consumers who generally buy a relatively cheap supermarket brand of baked beans may switch to a more expensive brand when Incomes Rise

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26
Q

What Are Normal Goods?

A

Goods for which demand will increase if income increases or fall if income falls

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27
Q

What are Inferior Goods?

A

Goods for which demand will fall if income rises or rise if incomes fall

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28
Q

What is Disposable Income?

A

Income that is available to someone over a period of time to spend; it includes state benefits but excludes direct taxes

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29
Q

How do Demographic Changes affect Demand?

A

.Age Distribution of Population –> if people in UK are prdominantly older than goods for children decrease in demand

.Gender Population (If there are more men than women in a population there would be a decrease in demand for female goods)

. Geographical Distribution may change demand (In more developed countries more and more people live in urban area. As a result, demand for schools and hospitals in urban areas will be higher than in rural areas)

.Many Countries with large ethnic groups will demand products that are associated with their culture. In Australia, there is a large Southeastern Population. This has resulted in spread of restaurants offering, vietnamese, Thai food Etc:

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30
Q

What is Supply?

A

The amount of a good that sellers are prepared to offer for a sale at any given price over a period of time.

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31
Q

What is the relationship between Supply and Price?

A

When Price goes up Supply also goes up

When Price goes down Supply also goes down

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32
Q

Why is there a proportionate relationship between price and supply?

A

Businesses are motivated by profit. If prices are rising, existing businesses will be willing to supply increasing amounts of a good because they may make more profit. Or, more businesses will join the market in belief that they can also make a profit. As a result supply in the market increases.

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33
Q

What causes Movement along a supply curve?

A

When Price Increases or when supply increases

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34
Q

What is a shift in the supply curve?

A

Movement to the left or right of the entire supply curve when there is any change in the conditions of supply except the price.

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35
Q

What is a Fixed Supply and why may it occur?

A

(When the amount of a good or service that sellers are prepared to offer for sale at any given price over a period of time stays the same)

Supply will be fixed if it is impossible for sellers to increase supply even when prices rise. Supply at venues where sports matches and other events are held may be fixed.

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36
Q

Factors that cause the supply curve to shift?

A 
.Natural Factors
.Production Costs
.New technology
.Indirect Taxes
.Subsidies
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37
Q

How does New Technology affect Supply?

A

Over a period of time, new technology becomes available that many businesses use in their production processes.

New Technology is more efficient –> Reduced Costs of Production –> Reduced Costs –> Increase Profits –> Firms will want to produce these goods more as they believe that they can make a profit.

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38
Q

How do Indirect Taxes affect Supply?

A

.When Indirect Taxes are Implemented
.Increased Costs to firms
.Decreased Supply due to lower profits

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39
Q

What is Equilibrium price?

A

Price at which supply and demand are equal

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40
Q

What is Market Clearing Price?

A

Price at which the amount supplied in a marker matches exactly the amount demanded

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41
Q

What is the Equation for Total Revenue?

A

Total Revenue = Price x Quantity

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42
Q

What is Total Revenue?

A

Amount of money generated from the sale of goods calculated by multiplying price by quantity

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43
Q

What happens to the equlibrium price when there is a shift in demand?

A

The Equlibrium Price will Rise if demand Increases

The Equlibrium Price will Fall if demand Decreases

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44
Q

What happens to the equlibrium price when there is a shift in supply?

A

An increase in supply for a product is shown by a shift to the right (Price Equlibrium Decreases)

A decrease in supply for a product is shown by a shift to the left (Price Equilibrium Increases)

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45
Q

What is Price Elasticity of Demand?

A

The responsiveness of demand to a change in price

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46
Q

What does it mean by inelastic demand?

A

Change in price results in a proportionately smaller change in the quantity demanded

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47
Q

What does it mean by elastic demand?

A

Change in Price results in a greater change in the quantity demanded

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48
Q

How to calculate Price Elasticity of Demand?

A

% change in quantity demanded/ % change in price

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49
Q

What does it mean if the value of PED is less than 1?

A

Price Inelastic Demand

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50
Q

What does it mean if the value of PED is greater than 1?

A

Price Elastic Demand

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51
Q

What does it mean if the value of PED is = 0 ?

A

Perfectly Inelastic (Vertical Line)

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52
Q

What does it mean if PED is = infinity?

A

Perfectly Elastic (Horizontal Line)

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53
Q

What does it mean if PED = -1?

A

Unitary Elasticity

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54
Q

Unitary Elasticity?

A

Where the Responsiveness of demand is proportionately equal to the change in price

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55
Q

What would a Unitary Elastic Graph look like?

A

curve with a negative gradient

Total Revenue will be the same everywhere

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56
Q

Factors affecting Price Elasticity of Demand?

A

Availability of Substitutes
Degree of Necessity
Proportion of Income spent on a Product
Time

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57
Q

What is Price Elasticity of Supply?

A

Responsiveness of Supply to a change in price

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58
Q

What does it mean by Inelastic Supply?

A

Change in Price results in proportionately smaller change in the quantity supplied

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59
Q

What does it mean by Elastic Supply?

A

Change in Price results in a proportionately greater change in the quantity supplied

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60
Q

How to Calculate the value of Price Elasticity of Supply?

A

Percentage change in quantity supplied/ Percentage Change in Price

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61
Q

What does it mean by Perfectly Elastic Supply?

A

Where producers will supply an infinite amount at the given price

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62
Q

What does it mean by Perfectly Inelastic Supply?

A

Where the Quantity Supplied is fixed and cannot be adjusted whatever price

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63
Q

What does it mean by Unitary Elasticity of Supply?

A

A change in Price will be matched by an identical change in the quantity supplied

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64
Q

What does it mean if the PES value is less than 1?

A

Inelastic Supply

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65
Q

What does it mean if the value of PES is greater than 1?

A

Price Elastic Supply

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66
Q

What does it mean if PES=0?

A

Perfectly Inelastic (Vertical Line)

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67
Q

What Does it mean if PES = Infinity?

A

Supply is Perfectly Elastic (Horizontal)

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68
Q

What does it mean if PES = 1?

A

Unitary Elasticity

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69
Q

What are the Factors influencing PES?

A

Factors of Production
Availability of Stocks
Spare Capacity
Time

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70
Q

PES For Manufactured and Primary products?

A

Businesses that create Manufactured Products will be able to increase production quickly although it may cost more they will just need to hire more workers or indulge in Division of Labour so these will be Price Elastic

Farmers may not be able to increase productivity quicker because crops cannot be grown more quickly so these will be Price Inelastic

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71
Q

What is Income Elasticity of Demand?

A

Responsiveness of demand to a change in income

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72
Q

How to calculate income elasticity of demand?

A

Percentage change in quantity demanded/ Percentage change in income

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73
Q

What does the Income Elasticity of demand suggest about the product?

A

Whether it is a necessity or a Luxury Good

Whether it is a Normal or Inferior Good

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74
Q

What is a Normal Good?

A

A Normal good is a good whose demand rises when consumer income rises

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75
Q

What are Inferior Goods?

A

An Inferior Good is a good whose demand falls when consumer incomes decreases.

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76
Q

Why is Price Elasticity useful?

A

It can help firms predict the effect of a price change on total revenue.

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77
Q

Why may firms be interested in knowing income elasticty of demand?

A

This is because changes in income in the economy may affect their demand for products so firms will adjust their prices accordingly to the Incomes of their consumers

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78
Q

What is excise duty?

A

Government tax on certain goods, such as cigarettes, alcoholic drinks and petrol that are sold in the country

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79
Q

What is VAT?

A

Tax on some goods and services- businesses pay value-added tax on most goods and services they buy and if they are VAT registeres, charge value-added tax on the goods/services they sell

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80
Q

What type of goods and services would Governments impose Indirect Taxes on?

A

Products that have inelastic demand

Consumers will avoid heavily taxed products if demand for them is elastic

Therefore, governments target goods that are either necessities or have a few substitutes

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81
Q

What type of companies would be subsidies by the government ?

A

The effect of a subsidy is to move the supply curve to the right

Therefore has to be price inelastic if it is used to try and help the poor by making a good cheaper because

If demand is not price inelastic, an increase in supply will only reduce the price slightly

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82
Q

What is the economy?

A

System that attempts to solve Basic Economic Problem

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83
Q

What is the Private Sector?

A

Provision of goods and services by businesses that are owned by individuals or groups of individuals

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84
Q

What is the Public Sector?

A

Government organisations that provide goods and services in the economu

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85
Q

What are the three types of Private Sector Enterprises?

A

Sole Traders
Partnerships
Companies

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86
Q

What are Sole Traders?

A

Where the business is owned and controlled by one person

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87
Q

What are Partnership Enterprises?

A

Where the Business is worked and controlled by two or more people working together. They are often found in professions

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88
Q

What are companies?

A

Where Shareholders own the business. They elect a board of directors to run the businesses on their behalf

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89
Q

What are Shareholders?

A

People or organisations that own shares in the company

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90
Q

What are the aims of Private Sector Firms?

A

.Survival (as companies and not going bankrupt)
.Profit Maximisation (Profit Incentivised)
.Growth (to become larger firms)
.Social Responsibillity

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91
Q

Who owns Public Sector Organisations?

A

.Central Government Departments (UK ministry of defence etc:)
.Public Corporations or state owned enterprises (Where firms appoint people who run the Organisation)
.Local Authority Services (Local Councils)
.Other Public Sector Organisations (BCC, Post Office, Bank of England)

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92
Q

Who do Public Corporations/SOE’s operate?

A

.Have Seperate Legal identity
.Can Sue or Be Sued
.State Funded (Government provides their Capital)
.All Assets and Liabilities of Public Corporations belong to the state

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93
Q

Aims of Public Sector Services?

A

.Improving Quality of Services
.Minimising Costs (to stop wasting resources)
.Allowing Social Costs and Benefits
.Some are Profit Incentivised

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94
Q

What are Dividends?

A

Part of a company’s profit that is dividend among the people with shares in the company

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95
Q

What are Assets?

A

Things or resources belonging to an individual or a business that has value or the power to earn money

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96
Q

What are Liabilities?

A

Amount of debt that is owed or must be paid

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97
Q

What are Stakeholders?

A

Individuals or groups whoa re considered to be an important part of an organisation or of society because they have responsibillity within it and receive advantages from it.

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98
Q

What is a Monetary?

A

A system of money in a particular country of the world as a whole, and the way that it is controlled by governments and central banks

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99
Q

What are the three types of Economies?

A

Market or Free Enterprise Economy
Command or Planned Economy
Mixed Economy

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100
Q

What is the Market of Free Enterprise Economy?

A

Economy that relies least on the public sector for the provision of goods and services. The Vast Majority are provided by private businesses

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101
Q

What is a Command or Planned Economy?

A

Economy that relies entirely on the public sector to choose, produce and distribute goods. All resources in planned economies belong to the government and the state is responsible for planning, coordinating and organizing the whole production process

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102
Q

What is a Mixed Economy?

A

Relies on both public sector and the private sector to provide goods and services

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103
Q

What type of goods do private sector firms produce?

A

Food, Clothes, Leisure and Entertainment

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104
Q

What type of goods do public sector firms produce?

A

Education. street lighting and roadworks etc: because the private sector may not be able to produce in sufficent quantities due to market failure

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105
Q

How do Private Sector Firms produce goods and services?

A

Due to competition between existing firms and the need to make profit firms will use production methods that help them to maximise quality and minimise costs.

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106
Q

How do Public Sector Firms produce Goods and Services?

A

Public Sector serviced will be provided by the government organisations. They will attempt to supply them efficently.

However, some public sector goods are produced by the private sector. (For example. governments are usually responsible for the provision of roads and motorways, however they may pay private sector business to carry out the actual work

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107
Q

Who do Private Sector Firms produce for?

A

Anyone that can afford the good or service

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108
Q

Who do Public Sector Firms produce for?

A

Most Public Sector goods are provided free to everyone and paid for from taxes.

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109
Q

What causes Market Failure?

A

Externalties- (May not take into account the bad things that are caused by this act)

Lack of Competition

Missing Markets (Public Goods are not provide by Private Sector due to lack of profit and they may not produce something that is in low demand)

Lack of Information (If consumers don’t know everything about the nature of their products then it will become inneficient and if Businesses don’t know about the resources and production techniques to make a prodct they will become inneficient)

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110
Q

What are Merit Goods?

A

Goods that are under provided by the private sector

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111
Q

What are Public Goods?

A

Goods that are not likely to be provided by the public sector

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112
Q

What might businesses do to make markets work efficiently?

A

Factors of Production need to mobile

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113
Q

How might Governments intevrene in markets to stop market failure?

A

Businesses that impose externalities may be heavily regulated or fined for polluting the atmosphere

Gov. can use legislation –> prevent businesses from dominating markets

State money can be used to provide public and merit goods free of charge

Gov. can pass legislation forcing firms to provide information about products

Gov. can help make some factors more mobile (retraining redundant workers)

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114
Q

What are the chracterisitcs of Public goods?

A

Non excludable (once provided, any individual consumer cannot be excluded from its consumption.)

Non Rivalrous (Everyone can consume it and it doesn’t reduce the amount available to others)

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115
Q

What is a Free Rider?

A

Individual who enjoys the benefit of a good but allows others to pay for it

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116
Q

Why do Governments produce Public goods?

A

Free Rider Problem

If private sector were to provide public goods there would be a free rider problem

Not possible to exclude consumption of a public good by an individual consumer

So there is little reason for people to pay for it

Reduced Profit

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117
Q

What is Privatisation?

A

Act of selling a company or activity controlled by the government to private investors

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118
Q

What are Nationalised Industries?

A

Where Public Corporations previously part of the private sector that were taken into state ownership

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119
Q

What are Natural Monopolies?

A

Situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms

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120
Q

Why does Privatisation take place?

A

To generate income

Public Sector Organisations were innefficent

To reduce Political Interference

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121
Q

Effect of Privatisation on Consumers?

A

Higher Quality Goods and lower prices if competition is occuring

If a monopoly then poor quality goods and high prices

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122
Q

Effect of Privatisation in Workers?

A

Workers are often made redundant

Wages normally cut

Workers will become more productive to save their jobs

Workers may get higher wages as there is no wage restriction

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123
Q

Effect of Privatisation on Businesses?

A

Increased Profit

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124
Q

Effect of Privatisation on Government?

A

High revenue

Firms may produce goods that harm the environment but the Government cannot intervene

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125
Q

Diversified?

A

if a company or economy diversifies, it increases the range of goods or services it produces

126
Q

Hostile Takeover?

A

Takeover that the company being taken over does not want or agree to

127
Q

Production?

A

Process that involves converting resources into goods or services

128
Q

Factors of Production?

A

Resources used to produce good and services, which include, land, labour, capital and enterprise

129
Q

What are the four factors of production?

A

Land
Labour
Capital
Enterprise

130
Q

What is human Capital?

A

Value of the workforce or an individual worker

131
Q

What is labour?

A

people used on production

132
Q

What is Working Captial and Circulating Capital?

A

Resources used up in production such as raw materials and components

133
Q

What does it mean if a firm is capital intensive?

A

Production that relies more heavily on machinery relative to labour

134
Q

What does it mean if a firm is labour intensive?

A

Production that relies more heavily on labour relative to machinery

135
Q

What are the three sectors of the economy?

A

Primary, Secondary and Tertiary

136
Q

What is the Primary sector?

Examples?

A

Production involving the extraction of raw matierals from earth

Agriculture, Fishing ,Forestry and Mining

137
Q

What are Assembly Plants?

A

Factory where parts are put together to make a final product

138
Q

What is the Secondary sector?

Examples?

A

Production involving the processing of raw matierals into finished and semi-finished goods

Metalworking, Car Production, aerospace manufacturing, energy utillites

139
Q

What is the Tertiary Sector?

Examples?

A

Production of services in the economy

Banking, Insurance, hotels, train, taxi

140
Q

What is De-industrialisation?

A

Decline in Manufacturing

141
Q

Why has manufacturing declined in developed countries while services have grown?

A
  • People may want to spend more of their incomes on services than manufactured goods
  • Fierce competition in the production of manufactured goods from developing countries
  • Some countries are developed
  • Advancements in technology mean that employment in manufacturing falls because machines replace people
142
Q

Productivity?

A

Rate at which goods are produced, and the amount produced in relation to the work, time, and money needed to produce them

143
Q

How farmers increase productivity in land?

A

Fertilisers and Pesticides

Drainage - Stops pieces of land from getting flooded

Irrigation– (Redirecting water from natural sources to places that need more water)

Reclamation- (Making new land from oceans, riverbeds or lakebeds)

Genetically Modified Crops

144
Q

How to Increase productivity in Labour?

A

Training- Workers have more knowledge –> Increase in skill for workers –> Produce goods more efficently

Improved Motivation –> If workers have financial incentives to work they will produce more. (Use schemes such as piece rates

Improved Working Practices –> DoL

Migration –> If more skilled workers are attracted from overseas –> Increase in Productivity

145
Q

Job rotation?

A

Practise of regularly changing the person who does a particular job

146
Q

Piece Rate?

A

Amount of money that is paid for each item a worker produces, rather than for the time taken to make it

147
Q

How to increase Productivity in Capital?

A

New Tech

148
Q

What is Division of Labour?

A

Breaking down of the production process into small parts with each worker allocated to a specific task

149
Q

What is Specialisation?

A

Production of a limited range of goods by individuals, firms, regions or countries

150
Q

What are the advantages of Division of Labour to workers?

A

Focusing on the same task allows the worker to become more skilled –> More able to find employment

The higher skilled they are –> The higher the amount they will get paid

151
Q

What are the disadvantages to the Division of Labour?

A

Boring because it is very repetitive (if a task requires little skill)

Boredom –> Job dissatisafaction and affect motivation (affects mental health)

High specialised workers can become unemployed

and if they become unemployed they will be less skilled in other skills

152
Q

Advantages of Division of Labour on Businesses?

A

Efficency is improved because, workers can perform tasks more quickly and more accurately.

A greater use of specialist tools, machinery and equipment is possible when workers specialise

Production time is reduced because workers do not have to waste time from one task to another.

The organisation of production becomes easier. (Specialist workers can fit more easily into a structured system of production, such as a production line)

153
Q

What are the disadvantages of the Division of Labour on businesses?

A

One of the main problems of the DoL is that if tasks are too repetitive and boring, people will become dissatisfied and poorly motivated –> Poor quality of work

If one stage of production depends on another stage and one stage breaks down all other stages may have to be stopped

Specialisation may result in a loss of flexibility in the workplace.

154
Q

What are costs?

A

Expenses that must be met when setting up and running a business

155
Q

What are fixed costs?

A

Costs that do not vary with the level of output

156
Q

What are variable costs?

A

Costs that change when the output level changes

157
Q

What is Total Cost?

A

Fixed costs and variable costs added together

158
Q

Examples of Fixed Costs?

A

Rent, business rates and research

159
Q

Examples of Variable costs?

A

Raw matierals, fuel and labour

160
Q

What is the equation linking average cost, quantity produced and total costs?

A

Average costs = Total Costs/Quantity Produced

161
Q

How to calculate Total Revenue?

A

Total Revenue = Price x Quantity

162
Q

How to calculate Profit?

A

Total Revenue - Total Costs

163
Q

What is economies of scale?

A

Falling average costs due to expansion

164
Q

What is diseconomies of scale?

A

Rising average costs when a firm becomes too big

165
Q

What is internal economies of scale?

A

Cost benefits that an individual firm can enjoy when it expands

166
Q

What are the things that firms can enjoy when undergoing internal economies of scale?

A

Purchasing Economies –> Large firms that buy a lot of resources get cheaper rates. Suppliers offer discounts to firms that buy raw materials and components in bulk.

Marketing Economies

Technical Economies

Financial Economies –> Large firms can get access to money more cheaply as banks trust them more as they are mote stable

Managerial Economies –> As firms expand, they can afford specialist managers

Risk-Bearing Economies –> Larger firms are more likely to have wider product ranges and sell into a wider variety of markets. This reduces the risk in business.

167
Q

What is Bulk Buying?

A

Buying goods in large quantities, which is usually cheaper than buying in small quantities

168
Q

What is Marketing Economies?

A

Marketing economies of scale occur when larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media.

169
Q

What is Technical Economies?

A

Technical economies occur because larger factories are often more efficient than smaller ones. There can be more specialisation and more investment in machinery

170
Q

What is external economies of scale?

A

Cost benefits that all firms in an industry can enjoy when the industry expands

171
Q

What are the things firms can enjoy when undergoing external economies of scale?

A

Skilled Labour –> If an industry is built up in one area, there may be a build up of labour with the skills and work experience required by that industry. Also likely that local schools and colleges will provide vocational courses that are required by local industry

Infrastructure –> If a particular industry dominates a region, the roads, railways etc: will be shaped to suit that industry’s needs

Access to suppliers –>Suppliers in that industry will set up close by

Similar businesses in the area –> When firms in the same industry are located close to each other, they are likely to cooperate with each other so that they can all gain.

172
Q

Why may firms undergo Diseconomies of Scale?

A

Because firms become more inefficent

173
Q

What are the factors causing Diseconomies of Scale?

A

Bureaucracy –> If a firm becomes too bureaucratic, it means that too many resources are used in administration. Too much time may be spent filling in forms or writing reports

Communication Problems –> Time differences , different workers speak different languages (makes it harder to communicate)

Lack of Control –> A very large business may be difficult to control and coordinate. Thousands of employees, billions of pounds and dozens of paperwork can be hard to manage. There may be a need for more supervision but that increases costs

Distance between senior staff and shop floor workers–> Relationships worsen. Shop floor workers may feel belittled. Senior workers may not understand worker needs

174
Q

What are Barriers to entry?

A

Obstacles that might discourage a firm from entering a market

175
Q

What is Competition?

A

Rivalry that exists between firms when trying to sell goods to the same group of customers

176
Q

What are the features of large firm markets?

A

Large number of buyers and sellers

Products sold by each firms are close substitutes for each other

Low barriers to entry

Each firm has almost no control over the price changed

Free flow of information about the nature of products, prices, methods of productiton etc:

177
Q

Innovative?

A

Commercial exploitation of a new invention

178
Q

Product differentiation?

A

Attempt by a firm to distinguish its product from that of rival

179
Q

When there is competition what do firms have to do?

A

Operate efficently by keeping costs as low as possible

Providing good quality products with high levels of customer service

Charging prices that are acceptable to customers

Innovating by constantly reviewing and improving the product

180
Q

Why might Consumers enjoy Competition?

A

Lower Prices

More Choice

Better Quality

181
Q

Why might Consumers not enjoy Competition?

A

Market Uncertainty

Lack of innovation

182
Q

What is the advantage of Competition on the economy?

A

Resources will be allocates more efficently –> So firms survive

Firms in competitive markets are more innovative –> To get competitive edge over rivals

183
Q

What is the disadvantage of Competition on the economy?

A

Resources might be wasted –> Some F.of.P are immobile.

When firms cease trading in a competitive market, resources are released for alternative uses. People are made redundant and resources like machines, tools, equipment, land and buildings come up for Sale. However, it often takes time for those resources to be allocates

184
Q

How is the size of a firm measured?

A

Turnover

Number of Employees

Balance Sheet Total

185
Q

Advantages of Small Businesses?

A

Flexibility –> Small firms can adapt to change more quickly –> owners who are the decision makers, are actively involved in the business and can react to change

Personal Service –> As firms gets bigger, it often becomes difficult to offer customers an individual personal service. Some people prefer to deal with the owner of a firm directly and are prepared to pay a higher price for this benefit

Lower Wage Costs –> Many Workers in Small Firms do not belong to TU –> Weaker negotiating power –> Owners often able to restrict pay to minimum wage

Better Communication –> Small Firms –> Less employees, Owner in contact with all staff –> Higher motivation and exchange info quicker

Innovation –> Lack resources for research and development, so become innovative to survive

186
Q

Disadvantages of Small Firms?

A

Higher Costs –> Cannot Exploit EofS as output is limited –> Higher Avg. Cost –> Lack comp. edge

Lack of Finance

Difficult attracting quality staff –> Lack of resources

Vulnerability –> Do not have the resources to draw on when economic conditions worsen. Owners may be forced to accept unattractive takeover terms

187
Q

Advantages of Large Firms?

A

Economies of Scale

Market Domination

Large-Scale Contracts –> As they are more reliable and have the resources to be able to carry out and meet the high expectations of their service

188
Q

Disadvantages of Large Firms?

A

Too Bureaucratic –> Large number of employees –> A lot of resources spent on administration.

Coordination and Control –> Very difficult to control –> Thousands of employees, billions of pounds and dozens of plants all over the world. This require more supervision which raises costs

Poor Motivation –> People become alinetaed. Firm is so large that 1 employee seems insignificant

189
Q

Factors Influencing Growth?

A

Government Regulation

Access to Finance

Economies of Scale

The Desire to Spread Risk

The Desire to Take over competitiors

190
Q

Reasons why Firms stay small?

A

Size of the Market –> Some markets are too small to sustain very large companies

Nature of the Market –> Some are very Competitive due to low set up costs and low barriers to entry.

Lack of Finance –> Don’t have the finance to increase their output and they are too risky so they are less likely to be given loans

Aims of the Entrepeneur –> They may be making enough profit to satisfy their needs and do not want the responsibility of taking on more workers, expanding operations etc:.

May have other interests than businesses so they don’t have the time to grow their firm

Diseconomies of Scale

191
Q

Monopoly?

A

Situation where there is one dominant seller in a market

192
Q

Features of Monopolies?

A
  • One Business Dominates The Market
  • Unique Product
  • Price Maker
  • They Make Barriers to entry very high
193
Q

What are New entrants?

A

Company that starts to sell goods or services in a market where they have not sold them before, or one of these goods or services

194
Q

What are Price Makers?

A

Where a dominant business is able to set the price charged in the whole market

195
Q

What are examples of Barriers to Entry?

A

Legal Barriers

Patents

High Start up Costs

Tech

Marketing Budgets

196
Q

What are Patents?

A

Licence that grants permission to operate as a sole producer of a newly designed product

197
Q

What are the advantages of a Monopoly?

A

Efficiency (Natural Monopolies)

Innovation –> Since Monopolies are often large and make high profits, they have the resources to invest in Research and Development. They are able to develop new products and technologies from which consumers will benefit

Economies of Scale

198
Q

Disadvanatages of Monopolies?

A

Higher Prices

Restricted Choice

Lack of Innovation

Inefficency

199
Q

What are Market Segments?

A

Groups of customers that share similar characteristics , age, income, interests and social class

200
Q

What is an Oligopoly?

A

Market dominated by a few large firms (3-7)

201
Q

Features of Oligopolies?

A

Few Firms

Large Firms Dominate

Different Products

Barriers to Entry

Collusion

Non-Price Competition

Price Competition

202
Q

Interdependence?

A

Where the actions of one country or large firm will have a direct effect on others

203
Q

Price War?

A

Where one firm in the industry reduces the price causing others to do the same

204
Q

Advantages of Oligopolies?

A

Choice

Quality

Economies of Scale

Innovation

Price Wars

205
Q

Niche Market?

A

Market for a product or service, perhaps an expensive or unusual one, that does not have many buyers, but that may make good profits for companies that sell it.

206
Q

What is a Cartel?

A

Where a group of firms or countries join together and agree on pricing or output levels in the market

207
Q

Disadvantages of Oligpolies?

A

Collusion

If a market is shared out geographically there will be a lack of choice because only one firm will supply each area

Cartels

208
Q

Wage Rate?

A

The amount of money paid to workers for their services over a period of time

209
Q

Derived Demand?

A

Demand that arises because there is demand for another good

210
Q

Factors affecting the Demand for Labour? (How many workers are needed)

A

Demand For the Product

Availability of Substitutes –> Are Machinery cheaper to use

Productivity of Labour –> If every worker becomes more productive then demand for workers will increase

Other Employment Costs –> Free meals, training, private health insurance, sick pay, maternity pay

211
Q

Factor affecting the Supply of Workers? (How many workers there are)

A

Population Size

Migration

Age Distribution of the population

Retirement Age

School Leaving Age

Female Participation

Skills and Qualifications

Labour Mobility

212
Q

Labour Mobility?

A

Ease with which workers can move geographically and occupationally between different jobs

213
Q

How do you determine the Wage Rate?

A

It is the Equilibrium of Quantity of Workers and Wage Rate

214
Q

What is a boom?

A

Time when business activity increase rapidly, so that the demand for goods increases, orices and wages go up, and unemployment falls

215
Q

What is a boom and bust?

A

When an economy regularly becomes more active and succesful and then suddenly falls

216
Q

What are Trade Unions?

A

Organisations representing people working in a particular industry or profession that protects their rights

217
Q

What are the main aims of TU?

A

Negotiate pay and working conditions with employers

Provide Legal protection for members, such as representation in court if an employee is fighting a case against an employer

Provide financial benefits, such as strike pay whenever necessary

Put pressure on the government to pass legislation that improves the rights of workers

218
Q

What is a closed shop?

A

Company or factory where all the workers must belong to a particular Trade Union

219
Q

What is Secondary Picketing?

A

Workers in one workplace or company strike in a group at a particular location in order to support the striking workers in a different workplace or company

220
Q

If TU ask for higher wages what happens?

A

Tu have high collective Barganing Power –> May force High Wages -> Firms would make workers redundant because they do not have the finances or they may not want to lose their profit.

221
Q

How can Unemployment from TU’s be prevented?

A
  • If labour productivity rises at the same time
  • If employers are able to pass on wage increases to customers in the form of price rises
  • If profit margins are reduced
222
Q

What is inflation?

A

Rate at which prices rise, a general and continuing rise in prices

223
Q

What is Macroeconomics?

A

Study of large economic systems such as those of a whole country area of the world

224
Q

What is Microeconomics?

A

Study of small economic systems that are part of national or international systems

225
Q

What are the Macroeconomic Objectives?

A

Reducing Unemployment

Protecting the Environment

Balance of Payments

Redistribution of Income

Controlling Inflation

Economic Growth

226
Q

Economic Growth?

A

Increase in the level output by a nation

227
Q

National Income?

A

Value of income, output or expenditure over a period of time

228
Q

Why is Economic Growth Desirable?

A

If the economy is producing more –> businesses are more profitable and share prices rise –> easier for businesses to raise more capital and employ more workers –> Incomes Rise –> Spend more money on goods and services –> Even More Economic Growth

229
Q

GDP?

A

Market Value of all final goods and services produced in a period, an internationally recognised measure of national income

230
Q

Nominal GDP?

A

The value of goods and services produced by a country in a given period of time

231
Q

Real GDP?

A

The value of goods and services produced by a country, having been adjusted for inflation

232
Q

GDP per Capita?

A

Total Value of output produced in an economy over a period of time which is adjusted for inflation and expressed per head of population

233
Q

Total Growth in GDP

A

The % change in the value of GDP over a period of time

234
Q

Economic Cycle?

A

Periods of time where economic growth fluctuates.

235
Q

Booms?

A

Peak of economic cycle where GPD is growing at its fastest

236
Q

Downturn?

A

Period in the economic cycle where GDP grows, but more slowly

237
Q

Recession?

A

Period of temporary economic decline which is identified by a fall in GDP for 2 consecutive quarters

238
Q

Recovery?

A

Period in the economic cycle where GDP starts to rise again. Businesses and consumers regain their confidence and economic activity is on the increase.

239
Q

Overheat?

A

When demand is rising too fast causing rpices to rise, a situation that governments might try to rectify by raising taxes or when the central bank might try raising interest rates to curb demand

240
Q

Unsustainable Growth?

A

Economic Growth that is not possible to sustain without causing environmental problems

241
Q

Human Capital?

A

Refers to the level of skill and education of the workforce

242
Q

What does it mean when the percentage change in real GDP is greater than 0?

A

Economy is Growing

243
Q

If the percentage in real GDP is less than 0?

A

The economy is shrinking

244
Q

How is GDP measured?

A

Output Measure - Total Value of the goods and services produced by all sectors of the economy

Expenditure Measure- The Value of the goods and services brought by households and by government, investement in machinery and buildings

Income Measure- the Value of income generated mostly in terms of profits and wages

245
Q

What is GDP used for?

A

Settling Interest Rates- If prices are rising too fast, the bank could increase interest rates to try and control them

Planning Economic Policy - If Economy is Shrinking the amount the gov. gets from taxes decreases

Compare Growth between different countries

246
Q

Limitations of GDP?

A

Hidden Economy –> Doesn’t capture Unpaid Work in official figures (caring for an elderly relative)

Inequality- GDP doesn’t tell us how income is split across a population. A rising GDP could result from the richest segment getting richer

GDP doesn’t mean higher standards of living (GDP often will increase in war due to increased spending)

Doesnt take into account well being

247
Q

What other Limitations are there of using GDP as a measure of economic growth?

A 
Inflation
Population Changes
Statistical Errors
Home Produced Goods
Hidden Economy
External Costs
248
Q

Why are Population Changes a limitation to using GDP as a measure if Economic Growth?

A

An Increase In Population –> Increase Demand and Increased Workforce etc: –> Higher GDP

Doesn’t tell u the standrads of living in the country

249
Q

Why is Inflation a limitation to using GDP as a measure of Economic Growth?

A

Inflation can make it appear that GDP has risen when actually it might not have

250
Q

Why are Home Produced Goods a limitation to using GDP as a measure of Economic Growth?

A

Some goods and services are not Traded and therefore there is no record of these transactions taking place. National income will be understated

251
Q

Why is the Hidden Economy a limitation to using GDP as a measure of Economic Growth?

A

GDP figures become innacurate

252
Q

Why is External Costs a limitation to use GDP as a measure of Economic Growth?

A

Combustion of fossil fuels –> Good for economy

Bad for the environment

253
Q

What happens when their is Economic Boom?

A 
High Confidence
Increasing Income
Increasing Spendng/ Demand
Low Unemployment
High Inflation 
High Profits
High Investment
254
Q

What happens during Recession?

A 
Low Confidence
Low Spending
Low Income
Low Business Profit
High Unemployment
Low SoL
High Bankruptcies
255
Q

What happens during Downturn?

A 
Falling Confidence
Falling Spending
Income and Unemployment Rising at a slower rate
Falling Inflation
Investment Rising at a slower rate
256
Q

deflation?

A

Period where the level of AD is falling

257
Q

CPI?

A

measure of the general price level

Every Month, the government records the prices of about 600 goods and services purchased by over 7000 families.

This average prices is then converted into an index number

258
Q

Retail Price Index?

A

Measure of the general price level, which includes house prices and council tax

259
Q

Demand Pull Inflation?

A

Inflation caused by too much demand in the economy relative to supply

260
Q

What causes Demand Pull Inflation?

A
  • Rising Consumer spending encouraged by tax cuts or low Interest Rates
  • Sharp increases in Government spending
  • Rising Demand for resources by firms
  • Booming demand for exports
261
Q

What is Disinflation?

A

Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time.

262
Q

Cost-Push Inflation?

A

Inflation caused by rising Business Costs

263
Q

What is the relationship between Inflation and interest rates?

A

nflation may be caused when households, firms and the governmnet borrow more money from banks to fund extra spending. This adds to the money supply because there are now more bank deposits. The extra money lent by the bank creates more demand and prices are driven up. This type of inflation is more likely to increase when interest rates are low because consumers would have to pay back less

264
Q

Impacts of Inflation?

A

High Prices –> LOW PPP
.High Wages due to High Prices. Firms increase Prices so Workers demand Higher Wages (Cycle repeats)
.Lower Exports due to higher prices
.Reduced Unemployment in order to achieve output needed because of the increased aggregate demand (Demand-Pull Inflation)
.Increased Menu Costs (In resturants you have to update the increased prices)
.Increased Shoe leather costs
.Uncertainty (How can a supplier make profit if it doesn’t what it’s price is going to be)
.Decreased Consumer Confidence
.Decreased Investment (We don’t know how Inflation changes prices)

265
Q

Interest Rates?

A

Price Paid to lenders for borrowed money; it is the price of money

266
Q

Monetarists?

A

Economists who believe there is a strong link between growth in the money supply and inflation

267
Q

Purchasing Power of Money?

A

Amount of goods and services that can be bought wit a fixed sum of money

268
Q

Menu Costs?

A

Costs to firms of having to make repeated price changes

269
Q

Shoe Leather Costs?

A

Costs to firms and consumers of searching for new suppliers when inflation is high

270
Q

Hyperinflation?

A

Very high levels of inflation; rising prices get out of control

271
Q

Transactions?

A

Payment, or the process of making one

272
Q

Definition of Unemployment?

A

People who are not working who want a job but cannot find work

273
Q

How do you measure Unemployment?

A

Labour Force Survey organised by the International labour Organisation

Over 100,00 people in 40,000 households are surveyed every month.

274
Q

Problems with ILO survey?

A

International Comparisons are different because the way that unemployment is measured varied widely between countries

275
Q

Advantages of Labour Force Survey?

A

More People will admit to employment than claim benefits

276
Q

Advantages of Claimant Count?

A

Broad Measure

Easy and Quick to Measure

277
Q

Disadvantages of Labour Force Survey?

A

Only once every 3 months

278
Q

Disadvantages of Claimant Count?

A

Some can’t claim benefits (they have savings or a partner who earns money)

Some people won’t claim it (pride/ego)

279
Q

What is Claimant Count?

A

A way of measuring Unemployment

This is calculated using the number of UK workers claiming the Job seekers allowance

Always lower because people under 18 or over 65 can’t claim it

280
Q

What is Cyclical Unemployment?

A

When Unemployment is caused by a recession

Falling demand for goods and services –> fall in derived demand for labour

281
Q

What is the solution to cyclical unemployment?

A

Training Programmes so people can find work in the down season

282
Q

What is Seasonal unemployment?

A

Demand for some professions will fluctuate according to the time of the year –> Unemployment during seasons where demand is low

283
Q

Solutions to Seasonal Unemploment?

A

Training Programmes so people can find work in the down season

284
Q

What is Frictional Unemployment?

A

When People are short term unemployed when moving between jobs or leaving education

285
Q

Solution to Fricitional unemployment?

A

Job centres and Websites which can provide information about jobs to unemployed

286
Q

What is Structural Unemployment?

A

Mismatch between the skill of workers and industry demands

287
Q

What are the three main types of Structural Unemployment?

A

Sectoral- When the economy moves from one sector to the next and some workers don’t have the skill for the new sectors

Technological Unemployment- New Technologies make Labour Redundant

Regional Unemployment - The industry a certain region is dependent on goes into deadline, leaving very high levels of local unemployment

288
Q

What is Geographical Immobillity?

A

Barriers restricting workers from moving to a different of work (Transport Costs)

289
Q

What is Occupational Immobillity?

A

Barriers restricting workers from changing profession (lack of skill due to lack of education)

290
Q

Solutions to Occupational Immboillity?

A

Get training

291
Q

Solutions to reduce Geographical immobillity?

A

Buy a car –> Reduces time taken to get there

Buy a house –> Ties someone to one location

292
Q

What is Voluntary Unemployment?

A

Unwilling to work at the current wage rate
Unwilling to retrain
Unable to work because of Geographical and Occupational Immobillity

293
Q

Solutions to voluntary Unemployment?

A

Raise Minimum Wage and lower job seekers allowance –> Encourages people to go to work

Retraining Schemes –> Give them loans to go to school

Only give people benefits who are applying for jobs

or using the free trading schemes

294
Q

Impacts of Uenmployment?

A 
Lower Output
Wasteful Use of Scarce Resources
Increased Poverty
Increased Government Spending on benefits
Decreased Tax Revenue
Consumer Confidence falls
Business Confidence falls
Worsened Society
295
Q

Balance of Payments?

A

Record of all transactions relating to international trade

296
Q

Capital and Financical Account?

A

That part of the balance of payments where flows of savings, investment and currencies are recorded

297
Q

Current Account?

A

Part of the Balance of payments where all exports and imports are recorded

298
Q

Exports?

Imports?

A

Goods and services sold overseas

Goods and Services bought from overseas

299
Q

Current Account Deficit?

A

When Value of imports exceeds the value of exports

300
Q

Current Balance?

A

Difference between total exports and total imports (invisible and visible)

301
Q

Balance of Trade or Visible Balance?

A

Difference between visible exports ands visible imports

302
Q

Invisible Trade?

Visible Trade?

A

Trade in Services

Trade in Physical Goods

303
Q

Primary Income?

A

Money received from the loan of production factors abroad

304
Q

Secondary Income?

A

Gov transfers to and from overseas agencies such as the EU

305
Q

Exchange Rate?

A

Price of one currency in terms of another

306
Q

How do Exchange Rate and Current Account Interact?

A

If a Country’s exchange rate gets stronger –> Exports more expensive and imports become cheaper –> Fewer Exports sold and more Imports bought –> Current Account Deficit but if the CA is already in Deficit then the Deficit will grow

307
Q

How may Exchange Rates become stronger?

A

If a country has a surplus on the CA resulting from rising sales of goods abroad, demand for that country’s currency will rise. This could drive up the xchange rate.

308
Q

Reasons for Deficits and Surpluses?

A

Quality of Domestic Goods –> Increased Demand For Exports due to rising Sales from Overseas Buyers

Quality of Foreign Goods –> Increase In Demand For Imports due to Rising Sales from buyers in our Country

Price of Domestic Goods

Price of Foreign Goods

Exchange Rates Between Countries –>

309
Q

Impact of a Current Account Deficit?

A

Leakages from the Economy –> Output and Employment levels in the domestic economy are under threat

Inflation –> If the prices of imports go up, this will be reflected in the general price level since many imported goods will counted when the CPI is calculated. Consequently, rising imports prices will result in higher domestic inflation levels

Low Demand for Exports –> Due to poor quality of goods or services or the price may just be too high. This results in the country undergoing progressives decline in economic growth and a rise in unemployment (This may mean that they are not competitive in certain industries)

Funding the Deficit –> It will need foreign currency to pay for the rising quantity of imports that are being purchased.
May need to borrow
Causes Major Problems

310
Q

Government Intervention to Protect the Enivronment?

A

Taxation

Subsidies

Regulation

Fines

Pollution Permits

Park Provisions

Economics (11 decks)

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