allocation of resources

Question 1

microeconomics

Answer 1

the study of the behaviour and decisions of households and firms, and the performance of individual markets

Question 2

macroeconomics

Answer 2

the study of the whole economy

Question 3

market

Answer 3

an arrangement which brings buyers into contact with sellers

Question 4

planned economic system

Answer 4

an economic system where the government makes the crucial decisions, land and capital are state-owned and resources are allocated by directives

Question 5

mixed economic system

Answer 5

an economy in which both the private and public sectors play an important role

Question 6

market economic system

Answer 6

an economic system where consumers determine what is produced, resources are allocated by the price mechanism and land and capital are privately owned

Question 7

3 key resource allocation questions

Answer 7

what to produce, how to produce it, and who is to receive the product

Question 8

price mechanism

Answer 8

the way that resources are allocated by the interaction of demand and supply

Question 9

demand

Answer 9

the willingness and ability of a consumer to buy a product at any given price

Question 10

substitute

Answer 10

a product that can be used in place of another

Question 11

complement

Answer 11

a product that is used together with another product

Question 12

supply

Answer 12

the willingness and ability of a producer to sell a product at any given price

Question 13

unit cost

Answer 13

the average cost of production, found by dividing total cost by output

Question 14

direct taxes

Answer 14

taxes on income and wealth of individuals and firms

Question 15

indirect taxes

Answer 15

taxes on goods and services

Question 16

tax

Answer 16

a payment to the government

Question 17

subsidy

Answer 17

a payment by the government to encourage the production or consumption of a product

Question 18

excess demand / shortage

Answer 18

the amount by which demand is greater than supply

Question 19

excess supply / surplus

Answer 19

the amount by which supply is greater than demand

Question 20

price elasticity of demand

Answer 20

a measure of the responsiveness of quantity demanded to a change in price

Question 21

elastic demand

Answer 21

when the quantity demanded changes more than proportionately to a change in price

Question 22

inelastic demand

Answer 22

when the quantity demanded changes less than proportionately to a change in price

Question 23

perfectly elastic demand

Answer 23

when a change in price causes a complete change in quantity demanded

Question 24

perfectly inelastic demand

Answer 24

when a change in price has no effect on quantity demanded

Question 25

unit elasticity of demand

Answer 25

when a change in price causes an equal change in quantity demanded

Question 26

price elasticity of supply

Answer 26

a measure of the responsiveness of quantity supplied to a change in price

Question 27

elastic supply

Answer 27

when quantity supplied changes more than proportionately to a change in price

Question 28

inelastic supply

Answer 28

when quantity supplied changes less than proportionately to change in price

Question 29

perfectly elastic supply

Answer 29

when change in price causes complete change in quantity supplied

Question 30

perfectly inelastic supply

Answer 30

when change in price has no effect on quantity supplied

Question 31

unit elasticity of supply

Answer 31

when change in price causes equal change in quantity supplied

Question 32

PES/PED equation

Answer 32

Question 33

determinants of demand (acronym+)

Answer 33

producing paper is so incredibly painful (price, preferences, income, substitutes/complements, interest rates, population)

Question 34

determinants of supply

Answer 34

costs of production, technology, tax/subsidies, number of firms, trends

Question 35

determinants of PED (acronym+)

Answer 35

SPLAT (substitutes, proportion of income, luxury/neccessity, addiction, time)

Question 36

determinants of PES (acronym+)

Answer 36

FAST (factor mobility, availability, storage, time to produce)

Question 37

public sector

Answer 37

part of economy controlled by gov

Question 38

privitisation

Answer 38

sale of public assets to private sector

Question 39

price mechanism

Answer 39

system by which market forces of demand and supply determine prices

Question 40

market failure

Answer 40

a situation where too much/little of g/s are produced and consumed than socially desirable level. misallocation of resources

Question 41

free rider

Answer 41

someone who consumes g/s wo paying

Question 42

third parties

Answer 42

those not directly involved in producing or consuming a product

Question 43

private costs

Answer 43

costs bourne by individual economic units

Question 44

external costs

Answer 44

negative spill-over costs to third party, costs imposed on those who are not directly involved in production/consumption of g/s

Question 45

social costs

Answer 45

full cost of an activity borne by society as a result of economic actions. calculated by adding private costs to external costs

Question 46

private benefits

Answer 46

advantages enjoyed by individual economic units producing/consuming product

Question 47

external benefits

Answer 47

advantages enjoyed by those not involved in consumption/production of product

Question 48

social benefits

Answer 48

full advantages enjoyed by society as result of actions by producers/consumers

Question 49

causes of market failure

Answer 49

underconsumption of merit goods, overconsumption of demerit goods, public goods, abuse of monopoly power, factor immobility

Question 50

merit goods

Answer 50

products that are socially beneficial (benefit third party and consumer/producer)

Question 51

demerit goods

Answer 51

products that are detrimental to society (detrimental to third parties and to consumer/producer

Question 52

public good

Answer 52

a product which is non-rival and non-excludable

Question 53

private good

Answer 53

a product which is rival and excludable

Question 54

monopoly

Answer 54

a single seller of g/s in a market

Question 55

nationalisation

Answer 55

moving ownership and control of an industry from private sector to gov

Question 56

what are the causes of market failure

Answer 56

underconsumption of merit goods, overconsumption of demerit goods, public goods, abuse of monopoly power, factor immobility

Question 57

why does the underconsumption of merit goods occur

Answer 57

low level of income among consumers, imperfect information

Question 58

why does the overconsumption of merit goods occur

Answer 58

lack of knowledge about harmful effects

Question 59

why are public goods market failure

Answer 59

free rider problem. non rival, non excludable, therefore not provided by free market (no profit incentive)

Question 60

why is abuse of monopoly power market failure

Answer 60

dominates market, restrict g/s to raise price

Question 61

why is factor immobility market failure

Answer 61

prevents resources from being allocated efficiently