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Flashcards in AOS1 Deck (44):
1

Needs

- A need is a good or service that is deemed to be necessary for ones survival

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wants

- A Want is a good or service that is no necessary for ones survival

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resources

-Land
-Labour
-Capital

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Opportunity cost

-The value of the next best alternative that is forgone whenever a choice is made.

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Relative Scarcity

- A situation when resources are limited compared to the demands placed upon those resources.

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nature & Conditions of a perfectly competitive market

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Law of Demand

-As a price of a product increase the quantity demanded decreases, conversely if the price of a product decreases, the quantity demanded will tend to increase

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Land

- Refers to all the resources that occur in nature, that can be utilised in the production process

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Labour

-Refers to the mental and physical effort by humans in the production process

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Capital

- Refers to those resources that have ben made combining labour and natural resources to create more sophisticated input in the production process

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Allocative Efficiency

- A type of efficiency measured by how well resources are being allocated in the economy. The most efficient allocation of resources occurs when living standards and welfare are maximised and it is not possible to further increase living standards by changing the way resources are allocated. if resources are allocated efficiently the goods and services will be made in the right quantities and will generally go to those people who value them the most.

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Technical Efficiency

- When it is not possible to increase output without increasing input. therefore the most technically efficient point of production occurs where productivity is at maximum & where average costs are at a minimum

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Dynamic Efficiency

- How quickly an economy can reallocate resources to achieve locative efficiency

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Inter-temporal Efficiency

- How well resources are allocated over a period of time

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Movements & Shifts to demand Curve

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Factors affecting demand & position of demand curve

-Disposable income
-Prices of substitutes & complements
-preferences & tastes
- interest Rates
-Changes in Population
-Consumer confidence

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Factors affecting demand: Disposable income

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Factors affecting demand: Prices of substitutes & complements

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Factors affecting demand: preferences & tastes

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Factors affecting demand: interest Rates

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Factors affecting demand: Changes in Population

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Factors affecting demand: Consumer confidence

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23

Law of Supply

- As price increases for a good or service there will generally be an increase in quantity supplied.

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movements & Shifts to supply curve

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Factors affecting supply & position of the supply curve

- Changes in cost of production
-Technological Change
-Climatic Conditions

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Market Failure

When a unregulated market is unable to allocate resources efficiently or where resources are are allocated in such a way that national living standards or welfare is not maximised. it will result n an over allocation of resources to the production of some goods & services and or and under allocation to others

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Factors affecting Price Elasticity of Supply

-Spare Capacity
-Production period
-Durability of Goods

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Reasons for market Failure

-Public Goods
-Externalities
-Asymmetric Information
- Common access goods

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Reasons for market Failure : Public Goods

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Reasons for market Failure :Externalities

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Reasons for market Failure: Asymmetric Information

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Reasons for market Failure: Common access goods

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33

Government intervention

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Role & Effect as a role of government intervention in the market to address market failure : Indirect Taxes

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Role & Effect as a role of government intervention in the market to address market failure : Subsidies

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Role & Effect as a role of government intervention in the market to address market failure : government regulations & advertising

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Example of government intervention that unintentionally leads to a decrease in the efficiency of resource allocation

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Factors affecting supply: Changes in cost of production

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Factors affecting supply: Technological Change

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Factors affecting supply: Climatic Conditions

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Factors effecting Price Elasticity of Demand

- Degree of Necessity
- Availability of Substitutes
- Proportion of income
- Time

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Factors affecting Price Elasticity of Supply: Spare Capacity

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Factors affecting Price Elasticity of Supply: Production period

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44

Factors affecting Price Elasticity of Supply: Durability of Goods

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