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A-Level AQA Economics > BM 4.5 > Flashcards

BM 4.5 Flashcards

(70 cards)

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1
Q

What determines the market price ?

A

Price Mechanism

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2
Q

How are resources allocated in the free market ?

A

Through the price mechanism

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3
Q

What are the main functions of Price Mechanism in allocating resources ?

A

Rationing, Incentive and Signalling

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4
Q

What is Rationing in the Price Mechanism ?

A

When there are scarce reosurces, prices increase due to the excess of demand

Increase in orice discourages demand and consequently rations resources.

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5
Q

What is Incentive in the Price Mechanism ?

A

This encourages a change in the behaviour of a consumer or producer.

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6
Q

What is Signalling in the Price Mechanism ?

A

The price acts as a signal to consumers and new firms entering the market.

The price changes show where resources are needed in the market.

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7
Q

What is the definition of market failure ?

A

Where the free market fails to efficiently allocate resources, leading to a suboptimal outcome for a society.

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8
Q

What isn’t maximised when market failure ocurrs ?

A

Economic and social welfare

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9
Q

What are the 6 main Market Failures ?

A

Monopolies
Externalities
Merit/Demerit Goods
Public Goods
Labour Immobility
Inequality of Income and Wealth

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10
Q

What are the 4 main types of Competition ?

A

Pure Monoploy
Legal Monoply
Duopoly
Oligopoly

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11
Q

What’s a pure monoply ?

A

A single firm is the sole supplier of a product/service, with no close substitutes available.

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12
Q

What’s a Legal Monoply ?

A

A single firm or entity is granted the exclusive right to provide a particular good/service by government or legal mandate

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13
Q

What’s a Duopoly ?

A

Where two firms dominate, with one/both firms controlling a significant portion of the market share.

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14
Q

What’s an Oligopoly ?

A

A few large firms dominate an industry, giving them significant market power.

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15
Q

Why do Economists like competition ?

A
  • Lower Price for consumers
  • Higher Quality innovation
  • Increased Consumer Choice
  • Greater Allocative Efficieny
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16
Q

What is concentration ?

A

The extent to which a particular market is dominated by a few firms.

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17
Q

Why are Monoplies a cause of Market Failure ?

A

High B2E:

  • Predatory Pricing
  • Economies of Scale
  • Control of Technology / Patents
  • Brand Loyalty
  • High start up/fixed costs
  • Government Regulation
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18
Q

What are B2Es ?

A

Factors that prevent new businesses from entering a market profitability.

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19
Q

What are private costs ?

A

Producer’s cost of production

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20
Q

What is S in these diagram ?

A

S = MPC = MSC

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21
Q

What is D in these diagram ?

A

D = MPB = MSB

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22
Q

What is social cost ?

A

Private cost + External Cost

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23
Q

What are Private Benefits ?

A

Individual consumer benefits

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24
Q

What is Social Benefits ?

A

Private Benefit + External Benefits

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25
What is Private Optimum ?
MPC =MPB
26
What is Social Optimum ?
MSC = MSB
27
What are negative externalities in production ?
Costs on third parties as a a result of the actions of producers
28
How are negative externalities in production shown in the diagram ?
MSC > MPC
29
How to get welfare triangle right every time ?
Tip of triangle points to Social Optimum
30
What is the result of negative externalities in production ?
Over production
31
What are negative externalities in Consumption ?
Costs on third parties as a a result of the actions of consumer.
32
How are negative externalities in consumption shown in the diagram ?
MPB >MSB
33
What is the result of negative externalities in consumption?
Over Consumption
34
What are positive externalities in Consumption ?
Benefits on third parties as a a result of the actions of consumer.
35
How are positive externalities in consumption shown in the diagram ?
MSB > MPB
36
What is the result of positive externalities in consumption?
Under Consumption
37
What are positive externalities in Production ?
Benefits on third parties as a a result of the actions of producers.
38
What are examples of positive externalities in Production ?
In-work training , R&D
39
How are positive externalities in production shown in the diagram ?
MPC > MSC
40
What is the result of positive externalities in production ?
Under Production
41
What are Merit goods ?
Goods deemed beneficial for society but might be under-consumed by individuals in the free market due to a lack of full understanding of their benefits or positive externalities
42
What are Demerit Goods ?
Products/services that are over-consumed compared to what is socially optimal, leading to negative impacts on society or individuals.
43
What externalities do Merit Goods Provide ?
Positive
44
What externalities do Demerit Goods Provide ?
Negative
45
Why are Merit Goods Underconsumed ?
Information Failure, Short-term Thinking
46
What are Public Goods ?
Goods which are non-excludable and non-rival in consumption
47
What is Non-Rival in the context of Public Goods ?
Consumption of the good by one person does not reduce the ammount available for another.
48
What is the Free Rider Problem ?
When individuals benefit from a public good or service without paying for it.
49
What are Quasi Public Goods ?
Goods that exhibits characteristics of both public and private goods
50
What are Private Goods ?
Goods that are both rivalrous and excludable
51
How can Public Goods lead to Market Failure ?
If left to the free market , public goods would not be provided.
52
What is labour Immobility ?
Difficulty/inability of workers to move from one occupation, industry, or location to another
53
What is Structural Unemployment ?
Mismatch between the skills of the available workforce and the skills needed by employers due to changes in the economy.
54
What is Geographic Immobility ?
Inability of labor to move from one location to another.
55
What is Occupational Immobility ?
Inability of labour to switch between different occupations.
56
What are the factors that affect Geographical Immobility ?
- Social Attatchment - House Price Differential - Imperfect Information
57
How can labour immobility cause Market Failure ?
Hinders the efficient allocation of resources and causes inefficiencies in the labor market.
58
What is Inequality ?
The difference in income and wealth among groups in the population.
59
How can inequality cause Market Failure ?
Leads to inefficiencies in resource allocation and can have negative social consequences
60
How can Governments reduce Inequality ?
Progressive Taxes and Gov.Spending (Welfare)
61
What are the Government Interventions that target Market Failure ?
Indirect Taxes Subsidies Max/Min Prices Tradeable Pollution Permits Provision Of Information Regulation State Provision of Public Goods
62
What are the two types of Indirect Taxes ?
- Ad Valorem - Specific
63
What is Government Failure ?
Government intervention leads to a less efficient outcome than if the government had not intervened at all
64
What are the causes of Government Failure ?
Distortion of Price Signals Unintended Consequences Excessive Administrative Costs Information Gaps
65
What is Distortion of Price Signals ?
Subsidides distorting the Free market mechanism.
66
What are Unintended Consequences ?
eg. Black Markets
67
What are Information Gaps ?
Polices decided without perfect information based on partial assumptions.
68
What is Asymmetric Information ?
Unequal knowledge between consumers and producers.
69
What is the Principal - Agent Problem ?
Agent is inclined to act on their own interests rather then those of the principal.
70
What is Symmetric Information ?
Consumers and Producers have perfect market information to make their decision.

A-Level AQA Economics (31 decks)

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