definitions Flashcards
(101 cards)
1
Q
What is scarcity?
A
any situation in which factors of production are finite, whereas wants are infinite
2
Q
What is ceteris paribus?
A
All other things are assumed to be constant or unchanging.
3
Q
What are consumers?
A
Those who demand goods and services.
4
Q
What are producers?
A
Those who provide goods and services
5
Q
What is government?
A
Those who tax and distribute certain goods and services to both consumers and producers
6
Q
What is a positive statement?
A
Statements that can be tested to be true or false and are value-free
7
Q
What is a normative statement?
A
Statements that cannot be tested to be true or false as they are based on value judgement.
8
Q
What is opportunity cost?
A
The foregone value (lost benefit) of the next best alternative.
9
Q
What are factors of production?
A
The different elements required to produce goods and services
10
Q
What is human capital?
A
The unique value attached to each worker
11
Q
What are economic goods?
A
Goods that are scarce and have an opportunity cost
12
Q
What are free goods?
A
Goods that are in an unlimited supply, and have no opportunity cost.
13
Q
What is specialisation?
A
The process of concentrating on a a particular area
14
Q
What is division of labour?
A
The assignment of different tasks to different works to increase productivity (matching human capital with physical capital)
15
Q
What is productivity?
A
Output/input - a measure of the efficiency of production.
16
Q
What is economies of scales?
A
When the output increases and the cost of production decreases.
17
Q
What are the 4 functions of money?
A
Medium of exchange, measure of value, store of value, deferred payment
18
Q
What are the 6 characteristics of money?
A
Durability, portability, divisibility, uniformity, limited supply, accessibility
19
Q
What is money?
A
Anything that fulfils the four functions of money
20
Q
What is barter?
A
Trading one good or service for another.
21
Q
What is a PPF?
A
Represents all combinations of maximum output of two goods and services when all factors of production are being fully and efficiently employed
22
Q
What is productive efficiency?
A
All factors of productions are being fully and efficiently employed, not possible to produce more of one good without reducing the production of another
23
Q
What is near (quasi) money?
A
highly liquid, very stable
24
Q
What is non money?
A
Not highly liquid, value fluctuates
25
What is liquidity?
How quickly you can convert money to cash
26
What is a command economy?
Where production, investment, prices, and incomes are determined. centrally by the government
27
What is a free market economy?
Resources are allocated through market forces, no gov. control, FoP are allocated by demand and supply
28
What is a mixed economy?
Resources are allocated by a combination of market and government forces
29
What is marginal utility?
The extra satisfaction gained from consuming the next unit
30
What is herd behaviour?
When behaviour is based on social norms/peer effect
31
What is habitual behaviour?
When behaviour is based on routine
32
What is computational weakness?
When behaviour is based on poor numeracy/understanding
33
What is diminishing marginal utility?
As more units of a good is consumed, the utility/satisfaction the good provides decreases
34
What are the advantages of a command market?
Maximises social welfare, nothing is monopolised so everything is distributed
35
What are the disadvantages of a command market?
There is a lack of choice since the government allocates resources, and there is a lack of competition due to less innovation
36
What are the advantages of a free market?
There is choice for the consumers as the government doesn’t allocate resources, competition is high which forces companies to innovate
37
What are the disadvantages of a free market?
Social welfare is minimised and there are monopolies so not an equal distribution of resources
38
What is demand?
the quantity of goods consumers are willing to buy at a given price, an inverse relationship, as quantity decreases, price increases
39
What is supply?
the quantity goods producers are willing to sell at a given price, a direct relationship
40
What is equilibrium price?
the price at which there is no tendency to change because demand = supply
41
Why is the demand curve downward sloping
Income effect - As prices fall, consumers can purchase more
Substitution effect - as the price of one good rises, consumers find substitute goods more attractive
Law of diminishing marginal utility - prices must fall for Qd to increase
42
What is a movement in the demand curve?
A change in price
43
What is a shift in the demand curve?
Non price factors
44
What is profit incentive?
As prices increase, firms have a larger incentive to produce more
45
What is crowding out of fixed factors?
as firms produce more, costs increase, so firms must set higher prices
46
A shift in the demand curve is caused by what acronym?
Population
Advertising
Substitutes
Income
Fashion/trends
Interest rate (increase interest rates = decrease demand)
Complements
Speculation
47
A shift in the supply curve is caused by what acronym?
Productivity
Indirect tax
Number of firms
Technology
Subsidies
Weather
CoP
48
What is total revenue?
price x quantity
49
What is excess demand?
When Qd>Qs
50
What is excess supply?
When Qs>Qd
51
What is market clearing?
When there is no excess supply or demand S=D
52
What is the price when there is excess supply?
Above market equilibrium
53
What is the price when there is excess demand?
Below market equilibrium
54
What is the signalling function?
Price changes signal important information to consumers and producers
55
What is the incentive function?
Price changes encourage firms to produce more/less
56
What is rationing function?
Price increases will limit consumption to those who can afford it
57
what is consumer surplus?
The difference between the price buyers are willing to pay versus what they actually pay
58
what is producer surplus?
the difference between the price produces are willing to sell it versus the price they actually sell at
59
What is total surplus?
Consumer surplus + producer surplus
60
An increase in demand leads to what Cs Ps and Ts?
Increase in Cs Ps and Ts
61
An increase in supply leads to what cs ps and ts?
Increase in cs ps and ts
62
A decrease in demand leads to what cs PS and ts?
Decrease in cs ts and PS
63
A decrease in supply leads to what cs ps and ts?
A decrease in cs PS and ts
64
What is PED?
Measures how sensitive consumers areas a change in price, always negative due to P Q inverse relationship
%change in Qd / %change in price
65
What does price elasticity of demand elastic mean?
Consumer is very responsive to a change in price, between -1 and -infinity
66
What does price inelastic mean?
Consumer not very responsive to a change in price, between 0 and -1
67
What are the PED determinants?
Substitutes
Proportion of income
Luxury or necessity
Addiction
Time
Breading market
68
What is income elasticity of demand?
How receptive consumers are to a change in income, normal good have a positive value, inferior good have a negative value
% change in Qd / % change in income
69
What does elastic YED mean?
Goods are luxuries
70
What does inelastic YED mean?
Goods are necessities
71
What is XED?
How is the quantity demanded of one good affected by a change in price of another good
%change in Qd if Good A / %change in price of Good B
72
What is a substitute good?
Goods with a positive XED, they are in competitive demand
73
What is a complementary good?
Goods with a negative XED, they have joint demand
74
What is price elasticity of supply?
responsiveness of the quantity supplied given a change in price, it is always positive
%change in Qs / %change in price
75
What are PES determinants?
Barriers to entry
Raw materials available
Inventory stockpile
Time to produce
Spare capacity of FoP
Skilled labour required?
76
What is an indirect tax?
A tax levied on goods and services rather than an income or profits. Indirect taxes can be specific or ad valorem
77
What is a direct tax?
A tax that is levied against income or profits rather than on goods and services eg income tax, stamp duty.
78
What is a specific tax?
A per unit tax based on quantity, not dependent on value
79
What is ad valorem tax?
A tax whose amount is based on the value of the transaction or property. Eg VAT 20%
80
Explanation for specific tax and ad valorem tax
- Tax increases CoP for firms
- Profit decreases
- S shifts left
81
Eval points for indirect taxes
- Black markets can form
- Deadweight loss Cs and Ps
- Success depends on PED, if inelastic, consumer won’t be deterred
82
What is an indirect subsidy?
A sum of money granted to firms to keep the price of a commodity or service low
83
Explain indirect subsidies
- Cash grant given to farmers
- Decreases CoP
- Increases profit
- S shifts to the right
84
What is market failure?
When a free market fails to allocate resources efficiently
85
What are the three causes of market failure?
- Externalities
- Public goods
- Information gaps
86
What is an externality?
Third party costs or benefits that are not considered by the free market leading to societal benefits or societal costs
87
What are public goods?
Goods that suffer from the free rider problem due to their non rivalrous and non excludable nature
88
What are information gaps?
When a buyer or seller does not have access to the info needed to make a fully informed decision leasing to over/under consumption.
89
What is allocative efficiency?
When scarce resources are allocated optimally. TS maximised, S=D, MPC=MPB
90
What is social efficiency?
When social welfare is maximised
91
What is a negative externality?
An economic activity producing negative third party effects
92
What is a positive externality?
Economic activities producing positive third party effects
93
Eval for externalities
- Impossible to measure size/impact of externality accurately
- Allocative inefficiency if we move away from E1 = DWL
94
What is a public good?
Good that are non excludable and non rivalrous and suffer from the free rider problem
95
What is non excludability?
If non paying consumers cannot be prevented from accessing it
96
What is non rivalrous?
One person's consumption does not restrict others consumption mc= o
97
What is the free rider problem?
When those who benefit from goods/ services do not pay for them = underprovision since Na private firm will supply as no profit can be made
98
Examples of excludable and rivalrous goods (private)
Private schools
Universities
Private healthcare
Flight tickets
Clothes, shoes, restaurants
99
Example of non excludable and rivalrous goods (common goods)
Public schools
Selective schools
Internships/work experience
GP appointments
100
Example o excludable and non rivalrous goods (quasi public)
Gym membership
Netflix subscription
101
Example of non rivalrous and non excludable good (public)
Public parks
Street lights
NHS website
