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Economics WB + WP > Economics > Flashcards

Economics Flashcards

(104 cards)

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1
Q

What is a positive statement ?

A

A statement which is backed up with evidence , and can be put to test in an experiment

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2
Q

What is a normative statement?

A

An opinionated statement about a course of action

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3
Q

What are the factor inputs ?

A

Land- Natural resources available for production

Labour- Human input into the production process

Capital - Goods used to create other goods like a factory

Enterprise- Entrepreneurs organise all factors to make a product

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4
Q

What ways can scarce resources be rationed ?

A

By market price
consumer income
assessment of need
education level
age
gender
nationality
household postcode

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5
Q

What is rationing ?

A

A way of allocating scarce goods when the market demand outweighs the available supply

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6
Q

What are the three types of market ?

A

Free - Markets allocate resources , driven by profit motive , rare government interaction

Mixed - Mix of state and private ownership , government intervenes in markets

Command - Most resources are state owned , planning allocates resources

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7
Q

What is opportunity costs ?

A

something that is given up in order to do something else

Example : the cost of uni compared to going straight into work

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8
Q

What does a PPF show ?

A

shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed

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9
Q

What is the law of diminishing returns ?

A

after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output.

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10
Q

How can the PPF move inwards ?

A

Damaging effects of a natural disaster
Outward migration of skilled workers
Destruction of infrastructure
A trend decline / recession

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11
Q

How does information failure occur ?

A

When people have an inaccurate or incomplete data and so make a incorrect choice .

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12
Q

What causes information failure ?

A

Complexity
Imbalanced knowledge
Price information

Example : Pension schemes complexity , Cowboy builders , Addiction

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13
Q

What is asymmetric information ?

A

When there is an imbalance of information between buyer and the seller , making choices confusing . Example ; a doctor knows more about medications than patient . Mortgage lenders know more about repayments than the lender .

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14
Q

What are the two types of asymmetric information ?

A

Moral hazard - When the customer knows more about their intentions than the producer . E.G : an insured person will take more risks

Adverse selection - The company knows the customers intentions so they increase the prices to capitalise on it .

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15
Q

What policies can the government introduce to address information failure ?

A

They can add more labelling on vapes + ciggies
Anti speeding advertisements
Improved nutritional information
Improving industry standards

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16
Q

What is behavioural economics ?

A

Uses psychology to explain why people make economic decisions .

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17
Q

What is bounded rationality ?

A

Most consumers don’t know enough to make a fully informed decision , complex products make choices hard .

Customers are more likely to chose the easiest product to understand . E.g they use rule of thumb , they chose the easiest pension plans

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18
Q

What are social norms ?

A

Patterns and behaviours accepted by society

Negative social norms - underage drinking . By presenting data , it could reduce the amount of underage drinkers by putting them off

Positive social norms - banning of smoking . anti smoking campaigns have altered social attitude . People understand that smoking is bad and accept anti smoking laws

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19
Q

What are heuristics ?

A

Mental shortcuts will make people chose quicker decisions but not make a perfect choice

Optimal when there is a lack of information

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20
Q

What is choice architecture ?

A

Decisions can be affected by the layout of products

Making the building more attractive .

Eye level is buy level for example

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21
Q

What is default bias ?

A

People prefer to carry on behaving as they always have done

Repeat choices become automatic because they require little brain power / energy

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22
Q

What are choices affected by social norms ?

A

Our day to day behaviour is influenced by social norms

Example : Queuing in England , compulsory seatbelts , smoking bans

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23
Q

What is herd behaviour ?

A

We make decisions based on who else around us makes .

Example : influencers fashion shops

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24
Q

What are the key issues of market demand ?

A

Functions of the price mechanism
Law of demand
Determinants of demand
Joint and effective demand
Demand curve and shifts in demand curve

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25
What are the functions of the price mechanism ?
Price provides the main method through which scarce resources are allocated
26
What is the signalling function ?
Prices signal what is available If price signals are wrong , then markets will perform inefficiently or break down
27
What is demand ?
The quantity that the customers are willing to pay
28
What is effective demand ?
Demand of a product is backed on the willingness to pay market price
29
What is the basic law of demand ?
Demand varies inversely with price E.G : lower prices make products more affordable for customers
30
What are factors that affect demand ?
Price Fashion Scarcity Price of alternatives Income level Compliments ( things that go together ) Availability of credit
31
In demand theory if a price is high , what will happen to its demand ?
Higher price = Reduced quantity demanded
32
In demand theory if a price is low , what will happen to its demand ?
Lower price = expansion of quantity demanded
33
What is the income effect ?
A fall in price increases purchasing power Allows for more to be bought with their budget For normal goods , demand rises when incomes do
34
What is the substitution effect ?
A fall in price makes it cheaper compared to other products Some will switch to alternative goods , leading to more demand
35
How is the demand curve shifted on a demand diagram ?
If the price increases , the lines moves inwards If the price decreases , the line moves to the right
36
What is condition of demand ?
A determinant of demand other than the goods own prices that fixes the position of the demand curve E.G : Personal income , preferences , advertising campaigns
37
What happens to the demand curve when disposable income rises
The demand curve shifts to the right
38
What is a normal good ?
When demand increases when incomes rise When incomes fall , demand decreases
39
What is an inferior good ?
Demand decreases as incomes rise Demand increases when incomes fa;ll
40
What is the meaning of elasticity ?
The responsiveness of a second variable to an initial change in the first variable
41
What factors cause shifts in the demand curve ?
Affects of advertising and marketing Change in the price of complimentary goods Seasonal factors ( Christmas , Easter ) Changes in income Interest rates
42
What is utility ?
A measure of satisfaction that we get when purchasing or consuming a product or service
43
What is total utility ?
The total satisfaction from a given level of consumption
44
What is marginal utility ?
The change is satisfaction when consuming another unit
45
What is diminishing returns ?
The marginal utility of extra units decline when more is consumed
46
What are social and emotional factors affecting demand ?
Social = Social awareness . Change in social norms . Changing behaviours . Social pressure Emotional = Emotional arousal affects health insurance , binge eating at times of personal insecurity . Products with strong emotional attatchment
47
What is derived demand ?
The demand for a factor of production used to produce another good or service Example : Steel , Wood , labour , Transport
48
How are supply of goods and services different at different prices ?
Supply curve moves upwards , the higher the price of a good , the more it is supplied . Producers and sellers want to maximise profits . Higher price = higher profit incentives to expand production Increasing supply increases cost ,firms will only produce more if prices increase by more than the cost
49
What are the changes in the supply curve and what do they tell us ?
A shift to the left = There is a decrease in the amount supplied A shift to the right = There is an increase of the amount supplied
50
What factors cause a shift in the supply curve ?
Changes to the cost of production - increase costs reduce profits , reduced costs increase profits Improvement in technology - can reduce the cost of production , improves efficiency , reduces waste expenses Changes to the productivity of the factors of production - more production staff will increase the output , ultimately increasing profits
51
What is joint supply ?
When the production of one good produces another good If the price of a product increases , the price of the joint products will also increase
52
How does taxes and subsidies affect the supply curve ?
The curve shifts left when the government imposes spending tax or VAT for firms , so companies increase prices to cover the cost of that new overhead Supply curve shifts to the right when there are subsidies paid to companies , this reduces the cost of production , meaning that they can produce more and sell more to the market
53
What is the law of supply ?
The quantity of a good or service that a producer is willing and able to supply to the market As market prices increases , produces expand production in the market
54
What causes a shift in market supply ?
Changes in production costs Government taxes and subsidies Production technologies Change in the number of producers Objectives of suppliers Changes in the price of substitutes
55
What is price elasticity ?
Measures of responsiveness of demand to a change in the price of goods
56
What is the equation for Price elasticity of demand ?
Change in Quantity / Original Quantity
57
What is the mathematical relationship of Price and Demand ?
They are inversely proportionate If prices increase , we see a contraction in demand If prices decrease , we see an expansion in demand
58
What are the values of price elasticity of demand ?
PED = 1 ( demand is perfectly inelastic ) PED = 0-1 ( demand is inelastic ) PED = 1 ( demand is elastic ) PED = 1+ ( demand elastic )
59
What is the importance of price elasticity of demand for a business ?
Firms can use PED estimates to predict : effect of change in the price of quantity demanded The change in price of total revenue Price volatility in market following changes in supply The effect of tax on price and quantity demanded
60
Factors that affect the PED ?
Number of close substitutes Degree of necessity of consumption Peak and off peak demand Percentage of customers income allocated to spending Whether demand becomes a persons habit
61
What is Cross elasticity ?
The responsiveness of demand for a good following a change in the price of a related good Close substitutes = positive CPE ( small change in price causes big shift in consumer demand ) When there is a strong complementary relationship , CPE will be highly negative Unrelated products have 0 CPE
62
What is income Elasticity of demand ?
How responsive the demand for a product is to a change in income
63
What is the equation for income elasticity of demand ?
Change in quantity demanded / change in real income
64
How do different types of goods react to YED ? ( Income elasticity of demand )
Normal goods - Positive income elasticity Luxury goods - Income elasticity = +1 Necessities - Income elasticity >0 <+1 ( bigger than 0 , smaller than 1 ) Inferior goods -Negative income elasticity
65
How do normal necessities and luxuries react to YED ?
Normal necessities - Have a low positive YED ( like fruit or milk ) Normal luxuries - Have a high positive YED ( typically high end stuff)
66
How do inferior goods react to YED ?
inferior goods have negative YED When incomes are rising , demand will fall ( demand curve inwards ) When incomes are falling , demand will increase ( demand curve to the right )
67
What are some examples of luxury and inferior goods ?
Luxury - expensive watch , jewellery , fine wines Inferior - own label discounts , economy class travel , Bus transport
68
What is price elasticity of supply ?
measures the relationship between change in supply in quantity supplied and a change in price
69
What is the equation for price elasticity of supply ?
%change in quantity supplied /%change in price
70
When will market supply be price elastic ?
When suppliers have plenty of spare capacity to increase input High stock levels to meet rising demand short production time Resources are easily allocated
71
What are the main functions of the price mechanism ?
Allocating Rationing - prices ration resources when demand > supply Signalling - prices adjust to signal when resources are required Incentives - when the price of a product rises , supply increases
72
What is the Rationing function ?
Where there is a shortage of a product , price will rise and deter some consumers from buying the product
73
What is the signalling function ?
Changes in price provides information to both producers and consumers about changes in market conditions
74
What is market equilibrium ?
A state of equality or balance between demand and supply
75
What is market failure ?
occurs when a free market fails to deliver an efficient or optimal allocation of resources
76
What are the main causes of market failure ?
Imperfect information market abuse / Monopoly power Markets can unequally distribute resources to certain groups Externalities causing Private + social costs to increase
77
What is a private good ?
Goods that are provided by the market consumers of private goods can be excluded from consuming the product if they are not willing to pay for it Private goods are excludable - others can be prevented from consuming them Private goods are rivalrous - one persons consumption reduces the amount left for others
78
What is a public good ?
Goods that are non excludable , non rivalrous or reject able Non excludable - Cannot be restricted to those who don't pay - they can still reap the benefits Non rivalrous - If a public good is supplied to one , it is still available for all . Does not diminish others enjoyment Non reject able - You cannot reject to contribute to public goods . e.g. if I don't want the army , my taxes cant be changed due to this idea
79
What are some examples of pure public goods ?
Sanitation infrastructure Crime control BBC
80
What is a quasi public good ?
A near public good - it has near characteristics of a public good Semi rival - up to a point more consumers use a product do not reduce amount for others Semi non excludable - possible but difficult or costly exclude non paying consumers e.g Private health care
81
What is the free rider problem ?
It is difficult to charge people for benefitting once a product is available Since people don't have to pay to reap the rewards
82
What is a global public good ?
Goods that benefit every country irrespective of which ones provide them E.g Security from war The rule of law , property rights Proliferation of nuclear weapons Agreements of the ozone
83
What are public bads / negative externalities ?
Public bads have negative effects on people and their communities leading to a significant loss of welfare e.g Spread of disease Environmental problems Gender discrimination in labour markets
84
What are merit goods ?
Goods and services the government feels that people will under consume , might be subsidised or given out free e.g. health programmes , free school meals , education providers , libraries A merit good has a positive externality / a product that society values
85
What are demerit goods ?
A product that the government believes consumers overvalue due to imperfect information , it is socially undesirable , that are not aware of the negative externalities This may be because consumers have imperfect information of the products . Causing negative externalities
86
Examples of demerit goods ?
High caffeine / energy drinks Alcohol + binge eating Tobacco products High fat + sugar foods
87
What are private costs and benefits ?
Private costs are costs which the producer or the consumer are directly facing in a transaction Private benefits are benefits seen by the producer / consumer involved in the transaction
88
What are social costs and benefits ?
Social cost = private cost + external cost Social benefit = Private benefit + external Benefit
89
How do negative externalities occur ?
When production / consumption impose external costs on third parties outside the market
90
Name some negative production externalities
Air pollution Pesticides used in farming Noise pollution from airline industry damage to the environment from fishing
91
Name some consumption externalities
Vehicle Fly tipping of household waste / tourists noise pollution from sports matches impact on family due to gambling and alcohol abuse Traffic congestion
92
Name some benefits of regulation
Regulation can be gradually changed each year - help stimulate capital investment Regulation may be more effective if demand is unresponsive to a price change
93
What are some costs to adding regulation ?
High cost of enforcing the law Cost of meeting regulations can discourage small business + lower competition in markets
94
What is government failure ?
Is when intervention leads to deeper market failure , intervention creates further inefficiencies , a misallocation of resources + loss of welfare
95
What are some problems with Govt intervention ?
Policies may have long term consequences for the economy Policies may be ineffective at meeting their aims Policies may create more losers than winners
96
Name some examples of the causes of market failure
Political self interest Information failures High enforcement Red tape / over regulation
97
What is the law of unintended consequences ?
Actions of customers , producers and government - always have effects that are unanticipated or unintended
98
What are regulatory failures ?
Regulators may limit innovation in fast growth markets capping prices may prevent new firms in the market frequent policy change may stifle business investment regulation is expensive
99
Abnormal Profit
Profit on excess of normal - monopoly profit
100
Marginal Profit
Increase in profits when one more unit is sold
101
Normal Profit
Transfer earnings if the entrepreneur (to stay in the market)
102
Profit Maximisation
Marginal Cost = marginal revenue
103
Profit per unit
Profit margin ( AR - ATC )
104
LRAC
long run average cost curve

Economics WB + WP (2 decks)

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