Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Wolsey Hall > Economics Module 2 > Flashcards

Economics Module 2 Flashcards

1
Q

What is microeconomics?

A

The study of small-scale units and markets, and individual decision making within the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is macroeconomics?

A

The study of major units and aggregate decisions that make up the economy (national spending and national output)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Who makes microeconomic decisions?

A

Businesses, individuals, and consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What impacts do macroeconomics have?

A
  • Level of inflation
  • Growth of economy
  • Changes in employment/unemployment
  • Total level of imports/exports
  • Level of development within an economy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Who are the key decision makers in the macro-economy?

A
  • Groups of consumers (households)
  • Groups of producers/firms
  • Exporters and importers
  • The government
  • The financial sector
  • International government bodies and non-government organisations (NGOs)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the three main sectors in any economy?

A

Firms, households and the government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a market system?

A

A situation that brings buyers (consumers) and sellers (suppliers) together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How does the market allocate resources?

A

Prices act as signals that communicate to suppliers the wishes of consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is market price?

A

The price of a good that is reached through competition based on supply and demand - i.e the equilibrium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does market equilibrium mean?

A

A market with no tendency to change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What does market disequilibrium mean?

A

A market in a state of change because either supply or demand forces are in a state of change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What state is a market usually in?

A

Disequilibrium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What state is a market seeking to be in?

A

Equilibrium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are examples of decisions involving the allocation of resources?

A
  • What resources will be used
  • How the resources will be used
  • Who decides how the resources will be used
  • Who benefits from the use of the resources
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is an economic system?

A

The way in which resources are allocated in an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the difference between the USA’s, UK’s and Japan’s mixed economy with China’s, Venezuela’s and North Korea’s?

A

The former have little government decision making, while the latter’s governments have control over entire industries and make most economic decisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What decides how resources are allocated in a market economy?

A

The interaction between consumers and suppliers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What do consumers and suppliers base their economic decisions on?

A

Prices, which act as signals of supply and demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a mixed economy?

A

An economy where some decisions are made by the government and the rest by the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the market mechanism?

A

How a market allocates resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is effective demand?

A

A want for a good or service supported by the money to purchase it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is demand’s relation to prices?

A

When prices go up, demand goes down. When prices go down, demand goes up.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the term for when prices rise and demand falls?

A

A contraction in demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the term for when prices fall and demand rises?

A

An extension in demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Which direction do supply and demand curves slope in?

A

Demand is downwards (left to right) and supply is upwards (left to right)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How does a demand curve move during a change in price, and during a change in demand?

A

Price: There is a movement along the curve.
Demand: The curve itself moves.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Why might demand for a product change?

A
  • Popularity or fashion
  • Income
  • Age distribution of the population
  • Price of substitute or complementary goods (complements)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is supply?

A

The quantity that producers supply to the market at different prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is supply’s relation to prices?

A

When prices go up, supply goes up. When prices go down, supply goes down.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What causes extensions and contractions in supply?

A

Changes in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What can cause changes in supply?

A
  • Rising/falling production costs
  • Changes in physical conditions
  • Taxation and subsidies
  • Joint supply
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is equilibrium price?

A

When demand and supply are balanced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What market clearing price?

A

The equilibrium price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

How is the market clearing price illustrated?

A

Supply and demand curves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What is the difference between demand and quantity demanded?

A

Change in demand = shift in demand curve
Change in quantity demanded = movement along the demand curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What causes a change in demand or supply?

A

A change in conditions of demand or supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What causes a change in quantity demanded or supplied

A

A change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What does a change in demand or supply cause?

A

A new market quantity and new market price

39
Q

What is elasticity of demand?

A

The way to measure how demand responds to a change in price

40
Q

Can goods/services be elastic?

A

No. Only demand for a good/service can be elastic

41
Q

How to you measure price elasticity of demand?

A

Price elasticity of demand = % change in quantity demanded / % change in price

42
Q

Price elasticity of demand is an inverse relationship. What does this mean?

A

The figure is always negative

43
Q

How can you tell if demand is elastic or inelastic?

A

It is elastic if the figure is less than -1 (-2 = elastic, -0.5 = inelastic)

44
Q

What do elastic and inelastic demand look like on a demand curve?

A

Elastic = shallow sloping curve
Inelastic = steep curve

45
Q

What is revenue?

A

The sum of money a business receives from sales of goods

46
Q

How do you calculate revenue?

A

Revenue = Quantity sold x Price per item

47
Q

What can influence the price elasticity of demand of products?

A
  • Whether it is essential (inelastic) or a luxury (elastic)
  • How much is spent on the product. (Small % of income = inelastic, large % of income = elastic)
48
Q

If demand is elastic, should a business increase or decrease price for more revenue?

A

It should decrease price

49
Q

If demand is inelastic, should a business increase or decrease price for more revenue?

A

It should increase price

50
Q

What do governments use knowledge of price elasticity for?

A

To set tax rates on goods

51
Q

What do governments use knowledge of price elasticity of demand for?

A

To set tax rates on goods

52
Q

How do you measure price elasticity of supply?

A

Price elasticity of supply = % change in quantity supplied / % change in price

53
Q

Is price elasticity of supply positive or negative?

A

Positive

54
Q

What is price elasticity of supply?

A

The way to measure how supply responds to a change in price

55
Q

How can you tell if supply is elastic or inelastic?

A

It is elastic if the the % change in quantity supplied is greater than the % change in price

56
Q

What can influence the price elasticity of supply of products?

A
  • Time (perfectly inelastic supply)
  • How easily a product can be stored
  • The cost of increasing supply
57
Q

What is perfectly inelastic supply, and what does it look like as a supply curve?

A

When supply cannot be increased at a moment in time. It is a straight vertical line. (Supply cannot increase, so as demand increases price must increase. Think Skylanders or MCSM.)

58
Q

What is a free market system?

A

A capitalist system: Individuals set up their own enterprises and most decisions are made my consumers and producers

59
Q

What are the key decisions in a free market system?

A
  • What to produce
  • How much to produce
  • Who gets the products
60
Q

Why are goods produced in a free market economy?

A

To create profits

61
Q

What are the two main sectors in a market economy?

A

The private sector and the public sector

62
Q

What is the private sector?

A

The part of the economy made up of small, medium and large-scale businesses set up by individuals.

63
Q

What is the public sector?

A

The part of the economy run by the government. (i.e. tax department, public transport, central bank)

64
Q

What are merits of the market system?

A
  • Coordinated decision making
  • Provides plenty of choice
  • Competition keeps prices down
65
Q

What are weaknesses of the market system?

A
  • Does nothing to aid the vulnerable (emphasis on individuals)
  • Pursuit of profit over employee safety, environmental standards and ethical behaviour
  • Subject to falls in macroeconomic activity (trade cycle)
  • Potential market failure
66
Q

What is market failure?

A

Failure or inefficiency to produce goods that consumers want at prices they can afford.

67
Q

What is a public good, and who provides it?

A

Something that must be provided to the whole community or not at all (i.e. police force). Is provided by the government.

68
Q

What is a merit good, and who provides it?

A

Something that provides benefits to society as a whole rather than an individual (i.e. vaccination). Is provided by the government.

69
Q

What are two main criticisms of the market system?

A
  • Does not always produce desirable outcomes (fast food, cigarettes, alcohol)
  • Failure to produce public or merit goods
70
Q

How do governments combat market failure?

A

By managing the public and merit goods the market fails to provide (i.e. WHO, emergency services), and putting restrictions on certain goods (cigarettes, alcohol).

71
Q

What are private costs and benefits?

A

The advantages and disadvantages of a financial decision for individuals or businesses.

72
Q

What is net financial return/benefit/profit?

A

Private benefits minus private costs.

73
Q

What is an externality?

A

The external/unintended effect of an economic activity. There are positive and negative externalities.

74
Q

What are social costs and benefits?

A

Social costs: Private costs + external costs (traffic, pollution, noise)
Social benefits: Private benefits + external benefits (Jobs created, more transport connections)

75
Q

What causes market failure?

A
  • Monopoly
  • Factor immobility
  • Creation and ignorance of negative externalities
76
Q

What are the consequences of market failure?

A
  • Overproduction of demerit goods
  • Overconsumption of goods with external costs (pollution, carbon footprint)
  • Underproduction of merit goods (cannot provide external benefits by charging for them)
    Market failure leads to overproduction and underproduction.
77
Q

What is a demerit good?

A

A good that is unhealthy or damaging to an individual or society as a whole, i.e. drugs, cigarettes, alcohol, fast-food

78
Q

How does the government intervene in the micro-economy?

A

Maximum prices and minimum prices.

79
Q

What is nationalisation?

A

When the government takes ownership of industries previously in the private sector - sets up public corporation

80
Q

What is a public corporation?

A

A body that runs a government-owned industry on behalf of the government (i.e. NHS)

81
Q

What is privatisation?

A

When the government sells off industries previously owned by public corporations to entrepreneurs and companies

82
Q

What is direct provision?

A

Where the government provides public and merit free of charge (i.e. education, road networks)

83
Q

What is regulation, and what is its purpose?

A

Rules imposed by the government backed up by penalties. They are designed to modify the behaviour of businesses and individuals in a way that benefits society.

84
Q

What are the advantages of regulation?

A
  • Improve efficiency
  • Redistribute income
  • Prevent market failure
  • Limit externalities
  • Balances the interests of private firms (profit) with the interests of the wider public
85
Q

What are the disadvantages of regulation?

A
  • Raises business costs
  • Affects productivity
  • Lose competitiveness because of cost complying with regulations
86
Q

What are subsidies?

A

Incentives provided by the government to individuals and households to carry out desired activities.

87
Q

Why might subsidies be provided?

A
  • Encourage production of essential products
  • Develop new products and industries
  • Support declining industries
  • Protect domestic industries against foreign competition
88
Q

How is the effect of subsidies illistrated?

A

They push the supply curve to the right

89
Q

What are indirect taxes?

A

A tax payed by an intermediary (usually a business) to the government. The tax is added to the price of a product, so the intermediary collects the tax from the consumer on behalf of the government.

90
Q

What is incidence of tax?

A

Who pays the most of indirect tax - either the buyer or the seller.

91
Q

Who pays the most of indirect tax if demand is elastic or inelastic?

A

Elastic: The seller, because they cannot raise prices too high
Inelastic: The buyer, because the seller is able to raise prices

92
Q

What are taxes seen as in terms of businesses?

A

A cost to business

93
Q

How should taxes be designed?

A

To support government objectives without discouraging effort or intiative.

Wolsey Hall (19 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions