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Economics Term 1 Pre Q > Economics term one PreQ > Flashcards

Economics term one PreQ Flashcards

1
Q

Basic economic problem

A

Scare resources + unlimited wants

how to allocate scare resrouces for unlimited wants

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2
Q

Three questions to solve in the basic economic problem

A

WHAT to produce and in WHAT quantities
HOW to produce it with scarce resources
WHO to produce it for - which consumers

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3
Q

What to produce

A

deciding what wants to satisfy

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4
Q

how to produce

A

means deicing what combination of factors of production you need to use

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5
Q

How is a want different from a need?

A

A need is essential eg water food
A want is something that would be nice to have but not essential

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6
Q

What are consumer goods

A

Goods used by consumers to satisfy their wants and needs eg clothes food

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7
Q

What are capital goods

A

Goods used by PRODUCERS to help them make other goods and services
eg machinery buildings equipment

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8
Q

what is a demand schedule

A

a TABLE which shows the range or prices and quantities emanded at each price

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9
Q

Demand Curve - what are the axis ?

A

Price (vertical)
Quantity (horizontal) - how much consumers are willing to buy at the price

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10
Q

What happens on a demand curve when demand INCREASES

A

the curve moves to the right
(demand increases and quality of goods sold increases as there is more demand)

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11
Q

Names some factors that could lead to an increased demand for goods eg apples

A
  1. advertising campaign
  2. Govt says eating apples is healthy
  3. consumers had a pay rise or a tax cut so have more spending money
    4 price of another fruit goes up so people prefer apples as cheaper compared to alternative fruits
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12
Q

What does price elasticity measure ?

A

the responsiveness or sensitivity of the quantity demanded for a good or service compared to a change in its price

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13
Q

if a good has low elasticity of demand what does that mean

A

if the price changes for the good, there will be only a small impact on the quantity demanded of that good. Demand is NOT very responsive if price changes.
that means people will still buy similar quantity even if its more expensive eg petrol

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14
Q

if a good has HIGH elasticiy of demand what does that mean

A

if the price goes up people will buy much less. They are VERY sensitive or responsive to price change. eg Limes at $40 per kilo poeple buy one lime - drops to $10 per kilo and poeple buy lots

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15
Q

when demand is ELASTIC what happens to price

A

% change in quantity is greater than % change in price
example price drops by 10% but quantity sold increases by 20% - so MORE is sold and revenue increases.

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16
Q

What does it mean when the price is fixed for a moment in time

A

supply is perfectily inelastic - the supply line and price line are both vertical.

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17
Q

what is a direct tax

A

tax directly on income

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18
Q

what is an indirect tax

A

a tax on goods that consumers have to pay like GST
its an extra cost to the producer

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19
Q

a market economic system is also called

A

a free market system - markets of producers and consumers decide what how and for whom

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20
Q

3 types of economies and examples

A

Planned (China North Korea Cuba)
Mixed (UK US Germany France
Free Market (NZ Canada Australia)

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21
Q

in a planned economy who own the resources?

A

the government

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22
Q

3 advantages of planned economy

A
  1. reduced inquality
  2. more social welfare
  3. critical assets (power food) controlled by Govt for everyone
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23
Q

3 problems that can happen in a planned economy

A
  1. shortages and surpluses are common
  2. good can be poor quality
  3. very little choice or range of goods because govt decides what people need
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24
Q

3 disadvantages of Planned economy (also called a command economy)

A
  1. lack of competition and innovation
  2. lack of freedom of what to produce
  3. firms may produce things that are not profitable because told what to produce
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25
Q

what is a mixed economy

A

a mix of central authorities, firms and consumers

combines govt planning with use of the free market

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26
Q

advantages a MIXED economy

(a mix of central authorities, firms and consumers)

A
  1. govt provided incentives for people to work so less unemployement
  2. govt provides subsidies for critical industries eg farming power
  3. some price controls
  4. public services like roads health care and education can be provided for everyone
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27
Q

disadvantages of MIXED economy

A
  1. the Govt cannot completely control the economy so things don’t always go to plan because some of the economy is a free market
  2. may have high taxes to pay for everything
  3. there may be too many laws to control everything leading to over regulation and disincentives to producers
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28
Q

what is the main aim of a business in free market economy

A

to make as much money/profit as possible by producing quality products at reasonable prices

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29
Q

what is profit

A

everything left over once all the costs and expenses have been paid

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30
Q

Advantages of free market economy

A
  1. customers have more choice
  2. incentives to innovate and try to make profit
  3. competition encourages innovation and new/better products
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31
Q

Disadvantage of free market economy

A

factors of production only used if can make a profit

certain goods may not be produced

people who earn more can get more

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32
Q

What is the law of demand

A

as price increases the quantity demanded decreases and vice versa ceteris paribus (all things being equal)

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33
Q

3 things that cause a SHIFT in demand

A
  1. change in consumer INCOME
  2. change in PRICE and AVAILABILITY of other goods (like subsititutes)
  3. change in consumer TASTES
  4. change in POPULATION
    - more people means increased demand
34
Q

what are normal and inferior goods

A

normal goods that behave normally - so if have more income demand will go up

inferior goods are cheap goods that if you earn more you would not buy eg clothes from the warehouse

35
Q

what is a complementary good

A

goods consumed together so have joint demand
eg jetski and lifejackets

36
Q

What is disposable income

A

how much consumer has to spend after their tax has been paid

37
Q

What is the law of supply

A

as the price of good or service increases, the quantity supplied
will increase and vice versa, ceteris paribus (all things being equal)

38
Q

5 factors than cause a shift in supply

A

1 change in COSTS of production MAIN FACTOR CHANGING SUPPLY
2. change in PRICE
3. change in TECHNOLOGY means easier to prduce more
4. change in business EXPECTATIONS like fear of a recession means produce less
5. GLOBAL factors like sanctions wars floods

39
Q

what is opportunity cost

A

the next best alternative that had to be given up ie what could I have done or produced instead??

Its a sacrifice or trade off

if i work more the opportunity cost is my leisure time i have given up
if i work less the opportunity cost is the money i could have made

If i go to university for 3 years the opportunity costs it eh 3 years money i would have made if i had got a job instead

40
Q

why are wants not always fully satisfied.

A

limited resources to produce goods

cannot make everything for everybody that they may want

41
Q

4 factors of production

A

Capital
Entreprenuership/Enterprise
Labour
Land (natural resources on and in and under the land)

42
Q

2 types of costs producers face

A

Internal costs (inside their business) eg wages, cost of their building

External costs eg transprot costs.

43
Q

2 types of costs producers face

A

Internal costs (inside their business) eg wages, cost of their building

External costs eg transport costs.

44
Q

when supply increases then price will

A

decrease or fall

45
Q

Land as a factor of production

A

is natural and can be improved by humans to be more valuable in production

46
Q

what is an example of market failure

A

monopolies who make abnormal profits as no one can complete with them so they can charge what they like

47
Q

why are some jobs poorly paid like street cleaners

A

because anyone can do it and it is unskilled

48
Q

4 types of trade unions

A

WIGC

Workers Union
Industrial Union eg teachers
General Union
Craft Union

49
Q

what is the opportunity cost for cars if the government builds more cycleways

A

demand for bikes will increase so demand for cars will drop

50
Q

Advantages and disadvantages of free market economy

A
  1. freedom of action by business
  2. incentives to innovate and try to make profit
    consumers have more choice
  3. unequal distribution of wealth
51
Q

What is market price or equilibrium

A

where supply and demand curves meet - stable price and stable supply so no need to change

52
Q

Price elasticity tell us

A

HOW MUCH demand will move in response to price change

53
Q

a more vertical/steeper demand curve

A

means demand is INELASTIC
demand changes LESS % than the % change in price eg milk pertrol bus to work

54
Q

price elasticity means % change in price means

A

bigger % change in demand - ELASTIC

smaller % change in demand - INELASTIC people will buy it even if more expensive

55
Q

Price Elasticity of demand PED is measures by

A

a coefficient of demand

% change in quantity demanded
OVER
% change in price

56
Q

If PED is less than 1

A

demand is price inelastic

57
Q

if PED is more than 1

A

demand is price elastic

58
Q

what does a PED of 0.60 tell you

A

that for every 1% change in price, the quantity demanded falls by 0.60%
price is inelastic as PED is less than 1

59
Q

what does a PED of 1.75 tell you ?

A

that for every 1% change in price, the quantity demanded changes by 1.75%
Price is elastic as PED is more than 1

60
Q

what does a special vertical demand curve line tell you

A

the same quantity is demanded at every price
demand is PERFECTY inelastic
PED = 0

61
Q

what does a special demand curve horizontal line tell you

A

any quantity can be demanded at the same price
demand is perfectly elactic
PED = infinity

62
Q

special demand curve hyperbola

A

shows you that any % change in price has the SAME % change in quantity demanded
demand is UNITARY elastic
PED = 1

63
Q

why does a popular brand have a lower PED (price elasticity) than a less well known brand

A

because people will still be loyal to the leading brand after a price rise so demand is impacted less by the price rise. Less likely to change to another brand even if price rises eg whitakers chocolate

64
Q

Price Elasticity of SUpply or PES

A

how much the quantity supplied changes if the price changes

65
Q

more vertical supply curve

A

supply is price INELASTIC

PES less than 1

supply curve will go through the X (quantity) axis)

66
Q

a flatter or more horizontal supply curve

A

supply is price ELASTIC

PES more than 1

supply curve will go through the Y (price axis)

67
Q

factors that effect PES or PRICE ELASTICITY OF SUPPLY

A
  1. TIME - how long it takes ot get or make the goods
  2. availability of resources
    3.
68
Q

becasue of scare recourses which have alternative uses

A

choices have to be made and what is given up is the opportunity cost

69
Q

2 types of cost that result from a choice of what to make or build or do

A

Opportunity cost (your private cost of the choice)

external cost (cost to others such as giving up peace and quiet or having pollution from new roads

70
Q

examples of external Costs from a business choice

A

health costs to taxpayer for example if someone smokes beside you
police and ambulance services
giving up peace (loud roads loud music etc)

71
Q

what is a PPC?

A

Production Possibilities Curve

72
Q

what is a PPC?

A

Production Possibilities Curve

73
Q

Opportunity cost can also be called

A

Lost opportunity - what did you miss out on because of your choice

74
Q

what is on the axes of a PPC

A

X = Quantity of Good A
Y = Quantity of Good B

75
Q

What type of economy produces widest variety of goods and services

A

a free market economy

76
Q

what could cause movement upwards along a supply curve ie more supply

A

better technology makes goods cheaper to produce so can produce more

77
Q

3 types of industry

A

Primary

Secondary

Tertiary

78
Q

what is market failure ?

A

insufficient distribution of good and services in the free market and it leads to lack of equilibrium

79
Q

what is the function of money ?

A

a medium of exchange

80
Q

what does a PPC show

A

the trade offs or opportunity costs of production between two goods

Economics Term 1 Pre Q (5 decks)

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