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Economics Unit 1 Revision > Exam Revision > Flashcards

Exam Revision Flashcards

1
Q

Product Market

A

Buying and selling of finished goods.

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2
Q

Factor Market

A

Buying and selling of factors of production

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3
Q

Market Economy

A
  • Price Mechanism
  • Private Property Ownership
  • Economic Freedom
  • Economic Incentive to take part in activity
  • Consumer Sovereignty
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4
Q

Competitive Market

A
  • Large number of firms
  • Firms are price takers
  • Very similar products
  • Ease of entry
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5
Q

Non-competitive Market

A
  • Small number of firms
  • Product differentiation
  • Firms are price setters
  • Entry is restricted
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6
Q

Law of Demand

A

The higher the price, the less quantity is demanded, and vice versa.

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7
Q

Individual Demand Curve

A

Refers to the quantity of a product by a single consumer at any given price.

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8
Q

Market demand curve

A

Includes the individual demands of all participants in the market.

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9
Q

Factors Affecting Demand

A
  • Price
  • Income
  • Population
  • Tastes and preferences
  • Prices of substitutes and complements
  • Expected future prices
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10
Q

Change in price on demand curve

A

Demand decreases; movements along the curve occur.

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11
Q

Non-price factors factors affecting demand

A

Can either increase or decrease

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12
Q

Law of Supply

A

The lower the price the less supplied, the higher the price, the more supplied.

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13
Q

Factors affecting Supply

A
  • Price
  • Cost of production
  • Factors of production
  • Expected future prices
  • Number of suppliers
  • Technology
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14
Q

Non-Price factors affect market Supply

A
  • Technology: Increase
  • Input Costs: Increase
  • Government Regulations: Decrease
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15
Q

Market Equilibrium

A

When quantity demanded equals quantity supplied.

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16
Q

Concept of Market Clearing, shortages, surplus.

A

Shortages: When there is more demand than supply, buyers will have to compete to buy the product.

Surplus: More supply than demand, cheaper prices.

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17
Q

Price Mechanism

A

See bottom of page 34 in study guide for diagram and explanation.

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18
Q

Price Elasticity of Demand (PED)

A

Measure of the response or reaction in quantity demanded to a change in price of that product.

PED= Percentage change in quantity demanded/percentage change in price.

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19
Q

Determinants of PED

A
  • Importance of product
  • Whether or not substitute products are available
  • Definition or scope of the market
  • Time to respond
  • Proportion of income spent on product
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20
Q

Price Elastic & Price Inelastic

A
  • Price Elastic: A small change in price, causes a large change in demand.
  • Price Inelastic: A large change in price, causes a small change in Demand.
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21
Q

Link between PED and total revenue

A

When price is changed and Demand is elastic, the total revenue will decrease, as consumers are less inclined to buy a product as their Demand is elastic.

22
Q

Income Elasticity of Demand (YED)

A

YED measures the response of quantity demanded to a change in income.

YED= %change in quantity demanded/% change in income

23
Q

Normal and Inferior Goods

A

When income is low, the quantity of inferior goods demanded will increase. When income is high inferior goods become unwanted and demand rises for normal goods.

24
Q

Cross Elasticity of Demand (XED)

A

A measure of the response in demand for a product when the price of a related or linked product changes. It can measure how sensitive demand for apples is if there is a change in price of oranges.

25
Q

Value of Substitutes and complimentary goods in relation to XED

A

Substitutes - Cherry Ripes and Kit Kats

Complementary - Petrol and Cars

26
Q

Price Elasticity of Supply

A

Impact of changes in the price of the product on the quantity of a product supplied to the market.

27
Q

Elastic and Inelastic Supply

A

Elastic: Supply of a good or service that increases or decreases as the price of an item goes up or down.

Inelastic: A situation in which any increase or decrease in the price of a good or service does not result in a corresponding change in its supply.

28
Q

Determinants of PES

A
  • The short run: One factor is fixed
  • The long run: All resources is fixed, but no new tech is available.
  • The very long run: All factors can be varied
  • Technological complexity
  • Mobility of resources
  • Ability to hold stocks or inventories
  • The amount of unused capacity
  • Does Supply rely on an external factor
29
Q

Significance of Price and Income Elasticity for consumers, businesses and Governments

A

They may want to encourage the use of merit goods such as public transport by providing a subsidy or discouraging the use of demerit goods such as ciggs, cool drinks and cars by installing a tax. Although this will be more successful where price is elastic.

30
Q

Market Efficiency

A

Belief that market economies generate economic efficiency.

31
Q

Consumer Surplus

A

Everybody that buys something gets a bonus because the benefit or pleasure they receive is greater than the price they have to pay for it.

32
Q

Producer Surplus

A

When a producer gets a bonus because the money they receive for a sale is greater than its production cost.

33
Q

Maximising Welfare

A

Consumers and producers opt out of a market when they don’t get their bonus. When market equilibrium quantity is reached this occurs.

34
Q

Market Failure

A

Situations where markers do not maximise welfare

35
Q

Competitive & Imperfect Markets

A

Competitive Market:

  • Large number of firms
  • Firms are price takers
  • Very similar products
  • Ease of entry

Imperfect Market: Oligopolies and Monopolies

36
Q

Under & Over production = Deadweight loss

A

Prices may be set above or below the equilibrium or clearance price, therefore not operating at most efficient point, thus deadweight loss occurring.

37
Q

Market Power

A

One or more producers have monopoly power in a market.

38
Q

Barriers of Entry

A

Structural Barriers: Supermarkets buying power over suppliers, access to cheaper finance, specialisation, agglomeration.

Strategic Barriers: Control of Supply, brand loyalty, anti-competitive, predatory pricing, bundling, tacit collusion.

Legal Barriers: Government regulation, protection of intellectual property.

39
Q

Market Power leading to deadweight loss

A

See page 85 in study guide for graph.

40
Q

Role of ACCC in ensuring efficiency.

A

The act provides general protection, such as protection against misleading advertisements. Concentrating on behaviour that is anti-competitive such as market sharing arrangements, third-line forcing, predatory pricing, boycotts, resale price maintenance.

41
Q

Policy options to influence market Power

A

Informing consumers with websites that close information gaps.

42
Q

Positive v Negative Externalities

A

Positive Consumption: Consumption creates benefits for people not directly involved in making that Consumption decision
(E.g. Flu vaccinations and education)

Positive Production: Production or a product reduces cost for people not directly involved in making that production decision.
(E.g. Training workers, renewable resources to produce energy)

Negative Consumption: Consumption imposes loss of benefits for people not directly involved in making that decision.
(E.g. using mobile phone when driving, smoking in public)

Negative Production: Production imposes loss of benefits for people not directly involved in making that decision.
(E.g. using fossil fuels for electricity, musical festivals)

43
Q

Externalities influence market efficiency

A

See page 91 of study guide for diagrams.

44
Q

Policy options to correct externalities

A

Positive Consumption: Provide a subsidy to consumers, government provides free or at a reduced cost.

Positive Production: Pay producers a subsidy, allow gains from the sale of permits.

Negative Consumption: Tax consumers.

Negative Production: Encourage corporate social responsibility, regulate to cut bad behaviour, tax producers.

45
Q

Public Good & Common Resource

A

Public Good: Non-rival, Non-excludable
(E.g. Lighthouses, streetlights, national defence systems.)

Common Resource: Rival in Consumption, non-excludable
(E.g. Forests, fish in the ocean, the atmosphere.)

46
Q

Free Rider Problem

A

Non rival, non excludable characteristics mean they are not demanded or supplied. Without demand or supply a price can not be set, with a glut of free riders there is no incentive to reply because won’t make profit.

47
Q

Tragedy of the Commons

A

Refers to the dilemma where many individuals acting on their own accord can destroy a shared resource.

48
Q

Policies to reduce market failure associated with public goods and common resources

A
  • Regulate the use of common resources
  • Assign or sell property rights to private owners
  • Establish a “cap and trade” parallel market, such as an emissions trading scheme.
  • Educate people about the dangers of overuse.
49
Q

Effects of Tax on a market

A

Indirect taxes cause the market Supply curve to shift upwards by the amount of tax, effect depends on the relative values of PED and PES

50
Q

Effect of Subsidies on a Market

A

No positive externalities, will move Market away from equilibrium, and cause deadweight loss.

51
Q

Price Ceiling & Floors

A

Ceiling: Maximum price control creates a price ceiling.

Floor: A price above the market equilibrium level.

Economics Unit 1 Revision (1 decks)

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