Key concepts

Question 1

What is supply?

Answer 1

Supply is the quantity of goods or services that producers are willing or able to produce at a given price level.

Question 2

What is PES (Price Elasticity of Supply)?

Answer 2

PES is the responsiveness of quantity supplied to a change in price. PES is always positive because of the positive/direct relationship.

Question 3

What is the formula of PES?

Answer 3

     % Change in Price

Question 4

How do you calculate a % change?

Answer 4

% Change= Difference
—————- x 100
Original

Question 5

State the factors affecting PES

Answer 5

1. Production lag (e.g. agriculture)
2. Spare capacity
3. Stock
4. Time
5. Sustitutability of the factors of production.

Question 6

Define market.

Answer 6

Any place where buyers meet suppliers and exchange goods or services

Question 7

What is equilibrium (not a definition)

Answer 7

When quantity demanded = quantity supplied

Question 8

What is joint demand?

Answer 8

When two products are demanded equally as they are complementary goods e.g. Printer & Ink.

Question 9

What is competitive demand?

Answer 9

Products that are substitutes, replace each other, e.g. ccoke and Pepsi.

Question 10

What is composite demand?

Answer 10

When a good is demanded for more than one use e.g. milk for cheese and butter.

Question 11

What is derived demand?

Answer 11

When a good is needed for the production of another e.g. steel workers are needed for steel production.

Question 12

What is joint supply?

Answer 12

The production of one good leads to the production of another e.g. cows can be used for milk.

Question 13

What is the formula of elasticity of demand for labour

Answer 13

Elasticity of % Change in Q of workers
= ————————————–
Demand Level % Change in Wages

Question 14

State the factors that affect elasticity of DL

Answer 14

• Substitutability with other factors of production e.g. capital (higher sust. higher elast.)
• Elasticity of the underlying good (the higher elast. the higher elast. of labour)
• Cost of labour as a percentage of total cost (high %, high elasticity)
• Time period (more time more elasticity)

Question 15

Factors affecting change in the supply of labour

Answer 15

• Trade Unions
• Changes in population
• Value of leisure time
• Better training & education

Question 16

What is the formula of supply of labour

Answer 16

Elasticity of supply of labour

                                % Change in QL supplied
                      =   --------------------------------------
                                % Change in Wages

Question 17

Factors affecting the elasticity of the supply of labour in comparison of two jobs e.g. doctor vs waiter

Answer 17

1. Time taken to train for the profession
2. Vocations
3. Nature of skills required
4. Time period

Question 18

What is the marginal product theory?

Answer 18

The theory that shows the effect of the next additional unit e.g. effect of another cook in a pizzeria on pizzas made.

Question 19

What does the law of diminishing return state

Answer 19

Each additional worker provides less units than the one before.

Question 20

What are the reasons for the diminishing law of return being correct.

Answer 20

1. Capital fixed
2. Communication harder
3. Lack of space
4. Lack of tasks

Question 21

What does a perfectly competitive labour market include?

Answer 21

• Many workers
• Many firms
• Workers accept the wage determined by the market
• Firms accept the wage offered by the market

Question 22

What makes a labour market imperfect?

Answer 22

1. Few firms or just 1 firm
2. Imperfect information
3. Trade unions (push for higher wages)

Question 23

What is a monopoly?

Answer 23

When there is 1 firm selling e.g Microsoft

Question 24

What is a monopsony?

Answer 24

When there is 1 firm buying e.g Amazon

Question 25

How do trade unions impact the labour market?

Answer 25

PROS: - Higher wages for workers - Security - Working conditions/safety CONS: - Higher cost to firms - Workers reliant and falling productivity - Corruption in unions

Question 26

What is the national minimum wage?

Answer 26

A legal minimum wage used to increase the earnings of the lowest paid.

Question 27

State pros and cons of the national minimum wage

Answer 27

PROS: - Increase income of the lowest paid (higher standard of living of the lowest earners) - Reduces inequality - Increase consumption CONS: - Increased consumption can cause inflation - Higher cost to firms - May discourage firms from hiring

Question 28

What are wage differentials?

Answer 28

Differences in wages that come up between individuals, occupations, industries and regions.

Question 29

What is income?

Answer 29

A flow of money to a factor of production, usually labour.

Question 30

What is wealth?

Answer 30

Stock of valuable assets such as property, savings, shares.

Question 31

What is equality?

Answer 31

It is the equal sharing of income & wealth across all members of society.

Question 32

What is equity?

Answer 32

Equity is about fairness, not necessarily equal.

Question 33

How do you measure inequality?

Answer 33

- Lorenz curve | - Gini coefficient

Question 34

What is a positive statement?

Answer 34

Statements based on evidence that can be tested and proved.

Question 35

What is a normative statement?

Answer 35

It is a value judgement that can't be proved right or wrong.

Question 36

What is relative poverty?

Answer 36

When individuals in a society are worse off than others e.g. earning less than 60% of the median salary in that country.

Question 37

What is absolute poverty?

Answer 37

When individuals in society can't afford the basic necessities e.g food, water, shelter.

Question 38

What are the three tax systems?

Answer 38

1. Progressive tax system 2. Proportional tax system 3. Regressive tax system

Question 39

What is progressive tax system?

Answer 39

When high-income people are taxed more than low-income people.

Question 40

What is proportional tax system?

Answer 40

Everyone pays the same % tax

Question 41

What is regressive tax system?

Answer 41

When low-income people are taxed more than high-incomes people.

Question 42

State the policies to reduce poverty

Answer 42

- Progressive taxes - Reducing unemployment - National minimum wage - Welfare benefits - EDUCATION AND TRAINING - Promotion of ''trickle down''

Question 43

What is the market failure?

Answer 43

When the free market leads to a misallocation of resources in an economy.

Question 44

What is the complete market failure?

Answer 44

When the market is missing and it completely fails to provide a good or service.

Question 45

What is the partial market failure?

Answer 45

a market for a good or service exists but is under or overproduced ie. does not maximise economic welfare.

Question 46

What are the function of prices?

Answer 46

- Signalling function (tells producers when to + or - production) - Incentive function (higher prices means higher profit so producers incentivised to produce more) - Rationing function (when prices increase, excess demand is removed, helping the market to clear i.e supply=demand) - Allocative function (resources go intro growing markets and out of declining markets)

Question 47

What is a public good?

Answer 47

A public good is one which is non excludable and non-rival

Question 48

What is non excludable?

Answer 48

Non-paying customers cannot be excluded once the good is produced e.g. streetlights.

Question 49

What is non-rival?

Answer 49

One person's utility is not diminished by another person's utility e.g the radio as my use doesn't diminish someone else's use.

Question 50

What is a free-rider?

Answer 50

A free rider is someone who wants others to pay for a public good but plans to use the good themselves; if many people act as free riders, the public good may never be provided.

Question 51

What are private goods?

Answer 51

Private goods are excludable and rival in its consumption.

Question 52

What are quasi-public goods?

Answer 52

Nearly public goods. Almost partially excludable or rival e.g. roads become more rival and they fill up.

Question 53

What is an externality?

Answer 53

An externality is the knock on effect of an economic activity on a third party.