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Economics > L6 Microeconomics > Flashcards

L6 Microeconomics Flashcards

(47 cards)

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1
Q

What are free goods?

A

Goods that don’t have value in the market

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2
Q

What are economic goods?

A

Goods that do command value in the market

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3
Q

What is scarcity?

A

Human beings have unlimited wants and needs, but resources that are used to fulfil these wants and needs are finite.

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4
Q

What are the factors of production?

A

Land, labour, capital, enterprise

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5
Q

What are the factor payments?

A

Rent, wages, interest, profits

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6
Q

Who are economic agents?

A

Households, firms, government

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7
Q

What is the objective of household?

A

To maximise their satisfaction or utility

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8
Q

What is the objective of firms?

A

To maximise profits

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9
Q

What are the objectives of the government?

A

Stability, employment, achieve economic growth, low inflation

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10
Q

What is an opportunity cost?

A

The cost of losing the next best alternative when making a decision.

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11
Q

How are economic agents assumed to behave?

A

Rationally and in their own best interests

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12
Q

Why might people not behave rationally?

A

Habits, peer pressure, uneducated

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13
Q

What is a positive statement?

A

Something objective and fact based

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14
Q

What is a normative statement?

A

Something subjective and opinion based, that can’t be proved

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15
Q

What does a PPC show?

A

The maximum combination of goods and services that can be produced using all available resources.

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16
Q

What causes economic growth?

A

An increase in the quality or quantity of a factor of production

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17
Q

What is a market economy?

A

When the allocation of resources is left to the forces of supply and demand

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18
Q

What is a command economy?

A

When the government decides on the allocation of resources

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19
Q

What are the benefits of a market economy?

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A
  1. Profit motive acts as an incentive
  2. Allocatively efficient as determined by supply and demand
  3. More freedom, consumers have more choice and firms can decide what and how they produce
  4. Competition which makes firms want to be productively efficient
20
Q

What are the benefits of a command economy?

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A
  1. Limits market failure, as government can produce goods at socially optimum allocation.
  2. Reduction in absolute and relative poverty, government can provide necessities
  3. Price controls
21
Q

What are the drawbacks of a market economy?

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A

Inequality, monopoly, market failure

22
Q

What are the drawbacks of command economy?

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A

Inefficiency, bureaucratic, shortages and surpluses, less choice and freedom

23
Q

What is specialisation?

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A

When firms specialise in the production of one good/limited goods

24
Q

What is division of labour?

Study These Flashcards
A

When production is split into different tasks and each task is allocated to a different worker

25
What are the benefits of specialisation and division of labour?
More productively efficient, less wastage of resources, increased output, lower costs
26
What are the drawbacks of specialisation and division of labour?
Workers may become bored and unmotivated, if industry declines it would be hard to switch to another
27
What is the invisible hand?
Adam Smith says that if the market is left alone, it will return to equilibrium
28
What factors affect PED?
SPLAT- substitutes, proportion of income, luxuries/necessities, addiction, time
29
What does a positive YED mean?
Normal good, as income rises demand for the good rises.
30
What does an elastic positive YED mean?
Luxury
31
What does an inelastic positive YED mean?
Necessity
32
What does a negative YED mean?
Inferior good
33
What does a positive XED mean?
The goods are substitutes and in competitive demand.
34
What does a negative XED mean?
The goods are complements and are in joint demand.
35
What factors affect PES?
PSST- Production log, stocks, spare capacity, substitutability of FOPs, time
36
What are the factors affecting demand?
PASIFIC- Population, advertising, substitutes, income, fashion and taste, income tax, complements
37
What are the factors affecting supply?
PINTSWC- Productivity, indirect tax, no of firms, technology, subsidy, weather, costs of production
38
What is market failure?
When the free market equilibrium doesn’t lead to the socially optimal allocation of resources. Too much or too little is being produced or consumed.
39
What is asymmetric information?
When some participants in a market have better information about market conditions than others.
40
What is a moral hazard?
Situation in which one party gets involved in a risky event knowing that it is protected and the other party will incur the cost
41
What is a merit good?
When left to the free market, it is under consumed
42
What is a demerit good?
When left to the free market, it is over consumed
43
What is a public good?
A good that is non excludable and non rival.
44
Evaluation of Taxes
1. Good could be PED inelastic 2. There could be unintended consequences e.g shadow economy 3. May not be fair and could lead to more inequality 4. Depends on size of tax
45
Evaluation of Subsidies
1. PED inelastic 2. Firms may become dependent on state aid 3. Opportunity cost 4. Unintended consequences 5. Size of subsidy
46
Evaluation for Regulation and Legislation
1. Time lag 2. Opportunity cost 3. Regulatory capture 4. Hard to set a quota as external costs are hard to measure 5. Shadow economy
47
Evaluation for Provision of Information
1. Can be expensive so opportunity cost 2. Information can be ignored

Economics (2 decks)

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