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Flashcards in micro Deck (97):
1

economic good

a product of service which can command a price when sold. They have a degree of scarcity and therefore opportunity cost

2

free good

a good that is in abundance, but has no opportunity cost and cannot be traded e.g. sunlight

3

scarcity

a situation that arises because people have unlimited wants in the face of limited resources

4

needs

necessary to sustain human life

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wants

things people would like to consume

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basic economic problem

the fundamental problem faced by any society is that of scarcity. this arises because people have unlimited wants in the face of limited resources therefore choices must be made. This leads to the problem of how to allocate resources amongst competing uses e.g what goods and services should be produced, how should the productive resources be used and for whom should they be allocated

7

normative statement

subjective statement which contain a value judgement (opinion)

8

positive statement

objective statements that can be tested by referring to evidence

9

what choices does scarcity force people to make?

individuals- what good and services to consume
firms- what goods and services to produce
gov- how to make the best uses of resources

10

what were samuelsons three questions?

what- good and services should be produced
how- should the productive resources of the economy be used
for whom? how should these goods and services be allocated amongst the pop

11

what are the three economic agents

households
firms
government

12

what is the role of households

make choices about their expenditure, they need an income so decide where to supply their labour

13

what is the role of firms

which goods and services to produce, the technique used to produce the goods and the price at which to sell them

14

what is the role of gov as economic agents

types of taxation and how much, how to spend tax revenue and regulate markets

15

name the four factors of production

land, labour, capital and enterprise

16

opportunity cost

the value or benefits forgone of the next best alternative when a choice is made

17

trade-off

we gain a benefit of something and the cost of something else, a compromise between two

18

production possibility cure

a curve showing the maximum combination of a good or service that can be produced in a set time given available resources

19

what factors cause ppc to shift

if the level of resources is fixed, then movements along the PPC just shows a reallocation of resources
it is only if the total amount of resources changes, the the PPC itself shifts
economic growth shifts PPC- increased resources means total possible output could increase, improved technology and improved labour

20

what is the usefulness of opportunity cost

key concept in economics used to ensure a more efficient allocation of resources
consumers use it to chooses how to spend income
prroducers use it to look at the profit forgone by not making alternative product
gov use it to look at lost value to society from the policies they choose not to implement

21

What are the limitations of opportunity cost

Not all alternative is unknown
Some factors don't have alternative uses
Then maybe lack of alternative is information and the cost

22

Specialisation

The concentration by a worker or workers firms region or whole economy a narrow range of goods and services

23

Division of labour

Process whereby the production process Procedure is broken down into a sequence of stages and workers are assigned to particular stages

24

Benefits of specialisation and division of labour

You can have more goods and services which increases standard of living
White and the range of goods and services available to an economy so there is more choice
There will be exchanged between developed and developing

25

Limitations of specialisation and division of labour

Boredom for individual is constantly repeating the same job could lead to carelessness and inefficiency
For firms changes in consumer tastes all need to because difficulty
For nation bad weather, war and political factors

26

Market

A set of arrangements that allow transactions take place
A place where buyers and sellers can meet
Competitive and ruled by the price system

27

What is the problem with the boss system

There is need for a double coincidence of wants

28

What are the functions of money

Be acceptable to buyers and sellers
Act as a store value for future transactions
Be a unit of account allows value of goods and services to be compared
Be a standard of deferred payment

29

Resource allocation

The way in which society is productive assets are used amongst their alternative uses

30

Free market economy

Market forces are allowed to guide the allocation of resources with an economy
Allocate resources based on supply and demand and the price mechanism
Anything can be sold at any Price people will pay for

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Benefit of market economy

Efficiency – as any product can be bought or sold only those of best value will be in demand
Entrepreneurship – their awards for good ideas can make entrepreneurs a lot of money this encourages risktaking and innovation
Choice – incentives for innovation can lead to increased choice for consumers as they are not restricted

32

Limitations of market economy

Inequalities – can lead to huge differences in income and anyone unable to work with got no income
Non-profitable goods may not be made – drugs to treat rain medical conditions
Monopolies – successful businesses can

33

command(planned) economy

decisions on resources are decided on by the state

34

benefits of command economy

maximise welfare- gov can prevent inequality and distribute wealth fairly
low unemployment- gov can try and provide jobs and salary for all
prevent monopolies

35

limitations of command economy

poor decision making- a lack of info means gov make poor and slow decisions on what needs to be produced
restricted choices- consumers have a limited choice to consume as firms are told what to make
lack of risk taking efficiency- gov owned firms have no incentives to increase effieniency, take risks or innovate as they don't need to make a profit

36

mixed economy

resources are partly allocated by price signals and partly based on basis of direction of gov

37

maximisation

to make the most out o something and gain its full potential

38

objectives of economic agents

households- max satisfaction from g+s
firms- profit
gov- raise rev, ensure stability in the economy

39

sub market

a recognised or distinguished part of a market aka market segment of a broader market

40

individual demand

the amount of a good that an individual is willing and able to buy at any possible price in a given time period

41

market demand

refers to all consumers in a market, it is the sum of demad by every consumer in the market, determind by individual demand

42

demand

the quanity of a g+s that consumers are willing and able to buy at any possible price in a given time period

43

derived demand

demand for a factor of production which derives not from the goof itself, but from the goods/ outputs it produces e.g machine labour

44

joint demand

demand for g+s which are independent such that they are demanded together e.g printers and ink

45

composite demand

demand for a good that has multiple uses e.g water

46

competitive demand

demand for goods that are in competition with each other e.g butter and marg

47

what is the law of diminishing returns

states that for each additional unit of a good that is consumed, the marginal utility decreases. A rational consumer will consumer when marginal utility= price. the more a good is consumed, the less satisfaction

48

income effect

as price falls, the amount that a consumer can buy with their income increases and so demand increases

49

substitution effect

a fall in the price of a good makes it relatively cheaper than other goods, so consumers will increase demand for cheaper goods and demand for expensive good decreases

50

what causes a movement along the curve

an increase in price causes a contraction and a decrease causes expansion

51

what causes a shift in demand

consumer income
the price of other goods
tastes and fashion/ consumer preferences

52

disposable income

income after taxes on income have been deducted and state benefits have been added

53

real disposable income

income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to consider changes in price level/ inflation

54

normal goods

goods for which an increase in income lead to an increase in demand e.g. plasma tv, expensive cars

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inferior goods

goods for which an increase in income lead to a decrease in demand e.g. public transport

56

substitute goods

goods that compete with one another, if the price of one decreases demand for the other decreases e.g. tea/coffee

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complementary goods

good for which their is a joint demand, if the price of one increases then the demand for the complementary good will also decrease e.g. cars and petrol

58

consumer surplus

the value that consumers gain from consuming a g+s over and above the price willing to be paid

59

producer surplus

the difference between the price received by firms for a good and the price at which they were willing to supply it

60

supply

the amount of product that producers put onto the market at a given price in a particular time period

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individual supply

the amount an individual firm is willing to supply at a given price in a particular time period

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market supply

the total amount of a product that firms wish to supply at a given price in a particular time period

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joint supply

where a firm produces more than one good together

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composite supply

where a product produced by a firm serves more than one market

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competitive demand

a situation in which a firm can use its factors of production to produce alternative products

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what causes a shift in supply

an increase in price causes an extension and a decrease in price causes contraction , caused by a change in price

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what causes a shift in supply

change in cost of production
change in technology
change in productivity of factors of production
the price of other goods
government taxes and subsidies
expected prices
number of suppliers

68

equilibrium price

the price at which the quantity demanded and quantity supplied are equal

69

disequilibrium

any position in the market where demand and supply are not equal

70

what causes disequilibrium

the price of products is set too high-creates a surplus of supply of demand
the price set by producers is too low- creates excess of demand over supply

71

elasticity

a measure of the sensitivity of one variable to change another

72

PED

a measure of how the quantity demanded of g+s responds to a change in its price

73

how to calculate PED

% change in quantity demanded
%change in the price

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when is PED elastic

PED >1

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when is PED inelastic

0

76

what happens if a good is elastic

small change in price causes large change in demand e.g. luxury goods

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what happens when a good is inelastic

demand does not change a lot due to a change in price e.g. nessecities like petrol, people cosume no matter the price

78

infinitely elastic

PED =0 any xhange in price has no effect

79

unitary elastice

PED is 1 any change in price leades to an exact opposite change in quantity

80

what determine elasticity

avaiabilty and closness of subs

81

relative expense of prosuct with respect to income

time- in lr demand becomes more elastic as itbeacomes easier to shop around to find alternatives

82

YED income elasticity

a measure of sensitivity of quantity demanded to a change in consumer incomes

83

how to calculate YED

% change in quantity demanded
% change in real income

84

inferior good

one where the quantity demanded decreases in response to an increase in consumer spending

85

when is it income elastice

YED >1

86

when is income inesaltic

YED < 1

87

superior good

good which the income elasticity of demand is positive and greater then one such that as income increases consumers spend more on these goods

88

cross elasticity for demand XED

a measure of the sensitivity of the quanitity demanded of a g+s to a change in price of other G+S

89

how to calculate XED

% change in quantity demanded for good a
% change in price of good y

90

PES

a measure of sensitivity of quanitity supplied of a g+s to a change in price of a g+s

91

how to calculate PES

% change in quanity supplied
% change in price

92

when is pes elastic

PES >1

93

when is PES inelastic

0

94

what determines PES

availability of stocks of the product/can it be stored
does the industry have spare capacity
availablity of factors of production
length of production process
time period

95

productive efficiency

attained when a firm operates at minimum average total costs, choosing an appropriate combination of inputs and producing the maximum possible outputs possible from those inputs

96

allocative effieiency

achieved when consumer satisfaction is maximised

97

economic efficiency

a situation in which both productive and allocative efficiency have been reached