Micro- Topic 1 + 2 Flashcards
(116 cards)
1
Q
What is opportunity cost?
A
The benefit given up of the next best alternative
This exists because resources are scarce.
2
Q
What is the economic problem?
A
The problem of scarcity where humans have infinite wants but scarce resources
This leads to the need for economic systems.
3
Q
Define economy.
A
Any system that tries to solve the economic problem.
4
Q
What are the factors of production?
A
The process by which firms make goods/services
Includes capital, enterprise, land, and labour.
5
Q
What is capital in terms of factors of production?
A
Technology/machinery that doesn’t directly sell (e.g., oven).
6
Q
What role does enterprise play in production?
A
The entrepreneur combines all factors to make goods.
7
Q
What does land refer to in the factors of production?
A
Shop and ingredients.
8
Q
Define labour in the context of production.
A
Human input.
9
Q
True or False: Money is a factor of production.
A
False
Money cannot be used to produce anything directly.
10
Q
What are non-renewable resources?
A
Resources that will not replenish, such as coal, oil, and natural gas.
11
Q
What are renewable resources?
A
Resources that can replenish, such as sunlight, wind, and waves.
12
Q
What does PPF stand for?
A
Production Possibility Frontier.
13
Q
What does the Production Possibility Frontier show?
A
All possible combinations of two goods we can produce using our resources efficiently.
14
Q
What does it mean if a point is outside the PPF?
A
It is unobtainable.
15
Q
What does it mean if a point is inside the PPF?
A
It is productively inefficient.
16
Q
What indicates a constant opportunity cost on a PPF?
A
A straight line PPF.
17
Q
What happens to opportunity cost as production increases?
A
It tends to increase as more resources are diverted to that good.
18
Q
What is a positive statement?
A
A statement which is factual.
19
Q
What is a normative statement?
A
A statement which is based on value judgement.
20
Q
What are consumer goods?
A
Goods we consume.
21
Q
What are capital goods?
A
Goods used to produce consumer goods.
22
Q
What is the effect of using resources to produce capital goods in the long run?
A
Consumer goods will increase.
23
Q
What is the Division of Labour?
A
Splitting up the production process into smaller tasks and assigning workers to each task.
24
Q
What is a pro of the Division of Labour?
A
Can increase productivity and output by specialising and using specialist equipment.
25
What is a con of the Division of Labour?
Demotivation can decrease productivity and output.
26
How can specialisation affect quality?
Can increase quality because workers master their craft.
27
What is a potential negative outcome of specialisation?
Specialised workers may end up unemployed if they lose their jobs.
28
What is specialisation in trade?
Focusing on the goods we are best at producing and then trading these goods.
29
What is a pro of trade?
Wider variety of goods and services.
30
What is a risk of over-specialisation?
If a specialist industry shuts down, workers will have no other work, leading to unemployment.
31
What is barter?
When one good is exchanged for another.
32
What are the functions of money?
Medium of exchange, unit of account, store of value, deferred payment.
33
What is the goal of neoclassical economists regarding consumers?
Maximise utility = happiness
34
What is the goal of neoclassical economists regarding firms?
Maximise profit
35
What is the formula for profit?
Profit = total revenue - total costs
36
What influences consumer behavior?
Consumers are influenced by the behavior of others.
37
What is herd behavior?
Following what society does.
38
What is habitual behavior?
Habit of constantly doing something.
39
What do firms want to maximise?
Profits
40
What is a weakness in decision making?
Weakness at computation can lead to miscalculations and bad choices.
41
What is demand?
Willing and able to buy a good/service.
42
What happens to demand when price goes down?
It causes an extension in demand.
43
What does price elasticity of demand (PeD) measure?
How quantity demanded will change in response to a change in price.
44
What happens to quantity demanded when price goes up?
It causes a contraction in demand.
45
What is the formula for calculating PED?
PED = % change in quantity demanded / % change in price
46
What does a flatter slope indicate in terms of PED?
A bigger % change in quantity demanded.
47
What does PED < -1 indicate?
Demand is elastic; consumers are very responsive to price changes.
48
What does -1 < PED < 0 indicate?
Demand is inelastic; consumers are unresponsive to price changes.
49
What does PED = -1 indicate?
Demand is unitary elastic.
50
What does PED = 0 indicate?
Perfectly inelastic demand; price increases have no effect.
51
What does PED = -∞ indicate?
Perfectly elastic demand; consumers respond infinitely to price changes.
52
What is the goal of neoclassical economists regarding consumers?
Maximise utility = happiness
53
What is the goal of neoclassical economists regarding firms?
Maximise profit
54
What is the formula for profit?
Profit = total revenue - total costs
55
What influences consumer behavior?
Consumers are influenced by the behavior of others.
56
What is herd behavior?
Following what society does.
57
What is habitual behavior?
Habit of constantly doing something.
58
What do firms want to maximise?
Profits
59
What is a weakness in decision making?
Weakness at computation can lead to miscalculations and bad choices.
60
What is demand?
Willing and able to buy a good/service.
61
What happens to demand when price goes down?
It causes an extension in demand.
62
What does price elasticity of demand (PeD) measure?
How quantity demanded will change in response to a change in price.
63
What happens to quantity demanded when price goes up?
It causes a contraction in demand.
64
What is the formula for calculating PED?
PED = % change in quantity demanded / % change in price
65
What does a flatter slope indicate in terms of PED?
A bigger % change in quantity demanded.
66
What does PED < -1 indicate?
Demand is elastic; consumers are very responsive to price changes.
67
What does -1 < PED < 0 indicate?
Demand is inelastic; consumers are unresponsive to price changes.
68
What does PED = -1 indicate?
Demand is unitary elastic.
69
What does PED = 0 indicate?
Perfectly inelastic demand; price increases have no effect.
70
What does PED = -∞ indicate?
Perfectly elastic demand; consumers respond infinitely to price changes.
71
What does Necessity refer to in PED?
Something we need; if something is a necessity, consumers will continue to buy it even if the price increases. So, PED = inelastic.
## Footnote
In contrast, if it is a luxury, consumers are very responsive to price changes, making PED elastic.
72
How does Addiction and Habit influence PED?
If someone is addicted to a product, they will continue to demand it despite price increases, resulting in inelastic demand.
## Footnote
Conversely, if the price rises significantly, consumers may switch to alternatives, making PED elastic.
73
What is the effect of Availability of Substitutes on PED?
Products with fewer substitutes lead to inelastic demand; consumers have limited options and will continue to demand the good even if the price rises.
## Footnote
If there are many substitutes available, demand becomes elastic.
74
How does Brand Loyalty affect PED?
Strong brand loyalty means consumers will continue to demand a product even if its price increases significantly, resulting in inelastic demand.
## Footnote
Consumers prioritize brand and design over price.
75
What is the relationship between Proportion of Income and PED?
If a product takes a large proportion of income, consumers will be very responsive to price changes, leading to elastic demand.
## Footnote
A significant price change will have a considerable impact on consumers.
76
How does Time influence PED?
In the short run, consumers are less responsive to price changes because they need the product immediately, resulting in inelastic demand.
## Footnote
There is no time to search for substitutes.
77
What is the formula for profit?
Profit = revenue - cost
78
How is revenue calculated?
Revenue = Price x Quantity
## Footnote
Shown on Demand curve
79
What happens to QD when price increases in inelastic demand?
QD decreases but by a smaller percentage.
80
What happens to total revenue when price increases in inelastic demand?
Total revenue increases.
81
What happens to QD when price increases in elastic demand?
QD decreases but by a bigger percentage.
82
What happens to total revenue when price increases in elastic demand?
Total revenue decreases.
83
What happens to QD when price increases in unitary elastic demand?
QD reduces but by the same percentage.
84
What happens to total revenue when price increases in unitary elastic demand?
Total revenue stays the same.
85
What is an increase in demand represented by?
A shift to the right.
86
What are factors that can affect demand?
Population, Advertising, Substitutes, Income, Fashion and Taste, Complements.
87
What is the relationship between demand and income for normal goods?
Directly proportional relationship.
88
What is the relationship between demand and income for inferior goods?
Inversely proportional relationship.
89
What influences demand in terms of fashion?
Trends and advertising can influence demand.
90
What are examples of products that may have varying demand based on population?
Products targeted at teenagers or older populations.
91
What is the effect of advertising on demand?
Advertising can increase demand for goods.
92
What are substitutes in terms of demand?
Products that can replace each other.
93
What are complements in terms of demand?
Products that are used together.
94
What is the concept of income elasticity of demand (YED)?
YED measures how much the quantity demanded of a good will change in response to an increase or decrease in income.
95
What are inferior goods?
Inferior goods are products for which demand increases when income falls, leading to a negative YED.
96
What are normal goods?
Normal goods are products for which demand increases as income rises, resulting in a positive YED.
## Footnote
Normal goods have a YED between 0 and 1.
97
What are luxury goods?
Luxury goods are products for which demand increases by a larger percentage when income increases.
98
What is cross elasticity of demand (XED)?
XED measures how the quantity demanded of good A responds to a change in the price of good B.
99
What does a negative XED indicate?
A negative XED indicates that goods are complements, meaning a decrease in the price of good B leads to an increase in the quantity demanded of good A.
100
What does a positive XED indicate?
A positive XED indicates that goods are substitutes, meaning a decrease in the price of good B leads to a decrease in the quantity demanded of good A.
101
What is the supply concept?
Supply refers to the willingness and ability to sell a good.
102
How does price affect supply?
An increase in price typically leads to an increase in supply, as producers can make more profit selling the good.
103
What is price elasticity of supply (PES)?
PES measures how much the quantity supplied changes in response to a change in price.
104
What does PES > 1 indicate?
If PES is greater than 1, producers are very responsive to price changes, indicating elastic supply.
105
What does PES < 1 indicate?
If PES is less than 1, producers are unresponsive to price changes, indicating inelastic supply.
106
What is unitary elastic supply?
Unitary elastic supply occurs when a change in price leads to a proportional change in quantity supplied, resulting in PES = 1.
107
What is the starting point for supply?
Start from origin
## Footnote
Steep slope
108
What factors influence supply?
TEASS: Spare Capacity
## Footnote
If price were to rise, suppliers would be able to utilize spare capacity.
109
What does it mean if a company is more responsive to price changes?
It indicates elastic supply.
## Footnote
If price increases, the quantity supplied increases significantly.
110
What is a factor of production?
It refers to how easy it is to find these factors.
## Footnote
Easier to find means more elastic supply.
111
How does the state of the economy affect supply?
In a bad economy, it is harder to find labor.
## Footnote
This leads to inelastic supply.
112
What is the impact of unemployment on quantity supplied?
Easier to find labor, more likely to expand production.
## Footnote
This results in elastic supply.
113
What is the significance of stock levels?
Higher stock levels allow producers to respond quickly to price changes.
## Footnote
This leads to elastic supply.
114
How does perishability affect supply elasticity?
High perishability results in more elastic supply.
## Footnote
Perishable goods must be sold quickly.
115
What is the difference between short run and long run in supply?
Short run: one factor of production is fixed, leading to inelastic supply.
## Footnote
Long run: all factors can be changed, leading to elastic supply.
116
What does PES = 0 indicate?
Suppliers will not respond to price changes.
## Footnote
This indicates perfectly inelastic supply.
