Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

OCR Economics A-level > Mirco > Flashcards

Mirco Flashcards

1
Q

Accounting profit

A

Level of profit that is reported in business accounts. It does not take into account the oppurtunity cost of investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Asymmetric information

A

When one party (consumer or producers) has more or better information about a product than the other party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Bilateral monopoly

A

Labour market that includes a trade union and a monopsony employer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Buffer stock system

A

System of holding and releasing stock to maintain a market price despite supply fluctuations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Ceteris paribus

A

Other things being equal - the assumptions that everything else stays the same

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Collusion

A

Scenario in which firms work together in secret to gain an unfair market advantage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Competition policy

A

Legislation and regulations that aims to make a market more competitive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Competitive demand

A

When consumers demand one or the other product - products are substitutes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Competitive supply

A

When producers choose to supply one or the other product with given factors of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Compliment

A

A good with a negative XED. As the price of product B increases, the quantity demanded of a product A decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Composite demand

A

When a product is demanded for multiple possible uses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Concentration ratio

A

Way of measuring the market dominance of the top few firms in the market by adding up each firm’s individual market share and looking at this as a percentage of total market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Consumer surplus

A

Difference between the price consumers are willing and able to pay at the market price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Contestable market

A

Market structure in which no firm can dominate enough to make supernormal profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Contraction in demand

A

A decrease in the quantity demanded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Contraction in supply

A

A decrease in quantity supplied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Corporate social responsibility

A

When a business aims to make a profit, do good for society and improve the environment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Cross elasticity of demand

A

Measures the responsiveness of demand for one product to a change in the price of another product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Decrease in demand

A

A shift inwards of the demand curve so that there is a decrease in quantity demanded at every price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Decrease in supply

A

An inward shift of the supply curve so that there is a decrease in quantity supplied at every price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Demand

A

A consumers ability and willingness to purchase goods and services at a specific price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Demands curve

A

Relationship between the price of a product and the quantity demanded by the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Demand for labour

A

Willingness and ability of a firm to hire labour at different wage rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Demerit good

A

Good that is likely to be over consumed in a free market because the consumer does not anticipate the lack of benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Derived demand

A

Where demand is based on what that thing can produce, not the thing itself, e.g the demand for labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Direct taxation

A

Amount levied on a business or an individual that must be paid to the the government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Diseconomies of scale

A

Increases in average costs that came occur form the growth of a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Division of labour

A

Splitting up a task into smaller activities to be able to produce more efficiently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Dynamic efficiency

A

Incentive to innovate products and processes to become productively efficient in the long term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Economic agents

A

Key groups in involved in solving the economic problem, including governments, firms and households

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Economic goods

A

Goods that are scarce I.e. there is not an unlimited supply of these goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Economic rent

A

Any amount above the minimum needed to keep a factor of production in its current use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Economics

A

The study of how scarce/limited resources are used in the world

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Elasticity

A

Responsiveness of a change in one thing to a change in something else

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Excess demand

A

Scenario in which the market price is too low meaning there are unsatisfied consumers in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Excess supply

A

Scenario in which the market price is too high meaning there are unsold products in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Extension in demand

A

An increase in the quantity demanded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Extension in supply

A

An increase in the quantity supplied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

External economies of scale

A

Reduction in average costs that can occur from the growth of an industry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Externality

A

A cost or benefit to a third party that has not been accounted for in the market transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Factors of production

A

Land, labour, capital and enterprise the building blocks needed for a business to operate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Fixed costs

A

Costs that do not change as output changes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Free goods

A

Resources that are usually not seen as limited such as sunlight or air

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Free rider problem

A

Occurs when a person benefits from consuming a shared resource or good without paying for that good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Government failure

A

When government intervention does not reduce market failure and may even increase it or introduce new failure into the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Growth maximisation

A

When a business aims to increase its size as much as possible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Incentive

A

Something that motivates an action - relates to profit, prices and social welfare

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Increase in demand

A

A shift outward of the demand curve so that there is an increase in quantity demanded at every price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Increase in supply

A

A shift outwards of the supply curve so that there is an increase in the quantity supplied at energy price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Indirect taxation

A

Amount levied on a producer to increase the cost of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Individual demand

A

One consumers willingness and ability to purchase a product of service at a given price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Individual supply

A

One business willingness and ability to sell a product at a given price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Inferior good

A

When income changes the quantity demanded of this good will change by a smaller proportion in the opposite direction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Information failure

A

When consumers and/or producers do not have all of the information when making decisions, leading to market failure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Information provision

A

Act of informing the public about the true nature of a product or market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Interdependence

A

Scenario in which firms base their decision-making on the decisions of other firms in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

Internal economies of scale

A

Reductions in the average cost that can occur from the growth of a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Joint demand

A

When products are demanded together - complements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Joint supply

A

When products are supplied together often as a byproduct

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

Kinked demand curve

A

Illustrates an elastic response to an increase In price and in an inelastic response to a decrease in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Labour market flexibility

A

Ability of workers to move between occupations and industries in order to respond to changes in wages and conditions of work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

Law of diminishing returns

A

Theory that in the short run when at least one factor production is fixed the average return from a factor of production decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Legislation

A

In relation to the economy, laws that a government puts in place to govern the production and consumption of products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

Long run perfect competition

A

Market structure that has allocative and productive efficiency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Loss

A

If a business has higher costs than revenue, it will make a loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

Luxury good

A

A good for which when income changes the quantity demanded will change by a larger proportion in the same direction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Marginal costs

A

Costs of producing one more product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

Marginal utility

A

Benefit gained form consuming one more unit of a product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

Market demand

A

The sum of all consumers’ willingness and ability to purchase a product or service at a given set of prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Market disequilibrium

A

Any situation where supply does not equal demand - scenario where there is excess supply or demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

Market economy

A

Allocation of resources is decided by the interaction of supply and demand (market forces)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

Market equilibrium

A

Point at which the quantity supplied is equal to the quantity demanded of a particular product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

Market failure

A

Failure of the market system to allocate resources efficiently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

Market supply

A

Sum of all businesses’ willingness and ability to sell a product at any given set of prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

Monopolistic competition

A

Competitive market structure with a downward sloping demand curve and the ability for a firm to make supernormal profit in the short run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Monopoly

A

Situation in which there is a single seller in the market with no competitors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Monopsony

A

A single or dominant buyer of a product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

Moral hazard

A

When one party (consumers and producers) changes their behaviour die to asymmetric information, which causes extra costs to the other party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

Movement along the demand curve

A

Change in quantity demanded that results from a change in the price of a product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

Movement along the supply curve

A

Change in quantity supplied that occurs from a change in the price of a product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

Natural monopoly

A

Type of monopoly in which there are large economies of scale to be gained to the point where only one firm is viable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

Negative externality

A

Cost to a third party that has not been accounted for in the market transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

Negative externality of consumption

A

Cost to a third party that arises from consumption of a product. It has not been accounted for in the market transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

Negative externality of production

A

Cost to a third party that arises from production of a product. This cost has not been accounted for in the transactions in the market

85
Q

Non-excludability

A

When potential consumers cannot be prevented from consuming a good without paying for it

86
Q

Non-price competition

A

Scenario in which firms compete on aspects other than price, such as the product, location and branding

87
Q

Non-rejectability

A

When consumption cannot be prevented by a consumer

88
Q

Non-rivalry/non-diminishability

A

When consumption of a good does not prevent consumption by another person

89
Q

Normal good

A

When income changes, the quantity demanded of this good will change by a smaller proportion in the same direction

90
Q

Normal profit

A

Minimum amount of profit required to convince an owner to stay in the market

91
Q

Normative statement

A

Opinion-based statements that one might agree or disagree with

92
Q

Oligopoly

A

Market structure with a few dominant firms

93
Q

Opportunity cost

A

Cost of the next best alternative forgone when a decision is made

94
Q

Overt collusion

A

Scenario in which firms work together with a formal agreement

95
Q

Perfect competition

A

Market structure with many buyers and sellers that can achieve allocative and productive efficiency in the long run

96
Q

Planned economy

A

The government controls the factors of production and decides on the allocation of resources

97
Q

Positive externality (external benefit)

A

Benefit to a third party that has nit been accounted for in the market transaction

98
Q

Positive externality of consumption

A

Benefit to a third party that arises from consumption of a product that has not been accounted for in the market transaction

99
Q

Positive externality of production

A

Positive to a third party that arises from the production of a product that has not been accounted for in the market transaction

100
Q

Positive statement

A

Factual statement that can be tested

101
Q

Price control

A

A minimum or a maximum price for which a product must be sold

102
Q

Price discrimination

A

The ability of a firm to charge different prices to different customers

103
Q

Price elastic

A

When price changes, the quantity demanded changes by a larger proportion

104
Q

Price elasticity of demand

A

The responsiveness of demand after change in price

105
Q

Price elasticity of supply

A

Measures of responsiveness of supply after a change in price

106
Q

Price elastic (supply)

A

when price changes the quantity supplied will change by a larger proportion

107
Q

Price inelastic (supply)

A

When price changes the quantity supplied will change by a smaller proportion

108
Q

Price inelastic (demand)

A

When price changes, the quantity demanded changes by a smaller proportion

109
Q

Price maker

A

A firm that has the ability to choose at what price it sells its products

110
Q

Price taker

A

An individual or firm that must accept the ruling market price as it lacks the power to influence the market price

111
Q

Principal-agent problem

A

The potential disagreement over the objectives of the managers (principles) and those of the owners (agents)

112
Q

Producer surplus

A

Difference between the price at which producers are willing and able to supply a product and the market price

113
Q

Product differentiation

A

Features or elements that make one product different from its competitors often used with sticky prices

114
Q

Productivity

A

Amount produced in relation to 1 unit. E.g. 1 unit of labour

115
Q

Profit

A

Amount of money a business gains form its sales after it has accounted for all of its costs

116
Q

Profit maximisation

A

When a business aims to have the most difference between total costs and total revenue, leading to the highest profit

117
Q

Profit satisficing

A

When a business sets a level of profit that it believes will be enough to keep the owners satisfied

118
Q

Public goods

A

Goods that have the characteristics of being non-excludable, non-rivalrous, non-rejectable and with zero marginal cost

119
Q

Public/private ownership

A

Joint initiative between government and a producer in order to increase supply to a market

120
Q

Rationality

A

Assumption that each economic agent acts in their own best interests

121
Q

Regulation

A

Rules that are specific to an industry or market and that govern the production or consumption of a product within that industry/market

122
Q

Reward for the factors of production

A

What needs to be returned by a business for using each of the factors of production

123
Q

Sales revenue maximisation

A

When a business aims to sell at a price that allows it to make the most profit through sales

124
Q

Sales volume maximisation

A

When a business aims to sell as many units as possible

125
Q

Scarcity

A

When there is a limited amount of something

126
Q

Short run perfect competition

A

Market structure that has allocative efficiency but not productive efficiency

127
Q

Social welfare

A

Wen a business aims to make society better through its actions

128
Q

Specialisation

A

Focusing on one activity it be able to produce efficiently

129
Q

Sticky prices

A

Scenario in which the price of a good is slow to change despite changes in the market that suggests a different price is optimal

130
Q

Subsidy

A

Amount paid to a business to produce products

131
Q

Substitute

A

A good with positive XED as the price of B increases the quantity of demanded of A also increases

132
Q

Supernormal profit

A

Profit made above normal profit

133
Q

Supply

A

Ability and willingness of a firm to sell products at a given price

134
Q

Supply curve

A

Relationship between the price of a product and the quantity supplied by a business

135
Q

Supply of labour

A

Ability and willingness of households to work at different wage levels

136
Q

Tacit collusion

A

Scenario in which firms work together without a formal agreement, often by observing other firms in the market

137
Q

The economic problem

A

The problem of how to make the best use of limited or scarce resources

138
Q

Total costs

A

All costs incurred by a business

139
Q

Total revenue

A

The money a business receives from all of its sales

140
Q

Total utility

A

Total benefit gained from consuming a product

141
Q

Tradable pollution permits

A

System that forces producers to include the costs of pollution in their production decisions

142
Q

Trade-off

A

A sacrifice that is made in order to gain something

143
Q

Trade union

A

Collection of workers usually in the same or similar industry that collectively bargains for the workforce on issues like fairness of pay, working conditions and benefits

144
Q

Transfer earnings

A

Minimu amount needed to keep a factor of production in its current use

145
Q

Unit labour costs

A

Average cost of labour per unit of output

146
Q

Utility

A

Benefit Gained from consuming a product

147
Q

Utility maximisation

A

When the managers of a business aim to increase their own happiness as much as possible

148
Q

Variable costs

A

Costs that change as output changes

149
Q

Wage elasticity of demand for labour

A

Responsiveness of the quantity demanded for labour to changes in wages

150
Q

Wage elasticity of supply of labour

A

Responsiveness of the quantity supplied for labour to changes in wages

151
Q

X-inefficiency

A

Lack of incentive to reduce costs

152
Q

Zero marginal cost

A

When production of an additional unit does not add extra costs to the business

153
Q

Evaluate extent to which government always acts rationally

A

Evaluation
- does government always have full picture
- influenced by political agendas
- may act in response to a situation as opposed to proactivity
- focus on short term and opposed to long term prosperity - especiallly as shirt term governments
- media and public perception more important that actions
Judgement
- political focus
- media influence
- type of economy

154
Q

Evaluate how job specialisation addresses problem of scarcity

A

Analysis
- quicker production - lower costs
- decrease in production costs
- productivity increased
- higher quality and increased demand
- motivated workers - increased productivity
Evaluation
- higher wages for specialists - increased costs
- higher training costs to specialise workers
- gaps if workers are absent
Judgement
- nature of job
- timescale
- efficiency of labour vs capital

155
Q

Evaluate the usefulness of YED estimates to a firm

A

Analysis
- Allows firm to expand supply
- make decisions about advertising and promotion
- estimate the effects of changes on its revenue
- can help set prices e.g. peak and off-peak
- response in economic cycle
Evaluation
- reliability of data - based on estimates
- assumes all incomes increase but the amenities amount
- time-frame - annual estimate or an immediate effect
- costs of increasing supply - increased labour costs - marginal cost

156
Q

The effectiveness of incentives

A
  • size of incentive
  • the timescale involved
  • the type of good/service
  • the objectives of economic agents
  • other changes in makert/economy
157
Q

Advantages of planned economy

A
  • The government and focus resources on where they are most needed in the economy
  • Price can be controlled so that those most in need an access goods and services
  • Fewer resources are wasted on duplicating goods and services
  • there can be less inequality of incomes and wealth
158
Q

Advantages of mixed economy

A
  • The government can decide which resources to control
  • Market forces can be used from goods and services that are considered less important
159
Q

Advantages of market economy

A
  • Having multiple businesses all competing against on each other is likely to lead to lower average costs
  • Competition between firms can lead to greater efficiency-firms focus on tta areas in which they can be most efficiency
  • Firms are more likely to innovate when there is a profit incentive
  • People have a incentive to work in order to earn money to purchase goods and services
160
Q

Usefulness of the concept of opportunity cost

A
  • producers deciding whether t invest in a new piece of machinery or not
  • Consumers deciding whether to purchase a new car
  • Governments deciding to spend on education or healthcare
161
Q

Advantages of division of labour

A
  • quicker production process
  • able to produce more goods and services
  • lower average cost of production
162
Q

disadvantages of division of labour

A
  • can be demotivating for the workers to focus on one small task
  • A single worker absent or piece of capital equipment malfunctioning can stop whole production process
  • May be a barrier to entering a market for smaller firms that cannot afford the investment
163
Q

effectiveness of division of labour and specialisation

A
  • the nature of the good and service - will help car manufacturing but not the process of cutting hair
  • The importance of price to consumers - consumers are often willing o pay more or goods and service that have been made by skilled labour rather than mass production
  • changes in technology - firms cannot affrc yo but specialist capital or to train workers because process changes so often
164
Q

Factors affecting shifts in demand

A
  • income
  • price of complementary goods
  • price of substitutes
  • tastes and fashions
  • advertising and marketing
  • size of population/target market
165
Q

Factors affecting shifts in supply

A
  • costs of labour
  • costs of capital
  • cost of land
  • technology
  • price of jointly supplied products
  • price of competitively supplied products
  • taxation
  • subsidies
166
Q

Evaluation of impact on related markets

A
  • extent of substitutes - weak substitutes still choose expensive brand as they prefer it
  • extent of complement - butter has many other uses not just for bread and therefore increased price of bread may not affect butter price
  • time frame - short term decrease in price o petrol is unlikely to cause people to buy cars
  • size of price change - small change in price for a good that i snot expensive is unlikely to have major impact
167
Q

Factors that determine the value of PED

A
  • The availability of substitute products - likely to be more elastic as consumer can purchase similar product ie different brands
  • necessity of product - i.e few or no substitutes more likely to be inelastic consumers will continue to purchase it in same quantity
  • proportion of income - if large proportion likely to be more elastic because consumers won’t be able to afford a price increase
  • Addiction - want to continue purchasing even if price increases more inelastic
  • time period - in long term period a switch their consumption to lower price alternative
168
Q

Factors that affect PES

A
  • time - The shorter the time period the harder it is for firms to increase their production in response to higher prices. long term = more price
    elastic
  • Availability of Producer Substitutes (ease of mobility of factor substitutes)- good has a lot of producer substitutes, supply will be more elastic. resources can be moved from making one product to making the one that has risen in price.
  • The ability to store stock - good can easily be stored (it’s not perishable) then the producer can use their stored stock to release the good on to the market. This makes the good more price elastic in supply.
  • The level of capacity in the industry - spare/unused capacity supply will be more price elastic as output can be increased reasonably quickly.
  • Rate at which costs increase - If the costs of increasing output increase rapidly then supply will be price inelastic as firms will not want to incur large costs.
169
Q

Interpreting YED

A
  • Luxury = 1 to ∞ relatively small. increase in income can lead to large increase in demand ex holidays or jewellry
  • normal good = 0 to 1 buy more ther more money we have ex clothes
  • no relationship = 0 need the same quantity no matter what income is ex medicine
  • inelastic = 0 to -∞ buy more as income falls as it is more affordable ex frozen pizza and fast food
170
Q

Interpreting XED

A
  • Close substitutes = 1 to ∞ relatively small increase in price means that consumers switch to substitute product by larger amount
  • weak substitutes = 0 to 1 increase in price means that consumers switch to substitute product by relatively small amount
  • no relationship = 0 no change between goods when price of one increases
  • weak complements = -1 to 0 increase in price means that consumers purchase less of complementary products by relatively small amount
  • Close complements = -∞ to -1 relatively small increase in price means that consumers purchase less of complementary products by larger amount
171
Q

evaluation of merit goods and demerit goods

A
  • the nature of the product - product may be under or or over consumed but some have a bigger effect on consumers like sugary drinks and obesity
  • externalities may be involved - affect society not just consumer
  • which consumers are involved - affect poorer members of society more than others
172
Q

evaluation of the provision of public goods

A
  • government provision - national defense is a public good and provided by the government for the benefit of all if gov did not provide it it would be underprovided because each individual consumer would want to spend significant amount of money on its provision
173
Q

factors affecting why government provides public goods

A
  • opportunity cost - what would it give up spending on to provide spending on another sector
  • cost of provision - increases taxes to be able to provide the public good
  • risk of under provision
  • public perception - is good really needed, would public prefer gov spending on something else
  • politics - left-wing prioritise provision of public goods and right-wing believe free-market is better
174
Q

effectiveness of tax

A
  • PED - inelastic are likely to see high price increases for the consumer but little change in quantity
  • XED - if product can be easily substituted for one without the same level of taxation
175
Q

effectiveness of a subsidy

A
  • PED - price elastic are likely to see a relatively small price change for the consumer leading to large change in quantity
  • XED - if consumers can switch to the subsisdised product then a relatively small subsidy can lead to a large increase in quantity
176
Q

effectiveness of buffer stock

A
  • product must be able to be stored in some format
  • cost of storage may be added leading to inefficiency
  • price ceiling and floor my be set incorrectly my led to excess supply or demand every year
177
Q

effectiveness of legislation

A
  • punishment for breaking law - must be seen as an effective deterrent
  • chance of being caught
  • costs of enforcement - limited funds available to enforce a range f laws - cost of enforcing pollution control may be too high
178
Q

effectiveness of tradable pollution permits

A
  • price of permits - too low negative externality continues or worsens
  • pollution will continue - rewards firms for cleaner production but many firms absorb cost and continue to pollute
  • competitiveness of market - large firms buy all permits forcing smaller businesses out of market
179
Q

Causes of government failure

A
  • estimating extent of market failure
  • Cost of intervention
  • political agendas
  • Lack of a profit incentive
  • Regulatory capture - intervention strengths failure as firms operating know most about failure not government
  • Moral hazard
180
Q

consequences of government failure

A
  • costs leading to opportunity cost of not being able to pay for other government projects
  • intervention may ea to exciting frms leading to unemployment or loss of industry
  • disincentivizes films from increasing production to the most efficient points
181
Q

Evaluation of business objectives

A
  • stage business is at - new business is less likely than an established business to set profit max as objective
  • owner wishes - businesses deliberately set up as non-profit organisation - charity
  • timescale - profit ax a s long-term objective but in the short run they may focus on other objectives in the short run
  • state of macroeconomy - respond to macroeconomic conditions (recession) by setting objectives that suit those conditions
182
Q

Internal economies of scale examples

A
  • purchasing - negotiate lower costs or bulk buying
  • Technical - buy better tech
  • Marketing - afford mass-marketing promotion
  • Management - employ specialist managers who are more efficient
  • Financial - negotiate lower costs I.e. rate of interest
183
Q

External economies of scale examples

A
  • Infrastructure - industry in a particular area increases - better communication and transport links
  • Tech and skills- more people train and other business’s develop better tech and capital
184
Q

Examples of diseconomies of scale

A
  • communication
  • Coordination - organising complicated production process
  • Motivation - not every manager can motivate employees os productivity decreases
185
Q

evaluation of economies of scale

A
  • demand for product - market may not demand the increase in output . if firm increases production to MES then it needs to be able to sell all of its output to take advantage
  • nature of product - manufacturer will benefit from technical economies of scale but hairdresser is unlikely to
  • technological advancement - led to some smaller firms being able to access savings once only available to larger firms
  • importance of price - economies of scale allows business to charge a lower price but if product is inelastic may not be a incentive to produce at MES
  • nature of product or service - tend to benefit from economies of scale more than others
186
Q

Evaluation of perfect competition

A
  • low profit margins all consumers have access to the same products and naturally gravitate towards the lowest prices - firms cannot set themselves apart by charging more does higher quality goods
  • absence of innovation - the prospect of greater market share and eating themselves apart form the competition is an incentive for firms to innovate and make petter products, but no firm posses a dominant market share meaning the long term profitability is zero
  • absence of economies of scale - low to no profit means companies have less to invest in expanding their production capabilities which would be bring down costs and increase profit but the presence of several small firms cannibalising the market or same product prevents this and makes sure average firm size remains small
187
Q

advantages of a monopoly

A
  • can be dynamically efficient - more profit more innovation
  • gain economies of scale reducing average costs
  • may be able to compete internationally
  • supernormal profits can be reinvested creating more jobs and new products
  • potential of becoming a monopoly may incentivise a firm to be more successful
  • can avoid duplication of effort - inefficient to run two rail companies
188
Q

disadvantages of a monopoly

A
  • high prices for consumers
  • X-inefficiency leading to higher average costs
  • less incentive to innovate due to a lack of competition
  • a monopoly can be so large that it suffers from diseconomies of scale
  • less choice for consumers
  • allocatively inefficient
  • productively inefficient
189
Q

advantages and disadvantages of a natural monopoly

A

same as a monopoly
- advantage of economies of scale is so great that it may be logical for government to allow monopoly to exist
- government may need to step in and regulate the market

190
Q

advantages of monopolistic competition

A
  • greater choice of products than a monopoly
  • some product differentiation there is some incentive for firms to innovate
191
Q

disadvantages of monopolistic competition

A
  • lack of economies of scale leading to higher-priced products
  • excessive advertising could be a waste
  • neither productively or allocatively efficient in long or short run
192
Q

Advantages of oligopoly

A
  • dynamically efficient because market share is protected - more profit and innovation
  • price stability in the market - customer confidence
  • can gain economies of scale reducing average costs
  • supernormal profits can be reinvested creating more jobs and new products
193
Q

Disadvantages of oligopoly

A
  • high prices for consumers due to sticky prices
  • may nit be incentivised to reduce costs - x-inefficiency
  • firms may be so large they suffer from diseconomies of scale
  • less choice for consumers
  • allocatively and productively inefficient
194
Q

Advantages of a contestable market

A
  • firms can operate with allocative and productive efficiency which means lower prices for consumers
  • incentives for firms in the market to operate at lower costs (X-efficiency)
195
Q

Disadvantages of a contestable market

A
  • market is unlikely to have no sunk costs, meaning firms are unlikely to be forced to operate at the most efficient level
  • most markets have some consumer loyalty, meaning firms are unable to operate at most efficient level
196
Q

Factors affecting demand for labour

A
  • wages
  • demand for the product
  • Labour productivity
  • Capital productivity
  • Price of product
197
Q

Factors affecting wage elasticity of demand

A
  • Proportion of labour costs
  • PED of product
  • Wether capital and labour can be substituted
  • Time - substitute labour for capital in the LR but less likely in SR
198
Q

Factors affecting supply of labour

A
  • wage
  • Wages in other industries
  • Non-monetary benefits
  • Qualifications or skills needed
  • Demographics - population structure
199
Q

Factors effecting wage elasticity of supply

A
  • availability of workers
  • skills and qualifications
  • nature of the job
  • labour immobility
  • time - SR more inelastic can’t swap jobs as they need skills and qualifications
200
Q

Impact of trade union on labour markets

A
  • Can lead to market failure and the strength of trade union can lead to market failure
  • likelihoods of a strong trade union leading to market failure depends upon relative strength of the firm
201
Q

Impact of a monopsonist employer on labour market

A

a monopsonist employer can choose either the wage paid or the quantity of labour employed
- if profit maximising it will operate so MC=MR
- will operate at wage level and quantity of labour lower than the market

202
Q

Government methods for increasing labour market flexibility and mobility

A
  • education
  • vocational education
  • job training schemes
  • infrastructure
  • trade union reform
  • technology
  • legislation - (zero-hour contracts and redundancy laws)
203
Q

Effects of bilateral monopoly

A
  • pressure of trade union to increase wages is balanced by the pressure of the monopsonist employer to decrease wages
204
Q

Conditions of a monopoly

A
  • a single seller in a market
  • barriers to entry - cant compete in a monopoly market
  • barriers to exit - difficult to exit the market without making a loss
  • price maker - can choose the price in the market and is likely to choose a price higher than a competitive market
  • no close substitutes - nature means that it is difficult for customers to substitute the product for anything else
  • supernormal profit - in both short run and long run
205
Q

Conditions for perfect competition

A
  • many sellers/buyers - no dominance or control
  • no barriers to entry - can enter easily and compete
  • no barriers to exit - exit when it becomes unprofitable
  • price takers - must take market price because firms cant affect the market price
  • homogeneous products - no actual or perceived difference between different products on the market
  • perfect knowledge - all firms have all information of the actions and prices of the other firms in the market
206
Q

Conditions for monopolistic competition

A
  • many firms
  • differentiated products - not homogeneous
  • few barriers to entry and exit
  • no dominant firm - no firm has power in the market
  • downward sloping demand curve - some control over price
207
Q

Examples of product differentiation

A
  • branding - customers identify with brand
  • after-sales service - for higher priced products firms could offer credit of warranty to ensure customers shop withy them as opposed to competitors
  • extra features - added extras too make it seem different to competitors
  • performance or reliability - advertise its better than competitors
208
Q

Characteristics of an oligopoly

A
  • A few dominant sellers
  • interdependence - A few dominant sellers they must base its decision-making on what other sellers are doing
  • barriers to entry - must have some to step new firms from being able to compete with one dominant firms
  • differentiated products i.e. Branding
  • non- price competition - competing on branding and advertising
209
Q

Characteristics of a contestable market

A
  • no barriers to entry or exit
  • no sunk costs that may prevent firms from entering or exiting
  • all firms can access new technology
  • little to no consumer loyalty
  • can exit and enter quickly

OCR Economics A-level (54 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions