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A-level economics > Revision > Flashcards

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1
Q

consumer surplus

A

The difference from what consumers are willing to pay and the actual price they pay

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2
Q

Producer surplus

A

The difference between the price producers produce at and the price they sell at

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3
Q

What is the gradient of an inelastic demand curve

A

steep

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4
Q

What is the gradient of an elastic demand curve

A

shallow/flatter

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5
Q

What is state provision

A

When the government intervenes in the market to supply a good or service

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6
Q

Why does the government use tax revenues to supply state provisioned goods

A

To make sure they are free or largely free at the point of use

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7
Q

What are the benefits of state provision

A

Increased consumption of merit and public goods
Reduce inequalities
Redistribute incomes

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8
Q

What are the disadvantages of state provision

A

Productive inefficiency as there is no incentive to cut costs
Potentially wrong mix of goods being produced
Opportunity costs

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9
Q

Dynamic efficiency

A

When firms improve technology and production methods over time

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10
Q

Static efficiency

A

When all resources are being used at the most efficient manner at a single point in time

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11
Q

Regulation

A

When the government aims to provide effective competition within markets

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12
Q

What should regulation achieve

A

Greater choice
lower prices
protect interest of consumers

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13
Q

examples of regulation

A

Legal aim for smoking - 18
Prohibiting certain classes of drugs
Cant drink and drink over certain limit
Banning diesel cars in city centres

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14
Q

Benefits of regulation

A

Cheap to enforce
easy to understand

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15
Q

Drawbacks of regulation

A

Difficult to find right level of regulation

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16
Q

Regulatory capture

A

When regulators start acting in the interests of the company due to impartial information

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17
Q

Deregulation

A

The removal of regulations

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18
Q

Why might deregulation occur

A

To increase competition by removing barriers to entry in a market

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19
Q

What are the drawbacks of deregulation

A

Difficult to deregulate natural monopolies e.g. utilities
Cant fix some market failures such as neg externalities

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20
Q

What are public goods

A

Ones that their consumption does not stop others from using them and does not reduce the amount available to others

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21
Q

What are the characteristics of public goods

A

non rival and non excludeable

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22
Q

What is non rival

A

ones where their consumption does not reduce the amount available to others

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23
Q

what is non excludeable

A

ones where there consumption does not stop others from using it

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24
Q

What are private goods

A

ones where there consumption stops others from consuming it and reduces the amount available to others

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25
What is a subsidy
Government support often financial given to producers and occasionaly consumers
26
What are the reasons for a subsidy
Provide support to poorer families Reduce training and employment costs Keep people in jobs Make health care treatments affordable
27
What is a direct tax
Tax that affects households e.g. Income tax
28
What is an indirect tax
A tax that only affects households if they buy a good or service e.g. VAT
29
What is a specific tax
Where £ or pence are added on e.g. fuel tax
30
Ad valorem tax
% tax added on
31
Progressive tax
The more you earn the more you pay e.g. income tax
32
Regressive
The less you earn the higher the proportion of income being spent on the tax e.g. VAT
33
Proportional tax
Pay the same amount of tax e.g. council tax
34
Price controls
When the government sets a maximum or minimum price for a goods or service
35
Price floor
A price limit where goods cant be sold below the price - above the free market price
36
Benefits of price floors
Guaranteed income (minimum wage) Encourage production essential goods
37
Drawbacks of price floors
Increase prices, encouraging people to seek cheaper goods Reduce international competitiveness
38
Price ceilings
Maximum price limits where prices can not go above - below market price
39
Advantages of price ceilings
Reduce monopoly power Allow more consumers to access g/s
40
Price ceiling issues
Creates black markets Excess demand - shortages and queues Some consumers may not be able to obtain g/s
41
Marginal cost
The cost incurred from from an additional good or service
42
Normal profit
When TR=TC, where profit is £0, the minimum profit to keep resources in current use in the long run
43
Super normal/abnormal profit
When TR>TC, acting as an incentive for other firms to enter the market
44
Other objectives other than profit
Revenue maximisation Market share Reduce unit costs/costs Labour productivity Quality
45
Profit maximisation
MC=MR
46
Allocative efficiency
MC=AR
47
Productive efficiency
MC=AC, when average total costs are at their lowest
48
Normal profit
AR=AC
49
Revenue maximisation
MR=0
50
Monopoly
When a firm is the main producer of g/s in a market
51
Oligopoly
When a few firms have majority market share in an economy
52
Monopolistic competition
When many firms in a market produce similar g/s but not exact
53
Perfect competition
A hypothetical market where competition is at its greatest, which according to neoclassical theorists leads to the best outcomes for society
54
Concentration ratio
refers to % market share which is held by the top firms in the industry
55
Monopoly power
When a firm has the ability to control the price it charges by varying the quantity supplied - note doesn't have to be a monopoly e.g. apple is not a monopoly due to the large competition it faces
56
Dominant monopoly
40% or more market share
57
Pure monopoly
Market is controlled by one supplier - e.g. national grid - high barriers to entry
58
Legal monopoly
Running under a government mandate
59
Natural monopoly
When it is most efficient to have one firm in the market e.g. water
60
Monopoly market share
25%
61
Market failure
Resources aren't allocated efficiently to meet society's needs
62
Negative externalities
Costs to the third party that aren't included in the price
63
Positive externalities
Benefits to the third party that aren't included in the price
64
Pure public goods
goods where it is impossible to exclude someone from consuming e.g. air we breathe
65
Free-rider problem
someone who benefits from a g/s despite not paying for it
66
Quasi public goods
takes characteristics from both a private and public good
67
Long run
When all FOP are variable
68
Short run
When at least one factor of production is fixed
69
Law of diminishing returns
In the short run, the productivity of the variable factor will eventually decrease
70
Internal economies of scale
Occurs due to increase in the scale of production of the firm
71
External economies of scale
Occurs due to an increase in the scale of production of the industry in which a firm operates in
72
Price mechanisms
Allocates resources by the interactions between buyers and sellers
73
Incentive
Higher prices act as an incentive for firms to increase there supply. Allowing greater revenue and profits to be achieved, achieving utility for firms
74
Signalling
Higher prices incentive firms to increase their supply, also signalling consumers to reduce demand
75
Allocative
Society is producing g/s that meets the needs of the consumers
76
Rationing
Excess demand causing firms to increase the price, this reduced demand as less consumers are willing to meet the new price, hence the supply is rationed for the g/s
77
Benefits of price mechanism
Consumers decided what g/s are being produced Doesn't costs anyone to operate prices are kept to minimum resources are allocated efficiently
78
Drawbacks of price mechanism
Inequality in wealth and income likely Over-provision of demerit goods, under-provision of merit goods - supply won't be at socially optimal level Public goods aren't produced

A-level economics (17 decks)

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