Flashcards in Section A Deck (77):
What is a market?
When buyers and sellers communicate and exchange goods for money.
Name the 2 functions of a market system
Resource Allocation and Price Determination.
What is demand?
The amount of a good that will be bought at given prices over a period of time.
What is supply?
The amount of a good that sellers are prepared to sell at given prices over a period of time.
Rising Demand =
Falling Demand =
Rising Supply =
Falling Supply =
What is the relationship between price and quantity demanded?
When demand increases, which way does the demand curve shift?
To the right.
When demand increases, what happens to price and quantity?
They both rise.
What are the factors affecting demand?
Income, Advertising, Population, Tastes and Fashion, Price of substitutes and Price of complements.
What is the relationship between price and supply?
When supply increases, which way does the supply curve shift?
To the right.
When supply increases, what happens to price and quantity?
Price decreases, Quantity increases.
When is supply fixed?
When sellers cannot increase supply even when prices rise.
What is the shape of the fixed supply curve?
What are the factors affecting supply?
Cost of production, Indirect taxes, Subsidies, Changes in technology and Natural factors.
Total Revenue =
Price x Quantity
What is total revenue?
The amount of money generated from the sale of output.
What is equilibrium price?
Where supply and demand meet.
What happens if price is set below equilibrium?
There will be excess demand.
What happens if price is set above equilibrium?
There will be excess supply.
What is PED?
The measure of the responsiveness of quantity demand to a change in price.
Demand is inelastic.
Demand is elastic.
What are the factors affecting price elasticity of demand?
Number of substitutes, Degree of necessity, Proportion of income.
What is PES?
The measure of the responsiveness of quantity supplied to a change in price.
Supply is inelastic.
Supply is elastic.
If supply is perfectly inelastic, what shape is the supply curve?
If supply is perfectly elastic what shape is the supply curve?
What are the three factors affecting price elasticity of supply?
Stock levels, Production speed, Spare capacity.
What is IED?
The measure of the responsiveness of quantity demand to a change in income.
Income is elastic.
Income is inelastic.
What happens to the demand of a normal good as income rises?
What happens to the demand of an inferior good as income rises?
For a normal good, income elasticity of demand will be...
For an inferior good, income elasticity of demand will be...
What is the only factor affecting income elasticity of demand?
Whether goods are necessities or luxuries.
When demand is elastic, what happens after price is cut?
Total Revenue increases.
When demand is inelastic, what happens after price is raised?
Total Revenue increases.
When demand is inelastic, what happens after price is cut?
Total Revenue decreases.
What type of goods do governments impose indirect taxes on and why?
Necessities and goods with few substitutes as consumers can't easily avoid buying them.
What is the economic problem?
Deciding how to allocate a nation's scarce resources between different users.
Why is there an economic problem?
People have infinite wants but there are only finite resources.
What are the three important decisions involved in the economic problem?
What, How and For whom, to produce.
What is opportunity cost?
A benefit that a person could have received, but gave up, to take another course of action.
What is a production possibility curve?
A curve that shows how a country's resources can be used to produce combinations of two goods.
When is an opportunity cost incurred on the PPC?
When moving from one point to another.
What is the private sector?
The part of the economy where goods and services are provided by businesses.
What is the public sector?
The part of the economy where production is organised by the state.
Which sector provides most of the goods and services in a market economy?
Private sector companies.
In a planned economy, which sector provides most of the goods and services?
Public Sector organisations.
Why do companies/organisations strive for efficiency?
Competition, Growth, Minimise Cost and Minimise resource use in production.
How can organisations in the public sector maintain efficiency?
By using performance targets and paying private sector companies to supply government services.
Give 4 examples of market failure
Negative externalities, Lack of competition, Missing markets and Merit goods.
What is labour?
A term used to describe people available for work.
What are advantages of the division of labour to firms?
Greater efficiency as workers practise their tasks repeatedly and reduced production time as workers do not have to move between tasks.
What are the disadvantages of the division of labour to firms?
Quality may fall if tasks are boring for workers and a lack of flexibility if workers cannot switch between tasks.
What are the advantages of the division of labour to workers?
Workers become experts, find employment more easily and obtain higher rates of pay.
What are the disadvantages of the division of labour to workers?
Workers can become demoralised through repeating tasks and may face unemployment if a specialist task is no longer required.
How is the wage rate determined?
By the interaction of supply and demand for labour.
How is the equilibrium rate determined?
Where supply and demand for labour are equal.
What are the four factors affecting demand for labour?
Demand for the goods, cost and availability for substitutes (like machines), labour productivity and employment costs.
What are the three factors affecting supply for labour?
Changes in the school leaving and retirement age, the role of females in society and net migration.
What are the reasons for wage differences in different occupations?
If a job is dangerous, requires more skill or qualifications or whether the job is within an expanding industry.
How can human capital be improved?
Investment in training and education.
How may governments interfere in the labour market?
Passing a minimum wage legislation preventing employers from paying their workers under a certain hourly rate limit.
What are the three reasons for passing a minimum wage legislation?
To benefit disadvantaged workers, reduce poverty and help businesses promote greater equality and fairness.
Where is minimum wage set?
Above equilibrium price.
What are trade unions?
Organisations that protect the interest of workers