Theme 1 Flashcards
(106 cards)
1
Q
What is Scarcity?
A
Choices that have to be made about recourses that are in low supply (scarce) and how they are allocated for different uses.
2
Q
What is Uncertainty?
A
The situation where the future outlook on the economy is unpredictable
3
Q
What is microeconomics?
A
A branch of economics that analyses market behaviour of individuals and firms in order to understand their decision making process
4
Q
What is macroeconomics?
A
A branch of economics that studies how an overall economy/ the market or other systems that operate on a large scale behaves
5
Q
What are rational consumers?
A
A person who makes reasoned consumption decisions
6
Q
What are the four factors of production?
A
-Land
-Labour
-Enterprise
-Capital
7
Q
What are capital goods?
A
Goods that are used to make consumer goods and services
8
Q
What are consumer goods and services?
A
Goods and services which satisfy our needs and wants directly
9
Q
What are non-renewable recourses?
A
-Recourses that are finite in supply
10
Q
What are renewable resources ?
A
Renewable resources (in theory) are replaceable over time providing that the rate of extraction of the resource is less than the natural rate at which the resource renews itself
11
Q
What are free goods?
A
Free goods do not use up any factor inputs when supplied
12
Q
Name 4 characteristics of a free market?
A
-Markets allocate resources
-Driven by the profit motive
-Limited role for state
-Private sector dominates
13
Q
Name 3 characteristics of a mixed economy?
A
-Mix of state and private ownership
-Government intervention in markets
-Mix will vary from country to country
14
Q
Name 3 characteristics of a command economy?
A
-Most resources are state owned
-Planning allocates resources
-Little role for market prices
15
Q
What is utility?
A
The total satisfaction or benefit from consuming a good or service
16
Q
What is a positive statement?
A
A statement of fact that can be scientifically tested to see if it is correct or incorrect
17
Q
What is a normative statement?
A
A statement that includes a value judgement and cannot be refuted just by looking at evidence
18
Q
Define opportunity cost
A
The loss of alternatives when another alternative is chosen
19
Q
Define consumer durables
A
Products that provide a steady flow of satisfaction / utility over their working life (e.g. a washing machine or using a smartphone).
20
Q
Define consumer non durables
A
Products that are used up in the act of consumption e.g. drinking a coffee or turning on the heating)
21
Q
Define consumer services
A
Services that are sold to consumers e.g hair cut
22
Q
Define demand
A
Demand is the amount of a good that consumers are willing and able to buy at a given price
23
Q
How does price determine the levels of demand?
A
As the price increases on a product or service, normally, the demand will decrease as less customers are willing (or able) to pay the price
24
Q
Name 3 non price that determine levels of demand?
A
- Price of substitutes
- Alternative brands
- Price of compliments
- Changes in consumer income
- Trends in fashion and tastes
- Marketing, advertising and branding
- Population structure / demographics
- Time of year
- Weather and climate
- External shocks
25
What is price of substitutes?
A substitute product is an alternative
26
What are alternative brands?
If an alternative brand is available and the product is not available then this will affect demand
27
What is price of compliments?
A complementary product is one that needs to be used with another product
28
How can changes in consumer income affect demand?
As consumer incomes rise then demand for some products falls e.g. microwave meals – consumers may buy fresh food or eat out instead
•Equally as consumer incomes rise then they have more disposable income to spend on luxuries like; holidays, prestige cars etc.
29
How can trends affect demand?
As trends in goods and services rise then demand for these products rise
30
How can marketing affect demand?
Marketing can also stimulate demand e.g. promotions can help to encourage sales
31
How does advertising affect demand?
• Advertising can stimulate demand and increase sales
• Advertising can call the public’s attention to a product or service
32
How can branding affect demand?
As products are heavily advertised they may experience an increase in demand. If this did not occur then businesses would not invest in advertising at all.
33
How does population structure and demographics affect demand?
The UK population is getting older, this means that different products and services will be in higher demand
34
How does the time of year affect demand?
• Some products reach peak demand at certain times of the year in the UK:
• Christmas trees
• Easter eggs
• Pumpkins at Halloween
35
How can the weather and climate affect the demand?
Some products have a seasonality factor and may be affected by the weather and the climate
36
How can external shocks affect demand?
External shocks such as; terrorism, war, disease and health scares can change demand
For example after terror attacks in Tunisia travel agents have found it hard to sell holidays there
37
Define production
Production is a measure of the value of the output of goods and services e.g. measured by national GDP or an index of production in specific industry such as car manufacturing
38
Define productivity
A measure of the efficiency of factors of produc=on
39
How is productivity mesured?
Measured by output per person employed or by output per person hour
40
Factor inputs (land, labour and capital) + Factory productivity (efficiency)=?
Output of goods and services
41
What will a fall in labour productivity lead to?
A fall in labour productivity leads to a rise in firms’ (unit) costs of production (assuming that the level of wages remains the same)
42
What does high productivity allow a businesses to do?
Higher productivity allows businesses to pay higher wages achieve increased profits at all times
43
Name 3 factors affecting labour productivity?
-Degree of competition in a market / industry
-Advances in production technology
-Specialisation (division of labour) within a business
-Higher business investments in new capital inputs
-Investment in apprenticeships / training to boost labour skills
-Quality of the management in a business
-Having a high quality national infrastructure including transport
-Level of demand for a product in a market / using up spare capacity
44
What is speculative demand?
the desire to have money for transactions other than those necessary for living, namely for investment and profitable purposes.
45
What are examples of speculative demand?
Shares, house prices, foreign currency movements
46
What are Veblen goods?
Goods of exclusive or conspicuous consumption or snob goods
47
What will happen when the price of a product increases?
The quantity of the product bought decreases as there is less demand
48
What will happen when price of a product decreases?
The quantity of the product will increase as there is a higher demand for the product
49
What is PED formula ?
PED= %change in quantity demanded/% change in price
50
What does the PED measure?
This measures the extent of the consumers’ responsiveness to a change in the good’s price
51
What factors determinate PED?
-Substitutability
-Percentage of income
-Necessities or luxuries
-The width of the market definition
-Time
52
Income elasticity of demand (YED) formula
YED= % change of quantity demanded/% change in income
53
What is the formula for the cross price elasticity of demand (XED)
XED= % quantity for good A/ % quantity of good B
54
Sales revenue formula
Sales revenue = price x qty
55
What are the 3 types of suppliers
-Market: B2B
-Consumers: B2C
-Government
56
What will suppliers take into account when deciding the quantity of goods to sell?
-Cost of product
-Competition
-Productivity
-Wages
-Raw materials
-Taxes/ VAT
-Subsides
-Technology
57
Define subsides
money given by a government or an organization to reduce the cost of producing food, a product, etc. and to help to keep prices low
58
Who represents the demand curve?
-Consumers
-Businesses
-Government
59
What is market equilibrium?
When you combine the supply and demand curves, there is a point where they intersect; this point is called the market equilibrium. The price at this intersection is the equilibrium price, and the quantity is the equilibrium quantity.
60
Who benefits from market equilibrium?
Everyone!!
61
Define price elasticity of supply (PES)
measures the responsiveness to the supply of a good or service after a change in its market price
62
What is the Price elasticity of supply formula?
PES = % Change in QTY / % Change in Price
63
Define Consumer surplus
Is the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they actually do pay.
64
Define Producer surplus
the difference between the price received for a product and the marginal cost to produce it.
65
Define Market Economy
an economic system in which production and prices are determined by unrestricted competition between privately owned businesses.
66
Define mixed economy
an economic system combining private and state enterprise.
67
Define command economy
the central government dictates the level of production of goods and controls their distribution and prices
68
Name 3 factors of a market economy
-Private Property
-Economic Freedom
-Consumer Sovereignty
-Competition
-Profit
-Voluntary Exchange
-Limited Government Involvement
69
Name 3 factors of a mixed economy
-Planned Economy
-Private Property
-Provision of Social Security
-Motive of Business Concerns
-Existence of Joint Sector
70
Name 3 factors of a command economy
-Government dominates
-Means of production are controlled by government
-Limited competition
-Government control of prices and salaries
-The government owns monopoly businesses
71
Define missing markets
demand for a good or service exists, but there is no available supply of this sought-after product.
72
Define public goods
a commodity or service that is provided without profit to all members of a society, either by the government or by a private individual or organization.
73
Define private goods
those whose ownership is restricted to the group or individual that purchased the good for their own consumption
74
Define Quasi public goods
have characteristics of both private and public goods, including partial excludability, partial rivalry, partial diminishability and partial rejectability
75
Define non-excludability
public goods that cannot exclude a certain individual or group of individuals from using them
76
What is a free rider problem?
the burden on a shared resource that is created by its use or overuse by people who aren't paying their fair share for it or aren't paying anything at all
77
Define non rival consumption
public goods that are consumed by people but whose supply is not affected by people's consumption
78
Define non rejectable goods
The collective supply of a public good for all means that it cannot be rejected by people
79
Name 3 pure public goods
-Sanitation infrastructure
-Flood defence/ tidal barrage
-Crime control/ police
80
Name 3 quasi public goods
-Wi-Fi
-Education
-Beaches
81
What is a merit good?
commodities that the public sector provides free or cheaply because the government wishes to encourage their consumption.
82
What are semi non rival goods?
up to a point, extra consumers using a park, beach or road do not reduce the space available for others
83
What are semi non excludable goods?
it is possible but often difficult or expensive to exclude non-paying consumers
84
What are net social benefits?
the value at the time of the decision-making of the net addition to consumption that would. result from undertaking the project
85
What are merit goods?
Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidised or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service.
86
What are de-merit goods?
a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves
87
Give 3 examples of a merit good
-education
-health care
-welfare services
-housing
-fire protection
-refuse collection
-public parks
88
Give 3 examples of a demerit good
-Alcohol
-Recreational drugs
-Tobacco
-Gambling
-Pornography
-Prostitution
89
What is economic efficiency?
Efficiency is about society marketing optimal (best) use of scarce resources to help satisfy our changing wants & needs.
90
What are the 4 factors of economic efficiency?
-Allocative efficiency
-Productive efficiency
-Dynamic efficiency
-Social efficiency
91
What is allocative efficiency?
Allocative efficiency is reached when no one can be made better off without making someone else worse off. This is known as Pareto efficiency.
92
When does allocative efficiency occur?
Allocative efficacy occurs when the value that consumers place on a good or service equals the marginal cost of the scarce factor resources used up in production.
93
What is the main condition required for allocative efficiency?
Market price = marginal cost of supply
94
What is dynamic efficiency?
Dynamic efficiency occurs over time and is strongly linked to the pace of innovation within a market and improvements in the range of choice for consumers and performance / reliability / quality of products.
95
What is a pure monopoly?
when one business dominates the whole market – it has 100% concentration
96
What is a oligopoly?
a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies
97
What is a duopoly?
a situation where two companies together own all, or nearly all, of the market for a given product or service
98
What is a contestable market?
A market which is constantly changing (highly volatile) due to low barriers to entry and exit
99
Characteristics of a contestable market
-Constantly changing
-Credible threat of entry
-Low exit and entry barriers
-Seen at a local, regional, national and international level
100
What are the key conditions for a constable market ?
-Absense of sunk costs
-Access to all available technology
-Low rate of existing consumer loyalty
-Low barriers to entry
101
Define the term sunk cost
The sunk cost is the setting up cost. However the sunk cost can’t be recovered if a business decides to exit the market.
102
What is hit and run entry?
When a business enters an industry to take advantage of temporarily high (supernormal) market profits
103
Examples of contestable markets
-Peer to peer lending
-Fast food industry
-Hotel/ room sharing
-App developers
104
Factors of sunk costs
1. Sunk costs cannot be recovered if a firm leaves an industry
2. When sunk costs are high then a market becomes less contestable
3. High sunk costs act as a barrier to entry of new firms because they risk making significant losses if they decide to exit the sector
4.Barriers to entry and exit are low however contestibility are high
105
Key characteristics of an oligopoly
-Independent decision making by firms within the industry
-Periods of price rigidity
-Intense non price competition
-Occasions when firms might decide to collude and fix market price
-Periodic, often short put intense price wars
106
What is strategic interdependence
a scenario where two or more entities come together to exchange goods and services
