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Economics Edie > Theme 1 > Flashcards

Theme 1 Flashcards

(89 cards)

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1
Q

What is Ceterus paribus?

A

Everything else being equal

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2
Q

What are the 3 types of economies

A

Centrally planned, mixed, free enterprise

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3
Q

What is the economic problem?

A

Unlimited wants and needs and limited resources

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4
Q

What are the 4 economic agents?

A

Government, consumers, firms, workers

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5
Q

What is the government’s main objective?

A

Makes decisions to try and maximise social welfare

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6
Q

What is the consumers main objective?

A

To aim to maximise satisfaction

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7
Q

What does the agent, firms want to make decisions for?

A

Try and maximise profit

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8
Q

What is the main objective of workers?

A

Maximise the benefits of working

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9
Q

What is utility?

A

The satisfaction a person gets from consumption of an item

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10
Q

What is the law of diminishing marginal utility?

A

States that when the amount consumed of a commodity increases, the the utility derived from it decreases

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11
Q

Total utility definition?

A

The total satisfaction from a given level of consumption

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12
Q

Marginal utility definition?

A

The change in satisfaction from consuming an extra unit

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13
Q

What does marginal mean?

A

Additional

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14
Q

What is demand?

A

Refers to the consumers desire and willingness to buy at a given price

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15
Q

What relationship do price and demand have?

A

An inverse, when prices doro demand increases and vice versa

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16
Q

What happens to the demand curve if there is a change in price?

A

Move along the curve

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17
Q

What is expansion of demand?

A

Lowering the price moving along the curve

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18
Q

What is contraction of demand?

A

shifting the cruve to the left, less supply

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19
Q

Which way do demand curves move?

A

Shift right- expansion
Shift left- contraction

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20
Q

What can cause a shift in demand?

A

•income
•population
•advertising
•change in price of a substitute
•change in price of a complementary good
•taste and fashion

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21
Q

What is the supply curve?

A

A graph that shows the relationship between price and supply.

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22
Q

What can cause a shift in supply?

A

•availability of resources
•weather
•price of resources
•workers and wages

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23
Q

Why would a supply curve move left?

A

A decrease in supply

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24
Q

What is a subsidy?

A

The government pays money to increase production of a food or sevrice

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25
What is the equilibrium?
State of balance when things are equal, shifts in the supply and demand curves will the the equilibrium point
26
What is price elasticity of demand?
The responsiveness of demand to changes in price
27
Ped equation?
%change in quantity demanded - %change in price
28
In price elasticity of demand what is the figure for inelastic?
Between 0 and -1
29
What are raw materials?
Commodities in their natural state
30
What is infinite elasticity?
Perfectly elastic (demand will drop of there is a change in price)
31
What are the determinants of elasticity of demand?
Time period, number and closeness of substitutes, the proportion of income, luxury and necessity, habit forming
32
What is price elasticity of supply?
The responsiveness of supply to a change in price
33
Equation for Price elasticity of supply?
% change in quantity supplied- % change in price
34
What are the determinants of elasticity of supply?
CELL, time, spare capacity, spare stock and components
35
What is income elasticity of demand?
The responsiveness of demand to a change in income
36
What is the equation for income elasticity of demand?
% change in quantity - %change in income
37
What does a positive sign in YED mean?
A necessity good
38
What does a negative sign in YED mean?
Inferior good
39
What does a positive sign of greater than 1 in YED mean?
Luxury goods
40
What is cross elasticity?
The responsiveness of demand of one good to changes in the price of a related good
41
What is the equation for cross elasticity?
% change in quantity of good A - % change in price of good B
42
What does a positive value mean in cross elasticity?
Means it's a substitute, the higher it is the stinger the substitute
43
What do we assume about rational decision making?
when people make decisions to maximise their own welfare
44
Why aren't economic agents always rational?
Incomplete information, social networks, lack of self control, loss averse, different choices in an emotional state, satisfice rather than maximise, default to the status quo.
45
What is the price mechanism?
Interaction of buyers and sellers in free markets and enables goods, services and resources to be allocated by prices.
46
What is the rationing function?
When resources are scarce, there is more demand then supply and price increased to discourage demand and ration supply.
47
What is the Signalling function?
Price changes send messages and to consumers and producers about whether to leave or enter the market e.g., but less is the price is high
48
What is incentive function?
Higher prices give the producers the incentive to make more (to maximise profit) but give consumers incentive to buy less
49
What is complete market failure?
Occurs when the market does not function
50
What is Partial market failure?
Occurs when the market does function but it produces products either at the wrong quantity or wrong price.
51
What does the private sector create?
Missing markets
52
What are the characteristics of pure public goods?
Non-excludability, non-rivalrous, non-rejectable
53
What does non-excludability mean?
Benefits derived from cannot be confined solely to those who have paid for for it
54
What is Non-rival consumption?
Consumption by one customer doesn't restrict consumption of others.
55
What is non-rejectable?
Collective supply of a good for all can't be rejected e.g., nuclear defence system.
56
What is the free rider problem?
Where people benefit from the good but do not pay for it
57
What is a quasi public good?
A near public good, up to a certain point is public. e.g., a beach that gets too full
58
What are merit goods?
Goods and services that the government feels that people will under-consume and should be subsidised to not be reliant on the ability of the people to pay for it
59
What is a principal agent?
A principal appoints an agent to act on their behalf and in their best interest
60
What is a demerit good?
Thought to be 'bad' for you, lots of overconsumption, negative externalities
61
What is asymmetric information?
When one party has more information than other individuals or party and uses that advantage to exploit.
62
What is a normative statement?
Subjective statements. They are value judgements and based on opinion
63
What is a positive statement?
Objective statements that can be tested and based on evidence
64
What does the PPF show?
The maximum possible output combinations of two goods or services an economy can achieve when all resources are fully employed
65
What are capital goods?
Needed to grow the economy long term (machinery)
66
What are the factors of production
CELL
67
What is an absolute advantage?
Being able to produce more of something than another country (assuming both have the same resources)
68
What is a comparative advantage?
Being able to produce something at a mug lower opportunity cost than another country (assuming they both have the same amount of resources)
69
What are the functions of money?
A medium of exchange, a measure of value, a store of value, a method of settling debts
70
Who was Karl Marx?
Communism, sharing the wealth hated that people profited by payer lower wages
71
Who was Adam smith?
A capitalist
72
Who was Hayek?
Believed that only buyers and sellers understood the market and government shouldn't be involved.
73
Does a mixed economy have private ownership?
Yes
74
Does a command economy have private ownership?
No
75
Does a market economy have private ownership?
Yes
76
What the business objectives of a market economy?
Profit driven
77
What the business objectives of a command economy?
Service driven
78
What the business objectives of a mixed economy?
Service and profit driven
79
What is a negative externality?
When a third party is negatively affected by a market transaction
80
What is a positive externality?
A product which has a positive impact on the third party
81
What are subsidies?
Refer to direct payments that governments provide businesses to offset some of their operating costs
82
What is maximum pricing?
When a price is set which the market will not be able to go above e.g., the rental market
83
Advantages of a price cap on rent?
Protects people on minimum wage, encourages spending elsewhere, stops landlords from excessive profiteering, reduces homelessness
84
Disadvantages of a price cap on rent?
Shortages of houses, less profit for landlords, people who don't need it benefit, landlords could abandon repairs or the whole building
85
What is minimum pricing?
Setting a floor price which the market is not allowed to go beneath e.g., tobacco
86
Why set a minimum price?
To price out bad behaviour
87
What is a flat tax?
Imposed on firms, but can be passed on through a higher price - fixed amount
88
What is carbon trading?
A system of limiting carbon emissions through granting firms permits to emit a certain amount of pollution.
89
What can firma do with carbon permits?
Buy and sell on the open market, so could pollute more

Economics Edie (4 decks)

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