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Economics > Theme 1 > Flashcards

Theme 1 Flashcards

(56 cards)

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1
Q

What are the four economic agents?

A

Government, consumers, firms and employees.

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2
Q

what are the three economic questions?

A

What to produce? How to produce? For whom to produce?

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3
Q

Marginal - additional (law)

A

each additional unit of a good or service is consumed, marginal utility decreases

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4
Q

Total utility

A

The total satisfaction from a given level of consumption

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5
Q

Demand

A

An insistent and immediate request, made as of right

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6
Q

Why is there shifts in the demand curve

A

Population, advertising , income , change of price of a supplementary good

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7
Q

What does Supply curve show ?

A

The relationship between the price and supply

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8
Q

Why are there shifts in the supply curve

A

Costs of production:
-wages, raw materials
Government:
-taxes, subsidies
Natural factors

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9
Q

The equilibrium or market clearing

A

Price is found where the demand and supply curve meet. At this point all the product that is supplied onto the market will be purchased

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10
Q

Price elasticity of demand

A

The responsiveness if demand to changes in price

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11
Q

Price elasticity of demand formula

A

PED= %change in quantity demanded / %change in price

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12
Q

If the answer is between 0-1 what is the relationship?

A

Inelastic

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13
Q

If the answer is between -1 and infinity what is the relationship?

A

Elastic

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14
Q

What is PED elasticity

A

Where the % change in demand is greater than the % change in price

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15
Q

What is meant by inelastic price elasticity of demand

A

Here the % change in demand is less than the % change in price.

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16
Q

Outcome of elasticity of demand

A

Time period, number of subsidies, luxury or necessity

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17
Q

PES formula

A

PES = % change in supply / % change in price

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18
Q

Ceteris paribus

A

Everything stays the same

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19
Q

Outcome of elasticity of supply

A

4 factors of production:land, labour, capital, enterprise
Time, space capacity

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20
Q

Income elasticity of demand

A

How much demand changes when income does

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21
Q

Normal good

A

Demand rises as income rises and vice versa (positive)

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22
Q

Inferior good

A

Demand falls as income rises and vice versa

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23
Q

Cross elasticity

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A

The responsiveness of demand of one good to change in the price of a related good - either a substitute or a complement

24
Q

Price mechanism

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A

The interaction of buyers and sellers in free markets enable goods and services to be allocated by prices

25
Rationing function
If price rises it rations the amount of people who can afford it and so rations the material used as not many of the product will be made.
26
Signalling function
Price changes send contrasting messages to consumers and producers about whether to enter or leave the market. _ rising prices givea signal to consumers to reduce demand or withdraw from a market completely they will give a signal to a new market.
27
Incentive function
Prices provide an incentive to existing produces to supply more to make a larger profit
28
Rational decision making
When making decisions people aim to maximise their own welfare. - lack of self control
29
Market failure
The resources are unable to effectively allocated.
30
What are merit good?
A good that is underconsumed by people eg.education.
31
A principal
Agent is an arrangement in which one entity legally apoints another to act on its behalf
32
Asymmetric information
An individual has more information than another individual and uses it to their advantage.
33
Information gaps
Most market failure occur because of information gaps.
34
Caters paribus
All other things being equal
35
Production possibility frontiers
Capital resources, entrepreneurs, labour, land resources
36
Why does opportunity cost arise?
Resources are scarce.
37
What is a ppt? - production possibility frontier
A production possibility frontiers is the maximum output of a combination of a 2 products being produced through scarce resources
38
Capital resources
refer to all the man-made assets that are used to manufacture goods. For example machines, buildings and tools.
39
What is Enterprise
Allowing more immigrants that have different knowledge Into the country
40
Labour
Invest more money into education to get more skills
41
Land resources
More intensive farming
42
Absolute advantage
Being able to produce none of something than another country
43
Comparative advantage
occurs when a country can produce a good or service at a lower opportunity cost than another country
44
Adam smith
The wealth of nations, self interest, risk & reward
45
Why was smith right?
Profit as demand goes up so does price, free will, lots of innovation and new products
46
Why was smith wrong?
Benefit system, cuts off the poor, charities
47
Frederick Hayek
Only buyers & sellers understand the market, the government mighttry to help
48
Types of economies
Centralised, free market, nixed, traditional.
49
Negative externalities
When a third party is a negative affected by a market transaction
50
Subsidies
Refers to direct payments that government provide business to offset some of their operating costs
51
Flat tax
Imposed on firms but can be passed in through higher prices
52
Carbon trading
A system of limiting carbon emissions through granting firms permits to emit a certain amount of carbon
53
Consumer surplus
Difference between the total amount that consumers are willing to pay and the total amount they can afford
54
Producer surplus
The difference between the amount the producer is willing to supply and the actual amount they receive
55
Externalities
costs or benefits that are external to a transaction-‐ they are third party effects which are ignored by the price mechanism.
56
What does inelastic mean?
the static quantity of a good or service when its price changes.

Economics (5 decks)

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