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Economics > Theme 1 > Flashcards

Theme 1 Flashcards

(80 cards)

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1
Q

What is a positive statement

A

A testable statement, not value statements

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2
Q

What is a normative statement

A

A value judgment which is non testable
.contains words like ‘should’

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3
Q

What is the economic problem

A

Unlimited wants to limited resources

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4
Q

What is a free good

A

Resources that aren’t scarce so has no constraint on economic activity e.g sunlight

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5
Q

What is an economic good

A

Goods that command a price
.scarce resources

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6
Q

What are the factors of production

A

.land
.labour
.enterprise
.capital

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7
Q

What does each factors put in.

A

Land- natural resources available for production
Labour - the human input into production process
Enterprise - entrepreneurs risk to gain profit
Capital - money input

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8
Q

What is a production possibility frontier

A

Shows the different combinations of goods/services which can be produced if all resources are efficiently allocated

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9
Q

What is productive efficiency

A

Maximising (utilising full capacity)

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10
Q

What is allocative efficiency

A

Not utilising economic output but in line with customer preference

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11
Q

What is a capital good

A

Goods used to make a consumer goods

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12
Q

Examples of capital goods

A

Factories,software,machinery,workplaces

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13
Q

What is a consumer good

A

Goods + services that directly satisfy our needs and wants

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14
Q

Consumer durable goods

A

Goods that provide a steady flow of pleasure

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15
Q

What is the public sector

A

Anything that is publicly funded or run
Example: NHS

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16
Q

What is the private sector

A

Buisnesses and organisations not owned or controlled by government
.operate for profit
.funded by private capital

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17
Q

What is division of labour

A

Specialisation by individuals in the labour process

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18
Q

Why divide labour

A

For increased output per person

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19
Q

What is specialisation

A

Becoming an expert in a specific field.

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20
Q

What is production

A

The measure value of output goods + services

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21
Q

What is productivity

A

A measure of efficiency of factors of production

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22
Q

When does specialisation occours

A

When buisnesses or individuals focus on on providing specific goods + services

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23
Q

Negatives of specialisation (3 effects)

A

.work can be tedious and boring - slowing production
.non transferable skills
.countries become less self sufficient

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24
Q

Types of demand

A

.derived
.joint demand
.composite

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25
What is derived demand
Is demand for a factor of production of other goods E.g demand for steel to make cars
26
What is joint demand
Demand for one good is directly related to demand for another good
27
What is composite demand
When demand for one good increases it can lead to s fall in market supply for another good. .this is as its demand for a good with multiple uses.
28
What is the income effect
Change in quantity demanded from a change in consumer real income .Fall in prices increases real purchasing power
29
What is a normal good
Demand rises with an increase in real income
30
What is an inferior good
Demand decreases with a rise in real income
31
What is the substitution effect
Goods that can satisfy the same need .Good X change in price compared to good Y means change in demand for either based on closeness of substitutes
32
What is diminishing marginal utility
Marginal utility decreases the more you have of something the less you are willing to pay for it
33
What is utility
The satisfaction or benefit consumers gain from consuming a good or service
34
What is price elasticity of demand
Responsiveness to change in demand / change in price
35
Percentage change equation
X2 - X1 / X1
36
What is an inelastic good
Quantity demanded changes by a smaller percentage than price . Numerically between 0 - 1
37
What numbers show a good is elastic
If the number is greater than 1
38
Unitary elastic
Quantity changes by same percentage as price
39
What is an elastic good
Quantity demanded changes by a bigger percentage than price
40
What is income elasticity of demand
Change in quantity demanded / change in income .elasticity of demand for a good when income changes
41
Cross price elasticity of demand (XED)
Responsiveness of change in quantity demanded of good x in order of price change in good Y
42
What XED do substitutes have
A positive XED .GREATER THAN 0
43
What XED do complimentary goods have
A negative XED
44
What is profit
Revenue - cost
45
What is supply
Quantity of goods that sellers are willing to sell at any given time
46
Price elasticity of supply
Measures responsiveness of changes in quantity supplied to change in price
47
What is the equilibrium price
Point where demand and supply is balanced
48
Charectoristics of a command economy
.no competition .Gov control .limited enterprise
49
Charectoristics of free market economy
.competiton .motivation of self interest .limited gov intervention
50
Advantages of free market economy
Increased productivity Choice for consumers Innovation
51
Disadvantages of free market
Inequality Market failure Abuse of power
52
Advantage of command economy
Equality Necessary goods provided for no profit Stability/gauranteed employment
53
Disadvantages of command economy
Lack of choice Less productive No market forces
54
What is a mixed economy
Both markets and gov play a role in allocating resources .bith adress market failures
55
What is consumer surplus
The value consumers gain from consuming a good above price paid
56
Factors effecting consumer surplus
More inelastic = more surplus Higher demand = greater surplus
57
Producer surplus
Difference between price received from a firm for a good and the price they are willing to supply it at
58
What is an indirect tax
Tax on expenditure paid by consumers indirectly for example VAT
59
What is ad valoreum tax
A tax in proportion to the value of a product for example VAT
60
What is a specific tax
Level of tax does not change with value of the good For example tax is 10p per litre of fuel
61
What is a subsidy
A grant given by government to encourage consumption or production
62
How does elasticity effect tax for consumers and producers
The more inelastic the good the more of the tax can be paid by consumer
63
Factors effecting rational decision making
Asymmetric information Lack of self control
64
What is an externality
A cost or benefit that effects third parties who are not directly involved in the transaction The effect that producing or consuming goods have on other third parties
65
What is a public good
Non excludable - people can’t be stopped consuming the good even if they don’t pay for it Non rivoulrous -one persons consumption doesn’t effect others benefiting
66
What is the free rider problem
Type of market failure where individuals benefit from a good without paying for it leading to under provision of public goods
67
What is an information gap
Where consumers producers of governments have insufficient information to make rational economic decisions
68
What is unbalanced information (type of info gap)
Buyer knows more more than seller or visa versa
69
Types of market intervention for info gaps
Mandatory labelling Advertisements
70
P what is asymmetric information
The buyer or seller knows more than the other party so exploits this for their own benefit
71
72
What is adverse selection
Is when riskier people are attracted to a product E.g people who lose their phones likley to buy phone insurance
73
What is moral hazard
Behaviour changes after a purchase
74
Example of moral hazard
Driving more recklessly after buying car insurance as you know you won’t have to pay
75
Types of government intervention In marketes
Minimum prices Maximum prices Tax Subsidies Provision of public goods Address info gaps Regulation
76
When does government failure occours
When government intervenes and it causes a welfare loss instead of gain
77
What are the uses for money
Store of value - allows consumers to save for bugger future consumption Medium of exchange - standard unit of account allows trade Unit of account - serves as a measure of value
78
79
Market failure
Market failure refers to a situation where the free market fails to allocate resources efficiently, leading to a suboptimal outcome for society.
80

Economics (4 decks)

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