theme 1 Micro eco

Question 1

the economic problem

Answer 1

humans have infinite wants and needs, but only have finite resources to fulfil them

Question 2

the factors of production

Answer 2

Land, Labour, Capital, Enterprise

Question 3

Opportunity cost

Answer 3

The next best opportunity forgone

Question 4

PPF

Answer 4

shows the maximum level of output of two goods that an economy can make in a certain period of time

Question 5

specialisation

Answer 5

when a person, firm or even country, concentrates on producing or doing just one thing

Question 6

The division of Labour

Answer 6

Production of a complex good or service is broken down into lots of smaller and simpler tasks for different workers or machines

Question 7

The market

Answer 7

A place where buyers and sellers brought together to exchange goods and services for a price

Question 8

Free market economy

Answer 8

all the resources are allocated by the market forces of supply and demand

Question 9

Centrally planned economy

Answer 9

All resources are allocated by the government

Question 10

utility

Answer 10

satisfaction that consumers get from a good or services that they buy

Question 11

demand

Answer 11

that amount of a product that consumers are willing and able to purchase at any given price

Question 12

PASIFIC

Answer 12

Non-price factors that influence demand

Population
Advertising
substitute goods 
income tax 
fashion & trend
interest rate 
complimentary goods

Question 13

PINTSWC

Answer 13

Non-price factors influence supply

Productivity 
Indirect taxes 
Number of firms 
technology 
subsidies 
weather 
cost of production

Question 14

PED Equation

Answer 14

(%QD / %P) - value is always negative

Question 15

PED < 1

Answer 15

price inelastic - a change in price results in a smaller change in demand

Question 16

PED > 1

Answer 16

Price elastic - a change in price results in a greater change in demand

Question 17

factors influencing PED

Answer 17

Time 
competition 
branding 
% of income the good takes 
habit forming goods

Question 18

Factors influencing YED

Answer 18

Necessitates and luxury goods

Question 19

Normal goods

Answer 19

When income increases, demand for normal goods goes up

Question 20

inferior goods

Answer 20

When incomes increases, demand for inferior goods fall

Question 21

XED equations

Answer 21

(%QD good B / % P good A)

Question 22

substitute goods

Answer 22

goods that are very similar an are close substitutes for each other

POSTIVE XED

Question 23

Complimentary Goods

Answer 23

Goods that go together well or are actually used in consumption together.

NEGATIVE XED

Question 24

Supply

Answer 24

The amount of a product which suppliers will offer to the market at a given price

Question 25

PES

Answer 25

(%*QS / %*P) Value is always positive

Question 26

Price Mechanism

Answer 26

The way in which prices respond to changes in supply or demand, so that a new equilibrium is reached and the market clears

Question 27

equilibrium

Answer 27

when supply is equal to demand

Question 28

Total revenue

Answer 28

Price X quantity

Question 29

Excess demand

Answer 29

when demand exceeds supply - there is a market shortage

Question 30

Excess supply

Answer 30

When supply exceeds demand - there are unsold goods in the market

Question 31

Producer surplus

Answer 31

The extra amount of money that producers are paid, above what they would be willing to take

Question 32

Consumer Surplus

Answer 32

The extra amount of money consumers are prepared to pay for a good, above what they actually pay

Question 33

Direct Tax

Answer 33

A tax that is paid straight from your income

Question 34

indirect tax

Answer 34

A tax that can be passed onto another individual

Question 35

Ad valorum tax

Answer 35

A tax that increases by a certain %

Question 36

Tax Incidence

Answer 36

This is the idea of who actaully pays the tax, the consumer or the producer

Question 37

subsidy

Answer 37

A grant given to a firm to encourage the firm to produce more/ or lower the price of a good

Question 38

Reasons for irrational behaviour

Answer 38

- Influence of others - Habitual goods - Computational Problems - Inertia

Question 39

Market Failure

Answer 39

When the free market causes an inefficient allocation of resources.

Question 40

Externalities

Answer 40

These are costs or benefits that are ignored in a market exchange

Question 41

Private costs

Answer 41

These are costs involved that only the individual and the producer cares about

Question 42

External costs

Answer 42

Costs to the 3rd party, that either the producer or consumer pay

Question 43

Social costs

Answer 43

Private cost + external costs

Question 44

Social optimum equilibrium

Answer 44

Where marginal social costs equal marginal social benefits

Question 45

Public goods

Answer 45

goods that are non-rivalrous and non-excludable

Question 46

Non-excludable

Answer 46

When you have produced the good and sold it to one person, it is impossible to stop other people from using it

Question 47

Non-rivalrous

Answer 47

That as more and more people use it the amount available to others is not reduced

Question 48

The free rider problem

Answer 48

If you provide a good to one person you have provided it all. People will just come along and use it without paying

Question 49

Asymmetric information

Answer 49

When consumers and producers often have different amounts of information. one group will have advantage by knowing more.

Question 50

Symmetric information

Answer 50

When both consumers and producers have perfect information about the good they are exchanging

Question 51

Ad valorum tax

Answer 51

Tax which accounts for a % of price

Question 52

specific tax

Answer 52

A tax on a fixed amount of each unit of good or service sold

Question 53

Subsidy

Answer 53

A government grant given to firms whic reduces cost of production, increasing supply

Question 54

Maximum price

Answer 54

A price ceiling - when the Gov sets a price that it will not allow the market price to rise above

Question 55

Minimum price

Answer 55

A price floor - When the Gov sets a price that it will not let price fall below

Question 56

Tradable Pollution Permits

Answer 56

These give companies a legal right to pollute a certain amount per fixed time span and can sell their surplus pollution permits

Question 57

Gov regulation

Answer 57

Making laws, such as health and safety

Question 58

Gov Failure

Answer 58

when a Government intervention leads to a net welfare lose