theme one Flashcards
(87 cards)
1
Q
positive statement
A
- objective + scientific
- explanation of economy
- can be proved or disproved
2
Q
normative statements
A
- value judgement
- cannot be proved or disproved
3
Q
free goods
A
- unlimited supply
- no opportunity cost
4
Q
economic goods
A
- scarce goods
- use has opportunity cost
5
Q
basic economic problem
A
- human wants = infinite
- resources = scarce
- resources allocated between competing users
6
Q
free market
A
- capitalist
- economic decisions made by individuals competing to earn profit
- resources owned by individuals
- resolves basic economic problem though market mechanism
7
Q
mixed economy
A
- elements of free market and command market
- resources owned by individuals
8
Q
command economy
A
- government allocates resources
- no competition
9
Q
land
A
- natural resources
- for production of goods
10
Q
labour
A
- human input
- into production process
11
Q
capital goods
A
- goods used in manufacturing process
- used to produce consumer goods
12
Q
capital
A
-investment in capital goods
13
Q
enterprise
A
- initiative to take risks
- to sell/ create a product
14
Q
opportunity cost
A
-next best alternative forgone when making an economic decision
15
Q
PPF
A
- production possibility frontier
- maximum potential level of output
- of two goods
- given all resources allocated efficiently
16
Q
specialistation
A
- individual or firm produces narrow range of goods
- overtime develops advantage in that sector
17
Q
division of labour
A
- type of specialisation
- production = broken up into separate tasks
- labour allocated to each task
18
Q
supply
A
- quantity of good/ service
- at given price
19
Q
demand
A
- quantity of good/ service consumers are willing to buy
- at given price
20
Q
equilibrium
A
-quantity demanded = supply
21
Q
consumer surplus
A
difference between max price consumers are willing to buy at and what they actually buy at
22
Q
producer surplus
A
difference between minimum price producers are willing to sell at, and what they actually sell at
23
Q
price elasticity of demand
A
-measure of responsiveness of quantity demanded to a change in price
24
Q
elastic PED
A
- responsiveness of demand > change in price
- PED > 1
25
inelastic PED
- responsiveness of demand < change in price
| - 0
26
perfectly elastic PED
- change in price = infinite change in demand
| - PED = infinity
27
perfectly inelastic PED
- change in price = no change in demand
| - PED = 0
28
income elasticity of demand
a measure of the responsiveness of quantity demanded to a change in income
29
normal good
- income increases = demand increases
- positive YED
- eg clothes
30
luxury good
- demand increases proportionally greater than the income increases
- YED > 1
- eg designer clothes
31
giffen good
-demand increases as price increases
32
XED
- cross price elasticity of demand
| - measure of the responsiveness of quantity demanded of one good to change in price of another good
33
substitute good
- good can be replaced with another good
- -price of one increase = demand of other increases
- positive XED
- eg coke and pepsi
34
complement goods
- goods = consumed together
| - price of one increases = demand of other decreases
35
PES
- price elasticity of supply
| - measure of the responsiveness of quantity supplied to a change in price
36
derived demand
- demand of one good linked to demand for related good
| - eg demand for bricks = derived from demand for houses
37
composite demand
- good demanded has more than one use
- eg milk for cheese and butter
- if fixed milk, cheese increasing = butter decreasing
38
joint supply
- increasing supply of one good = increase or decrease another good
- eg producing more lamb = more wool
39
indirect tax
tax on expenditure
| eg VAT
40
direct tax
```
levied on
-income
-wealth
-profit
eg inheritance tax
```
41
specific tax
- tax levied on volume
| - eg 2p per litre
42
ad valorem tax
- tax levied as % of value
| - eg VAT
43
subsidy
- grant provided by government
| - encourage consumption or production of good
44
revenue
- sum of all incomes coming into firm
| - from sale of good
45
private cost
- cost to consumers / firms
| - internal to exchange
46
private benefit
- benefit to consumer/ firm
| - internal to exchange
47
social cost
-cost to all of society
48
social benefit
-benefit to all of society
49
externalities
- unintended spillover effects
- on third parties
- when private costs/ benefits = different from social costs/ benefits
50
positive externality
- positive spillover effect
- social benefit > private benefit
- underconsumption
51
negative externality
- social cost > private cost
- negative spillover effect
- overconsumption
52
public goods
- non-excludable
- non-rivalrous
- provided by government
53
quasi public good
- either just non-excludable or just non-rivalrous
| - eg park bench
54
market failure
- inefficient allocation of resources
| - failure of market mechanism
55
government failure
-government intervention = net loss in economic welfare
56
types of government intervention
| name 5 or all
- subsidies
- tax
- max & min price
- tradable pollution permits
- carbon offsetting
- quotas
- state provision of public goods
- provision of information
- regulation
- bans / limits
57
carbon offsetting
- process of compensating for carbon dioxide emissions
- arising from industrial activity
-participating in schemes designed to make equivalent reductions
58
tradeable pollution permits
- cap and trade schemes
- give companies a legal right to pollute a certain amount
- per time span
- can sell these permits to bigger companies
59
alternative views of consumer behaviour (5)
- influence of other people's behaviour
- habitual behaviour
- addiction
- inertia
- consumer weakness at computation
59
alternative views of consumer behaviour (5)
- influence of other people's behaviour
- habitual behaviour
- addiction
- inertia
- consumer weakness at computation
60
inertia
- 'laziness'
| - tendency to do nothing or to remain unchanged
61
total revenue
price x quantity
62
factors affecting PED
(LIST)
- luxury or necessity
- income proportion spent
- substitute availability
- time period
63
factors affecting PES
PES
- producer substitutes?
- easily stockpiled?
- spare capacity?
- quick to produce?
- time period?
- long run, all factors considered?
64
factors affecting demand
- FLAPSCI
- fashion
- legislation
- advertisements
- population changes
- substitutes
- complements
- income changes
65
factors affecting supply
charlie went to panama, sat there naked
- changes in production
- weather
- technology
- producer substitutes (turnips & potatoes)
- subsidies
- taxes
- no. of firms in the market
66
traditional economy
- traditions and customs govern economic decisions
| - allocation = inheritance
67
adam smith
- pro capitalist
- father of economics
- invisible hand allocates resources
- laissez-faire
- meaning that government should leave markets
68
friedrich hayek
- pro capitalist
- critical of socialism
- neoclassical theorist
69
john maynard keynes
- anti capitalist
| - government should intervene and help economy
70
karl marx
- anti capitalist
- capitalism = classist
- communist
71
factors affecting PPF
```
HINT - TIGER
Technology
Investment
Government spending
Education
Resources
```
72
information failure
- assumes that both consumers + producers have full knowledge
- reality = prices may not reflect true value, agents may not full understand
73
causes of information failure + explain them
- long term consequences
- lack of information about long term benefits/ costs of consuming a product
- complicated pricing systems
- difficulty in understanding pricing systems of good eg, loans/ services
- complicated goods/ service
- difficulty understanding the good or service itself, eg, pension schemes
- asymmetric information
- when one party has more info than the other
74
why do people under consume a merit good?
- poorer background = uneducated
- cultural capita (barriers)
- intertia
75
merit goods
- goods that would be under-consumed in a free market
- individuals do not fully understand the benefits obtained from consumption
- social benefits > private benefits
- consumption produces positive externality
- should be subsidised/ made free
- eg healthcare
76
demerit goods
- goods which are over-consumed in a free market
- social costs > private costs
- consumption = negative externality
- eg, tobacco
77
why do people over consume demerit goods?
- imperfect information, unaware of long term health effects.
- addiction
78
how is market failure caused by merit/ demerit goods
- merit goods = market failure bc underconsumption in free market
- demerit goods = market failure bc overconsumption in free market
79
ppf stretchers
- more resources/ capital of one good
| - advancements in technology for one good
80
advantages of specialisation
- increased output
- improved quality
- increased productivity
- more effective use of capital
81
disadvantages of specialisation
- reliance on a narrow range of products
- limited market size
- boredom/ demotivation of worker
- reduced flexibility
82
private costs of building new homes? (2)
- labour
- raw materials
- machinery (capital purchases)
- land purchase
- fuel
83
producer surplus
- a measure of producer welfare
| - difference between how much firms are willing to sell for, vs how much they actually sell for
84
demand vs quantity demanded
- demand = how willing and able a consumer is to purchase a product
- quantity demanded = how much of that good is demanded, given a change in price
85
define total revenue
- the total money received from the sale of a good
| - quantity x price
86
free rider problem
- once a public good provided, impossible to stop those who don't pay to not consume
- results in no one paying
- eg, a street light
