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Economics > Topic 1 > Flashcards

Topic 1 Flashcards

1
Q

Resources: Land?

A

All natural resources found on the planet that are available for production

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2
Q

Resources: Labour?

A

The human resource and included the physical and mental effort that is used in the production process

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3
Q

Resources: Capital?

A

This is the man-made resources used to produce other goods and services

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4
Q

Resources: Enterprise?

A

Also known as entrepreneurship - this refers to an individual who combines the other factors of production to produce a product and takes the risk in the production process

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5
Q

Opportunity cost meaning?

A

The next best alternative foregone when a particular choice is made

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6
Q

What is a PPF?

A
  • Production, possibility frontiers (PPF) shows the various combinations of two products that an economy can produce using all resources (land, labour, capital, enterprise) efficiently
  • a curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy
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7
Q

What is demand?

A

The quantity of a product that consumers are willing and able to buy at a given price over a given period of time

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8
Q

What is effective demand?

A

When a consumers’ desire to buy a product is backed up by the ability to pay for it

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9
Q

What is derived demand?

A

When the demand for a particular product depends on the demand for another product or activity

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10
Q

What is composite demand?

A

This is demand for a good that has multiple uses e.g. people demanding oil because it’s used for petrol/plastics, wheat demanded for producing bread, biofuels and feeding livestock, steel for building tanks, building bicycles

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11
Q

What causes an outward shift in demand? (10 points)

A
  • a rise in the real income (more purchasing power)
  • an increase in the price of a substitute good
  • a fall in the price of a complementary good (things you use together)
  • an increase in wealth (caused by rise in asset prices e.g. house or shares: more confidence to spend money)
  • a change in consumer preferences towards the good
  • an increase in the size of total population
  • a fall in interest rates (make borrowing cheaper)
  • social changes (e.g. adult nappies increase in Japan)
  • a successful advertising campaign or promotion
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12
Q

Difference between normal and inferior good?

A

Normal good - will face increase in demand as income rises

Inferior good - will face decrease in demand as income rises (often cheaper poorer quality substitutes of another good)

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13
Q

Equation for PED (price elasticity of demand)

A

PED = % change in Qd / % change in price

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14
Q

Perfectly inelastic: value and meaning also in terms of relationship with TR?

A

0
A change in price leads to no change in quantity demanded.
A change in price leads to the SAME % change in TR

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15
Q

Inelastic: value and meaning also in terms of relationship with TR?

A

-10
A change in price leads to a smaller % change in Qd
A change in price causes TR to move in same direction

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16
Q

Unitary elastic: value and meaning also in terms of relationship with TR?

A

-1
A change in price leads to the same % change in Qd
A change in price causes no % change in TR

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17
Q

Elastic: value and meaning also in terms of relationship with TR?

A

-infinity -1
A change in price leads to a greater % change in Qd
A change in price causes TR moving in the opposite direction

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18
Q

Perfectly elastic: value and meaning also in terms of relationship with TR?

A

-infinity
A change in price leads to an infinite change in Qd
An increase in price causes TR to fall to zero

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19
Q

Meaning: economic goods?

A

Those that use scarce resources in their production e.g. cars, houses, food

20
Q

Meaning: free goods?

A

Those which do not use scarce resources and have no price attached e.g. air and sea water (no opportunity cost associated with their use)

21
Q

Meaning: supply?

A

The quantity of a product that a producer is willing and able to supply onto the market a given price over a given period of time.

22
Q

A shift in supply curve general meaning?

A

A change in price causes a movement along the supply curve but a change in ANY factor other than price causes the whole supply curve to shift

23
Q

Causes of shifts in supply (4)?

A

1) changes in production costs (increase in costs lowers profitability and reduces supply; e.g. wage costs, raw material components, energy costs)
2) government taxes and subsidies (a tax increases the costs of production, lowers profitability and therefore lowers supply)
3) changes in technology (new technology speeds up production process and reduces costs of production and makes it more profitable so increases supply
4) natural factors (the weather and natural disasters reduces supply of agricultural products for e.g.)

24
Q

Meaning: joint supply?

A

This is when a rise output of one product leads to a rise of supply of another.
(E.g. beef and leather are in joint supply as both come from dead cows)

25
Q

PES: perfectly inelastic, graph description as well?

A

Vertical line, PES=0

This is when a change in price leads to no change in QS

26
Q

PES: inelastic, graph description?

A

Slightly slanted to the right vertical line, PES, 01

This is when change in price leads to a smaller change in QS

27
Q

PES: unitary elastic, graph description?

A

Diagonal y=x line from origin, PES =1

This is when a change in price leads to same change in QS

28
Q

PES: elastic, graph description?

A

Almost horizontal line tilting to right, PES 1infinity

This is when a change in price leads to a greater change inQS

29
Q

PES: perfectly elastic, graph description?

A

Horizontal line, PES=infinity

This is when a change in price leads to an infinite change in QS

30
Q

Determinants of PES (4)

A

1) availability of stocks of finished products and raw materials (if firm has stocks that can be released quickly as well as raw material stocks will help firm make products more quick and this makes supply ELASTIC)
2) time (products taking long time to produce and/or grow mean in short run, supply is INELASTIC)
3) possibility of switching resources from one use to another (if firm produces a number of products and demand for one product rises then firm is able to expand its output by switching resources from another use)
4) spare capacity (this is when firm doesn’t use of all of its available resources fully, therefore it’s possible to increase output quickly by using these resources fully making supply more ELASTIC)

31
Q

Difference between goods, capital and consumer goods & services?

A

Goods are physics products
Consumer are products sold to general public (&consumer durables are goods that can be used multiple times)
Capital are man made goods sold to other firms for use in the production process
Services are intangible products

32
Q

What is production?

A

Production converts inputs, or the services of factors of production e.g. labour and capital, into final output.
Production involved making goods and services to satisfy our needs and wants.

33
Q

Definition of the factors of production?

A

The resources that we use to produce goods and services

34
Q

What does the ‘division of labour’ mean?

A

This refers to the type of specialisation whereby production process is divided up into different stages to enable workers to focus on specific tasks

35
Q

Why is division of labour more efficient?(6)

A
  • workers need less training (only have to master small no of tasks)
  • it is faster (to use one particular tool and do one job)
  • no time is wasted (with a worker dropping a tool and picking up another; no movement between jobs)
  • no need to move around factory (work is brought to the worker)
  • workers can concentrate on those jobs which best suit their skills
  • this ALL leads to higher productivity
36
Q

Gains from specialisation and division of labour (4)?

A

1) HIGHER OUTPUT- total production of goods and services is raised and quality can be improved
2) VARIETY - consumers have access to a greater variety of higher quality products
3) A BIGGER MARKET - specialisation and global trade increases the size of market offering opportunities for economies of scale
4) COMPETITION and lower prices - increase competition acts as an incentive to minimise costs, keeps prices down and therefore maintains low inflation

37
Q

Problems of division of labour (4)?

A

1) unrewarding, repetitive work that requires little skill will LOWER MOTIVATION and hits productivity so workers take less pride in work and quality suffers - often there are dissatisfied workers becoming less punctual at work and rate of absenteeism increased
2) many people choose to move to less boring jobs creating HIGH WORKER TURNOVER FOR BUSINESSES - in UK is around 12% per year so 1 in seven changes jobs every 12 months
3) some workers receive little training and may not be able to find alternative jobs if they find themselves out of work so may suffer STRUCTURAL UNEMPLOYMENT
4) the mass produced standardised goods LACK VARIETY for customers

38
Q

Short-run meaning?

A

The short-run is the period of time in which at least one factor of production is fixed. All production takes place in the short run.

39
Q

Long run meaning?

A

This is the period time which all factors of production are variable, but the state of technology is fixed. All planning takes place in the long run.

40
Q

Total products meaning?

A

This is the total amount that a firm produces using all of its factors of production (fixed and variable) in a given time period

41
Q

Average product meaning and equation?

A

This is the total amount of output divided by the number of units of the variable factor employed. (TP/Q)

42
Q

Marginal product meaning and equation?

A

This is the additional output that is produced when you employ one extra unit of the variable factor. (Change in TP/Change in Q)

43
Q

The Law of Diminishing Returns?

A

As successive units of variable factor are added to given amount of fixed factor, there will come a point when each additional unit of the variable factor will produce less extra output than the previous unit and total product will increase at a decreasing rate and marginal product t will start to fall.

44
Q

Capital goods definition?

A

Goods are used in the production of other goods

45
Q

Consumer goods definition?

A

Goods and services that are used by people to satisfy their needs and wants

Economics (4 decks)

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