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ECON IGCSE > TOPIC 2 > Flashcards

TOPIC 2 Flashcards

1
Q

Define microeconomics, state the two main groups

A

The behaviour of individual decision-making units in an economy. The two main groups of decision makers are firms and consumers.

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2
Q

What is microeconomics concerned with?

A
  1. The behaviour of these decision makers
  2. How they make choices
  3. How their interactions in the market determine prices
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3
Q

Define macroeconomics what does it examine?

A

Examines the economy as a whole and obtain a large picture of many individual units. Examines how a government can use various policies to improve economic welfare.

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4
Q

What is macroeconomics concerned with?

A
  1. General consumer behaviour of the economy
  2. General producer behaviour of the economy
  3. Total income/output of the economy
  4. Total employment
  5. General price level
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5
Q

What is a market?

A

A place where buyers and sellers meet to exchange goods and services with one another

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6
Q

What is resource allocation?

A

the way in which economies decide what goods and services to provide, how to produce them and who to produce them for

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7
Q

What are the basic economic questions?

A

what to produce, how to produce, and for whom to produce

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8
Q

What is the price mechanism?

A

When equilibrium price occurs, where demand and supply are equal. It helps answer the three basic economic questions. Producers will produce the good that consumers demand the most, it will be produced in a way that is cost-efficient, and will be produced for those who are willing and able to buy the product.

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9
Q

Define demand

A

Demands is an aspect of consumer behaviour. It is the amount of goods and services a consumer is willing and able to buy in a given time period

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10
Q

Define quantity demanded

A

The amount of goods and services consumers are willing to buy at a price

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11
Q

State the law of demand

A

As price falls, quantity demanded will increase, ceteris paribus

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12
Q

A change in prices causes a ____ the demand curve

A

Movement along

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13
Q

A change in all other factors excluding price, causes a _____ the demand curve

A

Shift

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14
Q

State the 6 non price determinants of demand

A
  1. Change in price of a related good
  2. Changes to consumer income
  3. Environmental factors
  4. Changes in taste and preference of consumers
  5. Changes in population
  6. Changes in future expectations
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15
Q

Define supply

A

The amount of a good or service produced at a given price over a period of time

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16
Q

State the law of supply

A

As price increases, quantity supplied increases, ceteris paribus

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17
Q

Why is the supply curve upward sloping?

A

When price increases, there is an incentive to the producers to produce more.

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18
Q

Define quantity supplied

A

The amount of a good or service provided/produced at a specific price over a period of time

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19
Q

State the 7 determinants of supply

A
  1. Change in price of the good itself
  2. Changes in technology
  3. Changes in environmental factors
  4. Changes in the FOPs
  5. Changes in price/profitability of other goods
  6. Government intervention
  7. Changes to the number of sellers in the market
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20
Q

Define market equilibirum

A

The price and quantity at which quantity demanded and quantity supplied is equal

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21
Q

Define market disequilibrium

A

Qs ≠ Qd.

There is either shortage or surplus in the market

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22
Q

Define excess supply

A

When quantity supplied of a good exceeds the quantity demanded

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23
Q

Define excess demand

A

When quantity demanded exceeds quantity supplied

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24
Q

An increase in supply will….

A

Lower the price and cause an extension in demand

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25
Q

A decrease in supply will…

A

Increase the price and cause contraction in demand

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26
Q

What does PED measure?

A

PED (price elasticity of demand) measures the responsiveness of quantity demanded when there is a change in price

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27
Q

When demand for a good is price elastic, PED….

A

When demand of a good is price elastic, PED > 1

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28
Q

When demand of a good is price inelastic, PED…

A

When demand of a good is price inelastic, PED < 1

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29
Q

When demand for a good is perfectly inelastic, PED…

A

When demand for a good is perfectly inelastic, PED = 0

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30
Q

When demand for a good is perfectly elastic, PED…

A

When demand of a good is perfectly elastic, PED = ♾️

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31
Q

When demand of a good is is unitary elastic, PED….

A

When demand of a good is is unitary elastic, PED = 1

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32
Q

State the equation for PED

A

PED = %ΔQd / %ΔP

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33
Q

6 determinants of PED

A
  1. Addiction
  2. Degree of necessity
  3. Passage of time
  4. Type of good
  5. Proportion of income spent on good
  6. Branding
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34
Q

Define total revenue

A

The total amount generated from sales

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35
Q

Define price elasticity of supply

A

A measurement of the responsiveness of quantity supplied to a change in price

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36
Q

State the equation for PES

A

PES = %ΔQs / %ΔP

37
Q

When PES is unitary elastic, PES…

A

When PES is unitary elastic, PES = 1

38
Q

When PES is perfectly elastic, PES…

A

When PES is perfectly elastic, PES = ♾️

39
Q

When PES is perfectly inelastic, PES…

A

When PES is perfectly inelastic, PES = 0

40
Q

4 determinants of PES

A
  1. Time taken to produce it
  2. Costs of altering supply
  3. Unused capacity
  4. Storage life of the product
41
Q

When a good is PED elastic… (3)

A
  1. Consumers benefit from the lower price of the good
  2. There is competition in the market
  3. If the good/service is taxed, producer will pay for most of it
42
Q

When a good is PED inelastic… (3)

A
  1. producers try to make their good/service as unique as possible
  2. placing a tax on the good/service won’t change consumption much
43
Q

List characteristics of a market economy

A

Decisions regarding investments and production are controlled by market forces (supply/demand)

Little to no government intervention

Profit and utility is the main motivation

44
Q

List 3 advantages of a market economy

A

Allocation of resources is through price mechanism.

Efficiency is encouraged

Consumers make their own decisions

45
Q

List 3 characteristics of a mixed economic system

A

Combination of public and private sector (public: owned and controlled by government and driven by macroeconomic objectives, private: owned by individuals and driven by the incentive of profit and utility)

Some firms are privately owned and some are publicly owned

Some prices set by gov, some prices determined by market forces

46
Q

List 2 advantages of mixed economy

A

Price of necessities controlled by government

Produced produced by private sector can generate choice and therefore increase efficiency

47
Q

List 4 disadvantages of mixed economy

A

Conflicts between gov control and private ownership

More emphasis on profit

Risk of corruption

Wealth is not equitably distributed

48
Q

List 4 disadvantages for market economy

A

Price for necessities could be too high for low income earners

Unequal distribution of income and wealth

No protection for consumers as firms are profit driven

Goods that are not profitable will not be produced

49
Q

The main factor that determines whether supply is elastic or inelastic is….

A

The main factor that determines whether supply is elastic or inelastic is. whether production can be changed cheaply and whether the product can be stored.

50
Q

Supply is likely to be inelastic…

A

Supply is likely to be inelastic if it takes a long time to produce it, or it is expensive to alter production, or it can’t be stored

51
Q

Over time, supply tends to be…

A

Over time, supply tends to be more elastic with time

52
Q

Define market economic system

A

The ways in which each economy organises and decides resource allocation according to their own beliefs

53
Q

List the 4 main economic systems

A

Traditional economy

Command economy

Market economy

Mixed economy

54
Q

Define market failure

A

When the allocation of goods and services by a free market is not efficient, leading to welfare loss

55
Q

Define merit good

A

Goods which create a positive effect on the society and ought to be consumed more. The government considers consumers do not fully appreciate how beneficial they are and are under-consumed if left to the free market.

56
Q

Define demerit good

A
57
Q

Define demerit good

A

They are the opposite of a merit good. These are products which the government considers consumers do not fully appreciate how harmful they are and are over-consumed if left to the free market.

58
Q

Define public goods

A

NON-RIVALROUS AND NON EXCLUDABLE

There is no competing use of the good and service and when you provide for one person, you provide for all.

59
Q

Define social benefits

A

The total benefit of production

Private benefits + external benefits

60
Q

Define external costs

A

the negative spillover (costs) to third parties who are not part of the economic activity

61
Q

Define external benefits

A

The positive spillover (benefits) to third parties who are not part of the economic activity

62
Q

Define private costs

A

costs to individual customers or producers

63
Q

Private benefits

A

benefits to individual customers or producers

64
Q

State the 6 causes of market failure

A
  1. Failure to take into account of all costs and benefits
  2. Information failure
  3. Producers fail to produce the quantities of goods required
  4. Lack of public goods
  5. Abuse of monopoly power
  6. Immobility of resources
65
Q

Explain the cause of market failure “Failure to take into account of all costs and benefits”

A

Consumption/production affects third party, and third party experiences a benefit/loss as a result of the transaction

66
Q

Explain the cause of market failure “Information failure”

A

Information between the government, producers and consumers is miscommunicated. This could be through lack of information, inaccurate information, asymmetric information

67
Q

Explain the cause of market failure “Producers fail to produce the quantities of goods required”

A

Under production/consumption of merit goods
solutions: subsidy, direct provision or legislation.

Over production/consumption of demerit goods
solutions: tax, legislation or total ban.

68
Q

Explain the cause of market failure “lack of public goods”

A

No public goods will be produced under free market conditions (no incentive to pay)
Solutions: direct provision by the government and subsidies given to private firms

69
Q

Explain the cause of market failure “Abuse of monopoly power”

A

Consumers have little choice but to buy from monopolistic companies. and because they are profit driven, prices for necessary goods could be made high

70
Q

Explain the cause of market failure “lack of public goods”

A

No public goods will be produced under free market conditions (no incentive to pay)
Solutions: direct provision by the government and subsidies given to private firms

71
Q

What are the 5 consequences of market failure?

A

Misallocation of resources
Overproduction/overconsumption of goods that are not socially desirable
Underverproduction/underconsumption of goods that are not socially desirable
Goods that are essential end up not being produced in the free market
Loss of consumer benefit

72
Q

List 5 benefits of government intervention

A
  1. They will take into account all costs and benefits
  2. They can encourage or discourage consumption of products through policies
  3. They can finance the production of certain products
    4,. They will make maximum use of resources
  4. They will help the low income group
73
Q

Explain “maximum price/price ceiling” and state the aim

A

It is the legal maximum price a producer can charge for a good/service. Its aim is to protect customers such as low income earners.

74
Q

Three consequences of price ceiling and list examples of price ceiling

A
  1. Disequilibrium occurs. On the diagram, only Q1 of the good is supplied
  2. Excess demand. (Price falls from Pe to Pmax on the diagram.) Price is cheaper but less is produced
  3. It results in black/illegal market, first come first serve and lucky draw

Examples include hospital charges, education fees, rent control, food price control

75
Q

Explain minimum price/price floor and state the aim

A

It is the legal minimum a producer can charge for a good/service. Its aim is to protect producers, especially low income earners.

76
Q

Four consequences of price floor and list some examples of price floor

A
  1. Excess supply in the market
  2. Government needs to dispose the surplus produced
  3. Producer inefficiency
  4. Overallocation of resources

Examples include taxi fairs and minimum wage

77
Q

Explain labour market legislation (government microeconomic policies)

A

The government will intervene into the labour market to protect workers of the economy. Examples include minimum wage, maximum working hours, and trade unions

78
Q

Explain foreign exchange market (government microeconomic policies)

A

Government will intervene into the foreign exchange market if exchange rate fluctuates too much. It will affect imports and exports and foreign direct investment

79
Q

Explain regulation and legislation (government microeconomic policies)

A

Rules and laws which place restrictions on the activities of firms and consumers

80
Q

Explain direct provision (government microeconomic policies)

A

They will produce essential goods such as public healthcare and education. It is funded by taxation

81
Q

Define a normal good

A

a product whose quantity demanded increases when income increases and decreases when income falls

82
Q

Define a inferior good

A

a product whose quantity demanded decreases when income increases and decreases when income falls

83
Q

Define a substitute

A

a product that can be used in place of another

84
Q

Define a complement

A

a product that is used in conjunction with another product

85
Q

Define a tax

A

a payment/levy paid to a government

86
Q

Define a subsidy

A

a payment by a government to encourage the production or consumption of a product

87
Q

Define privatization

A

the sale of public sector assets to the private sector

88
Q

Define nationalisation

A

the sale of private sector assets to the public sector

ECON IGCSE (3 decks)

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