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Economics A level Edexcel > Y1 Microeconomics > Flashcards

Flashcards in Y1 Microeconomics Deck (99):
1

What does PED, YED, XED and PES stand for?

Price elasticity of demand
Income elasticity of demand
Cross elasticity of demand
Price elasticity of supply

2

What is the law of diminishing utility?

Marginal (additional) satisfaction/utility decreases after each use

3

What does PED represent on a graph

the steepness of demand slope (reciprocal gradient)

4

PED = 0 --> describe the shape of the graph

vertical demand

5

PED = -infinity --> describe the shape of the graph

horizontal demand

6

What is the formula for PED?

Proporionate change in Qty/proportionate change in price

7

What are the three factors that affect PED?

Luxury vs Necessity
Qty of substitutes
% of income

8

Describe the characteristics of a good with inelastic demand

Necessity, few substitutes, small % of income

9

Describe the characteristics of a good with elastic demand

Luxury, many substitutes, large % of income

10

PED is always...

negative

11

What is total revenue

price x quantity

12

A firm is going to increase its prices. Why might into want to ensure its products are inelastic

As this would mean the market is less sensitive to price changes so revenue would increase

13

What is another word for elasticity?

Sensitivity

14

What is the formula for YED?

Proportionate change in quantity/ proportionate change
in income

15

How are YED and XED different from PED with reference to a demand-supply diagram

YED and XED are curve shifts but PED is about gradient on a DEMAND-SUPPLY DIAGRAM

16

Name of a product with +YED

Normal good (superior if YED>1)

17

Name of a product with -YED

Inferior good

18

Name of product YED = 0

Necessity

19

Formula for XED

Proportionate change in quantity demanded of one good/proportionate change in price of another

20

Name of two products with +XED

Substitute

21

Name of two products with -XED

Complements

22

Name of two goods with XED=0

unrelated

23

What is an extension?

A shift along a curve increasing quantity

24

What is a contraction?

Shift along a curve decreasing quantity

25

What must PES always be?

Positive

26

What does PES represent

the steepness of the supply curve (reciprocal of the proportionate gradient)

27

Shape and name for PES>1?

elastic
horizontal

28

Shape and name for PES = 1?

Unitary
y=x

29

Shape and name for PES<1?

Inelastic

30

What determines PES?

Spare capacity
Available stocks
Time (SR or LR)

31

What does CPPC stand for?

Costs
Price of other goods (joint or competitive supply)
Productivity
Climate
(sometimes new entrants is included but that is fake news)

32

What is a supplier's main objective?

Profit

33

What does IPPAFEL

Income
Population
Price of other goods (compliments/substitutes)
Advertising
Fashion
Expectations
Legislation

34

What are the three functions of the price mechanism?

S signal
I incentive
R Ration/allocate

35

Where is the consumer surplus?

Triangle between demand and equilibrium price line

36

Where is the producer surplus?

Triangle between supply and equilibrium price line

37

What is a producer/consumer surplus an indication of?

The consumer/producer welfare

38

What is a consumer/producer surplus?

Difference between market price and what is bought/supplied

39

What are the primary functions of money (4)?

a medium of exchange
unit of account
store of value
Method of deferred payment

40

Name three types of market failure

public goods
Externalities
Asymmetric Information

41

What is a moral hazard?

When an economically irrational decision is made, knowing that the misfortune will fall on another economic agent.

42

What is the principal-agent problem?

The agent buys goods on behalf of the principle, misallocating the resources due to the information gap.

43

Name some ways of reducing the information gaps

Certification, warranties, using unbiased expert advice

44

What are the characteristics of public goods?

Non-diminishable
Non-excludable

45

Whats the Free Rider Problem?

People can receive the benefits of some goods without paying for it

46

What is a PPF?

A diagram to show the maximum output combinations of 2 goods that an economy can produce using its current resources efficiently

47

Opportunity Cost?

Sacrificed benefits of the next best alternative

48

What are the factors of production?

Land, Labour, Capital, Enterprise

49

Disadvantages of a free market (3)?

Monopolies
Income inequality
Externalities (and any market failures)
High risk for citizens
Erratic business cycles

50

Advantages of a free market (3)?

Effecient (business have to remain competitive)
Political freedom
Choice
Higher quality (competitive)

51

What's the opposite of a free market economy?

Command Economy

52

What are the determinates of PED?

Percentage of income, necessity v luxury, qty of substitutes

53

Determinates of PES?

Spare capacity
Available Stocks
Time scale

54

How do you draw a tax? Where are the C and P incidences?

Shift in S curve left, join equilibrium line down to old s curve and then join with price axis.
Note that consumer incidence is above old equilibrium price and producer part is below

55

What are the three economic legends in Micro?

Adam Smith
Friedrich Hayek
Karl Marx

56

What did Karl Marx believe in?

Planned economy
Capitalism leads to monopolies leads to exploitation leads to revolutions from the proletariats

57

What did Hayek believe?

Completely free market for freedom
Price mechanism can allocate
Fair

58

What did Adam Smith believe? (2 key ideas)

Invisible hand
Free market
Need for government to prevent monopolies and enforce propety law
Specialisation and the division of labour

59

What replaces the demand curve on a externalities diagram?

Marginal social benefits and Marginal private benefits

60

What replaces the supply curve on a externalites diagram?

Marginal private costs and marginal social costs

61

On a demerit good diagram on which side is the WLT?

The right side of the equilibrium

62

On a merit good diagram on which side is the WLT

the left side of the equilibrium

63

What are the basic economic questions (3)

What is produced
For whom is it produced
How is it produced

64

Name some common examples of irrational behaviour (3)

Habitual beheaviour
Inertia (fear of change)
Impulse buying

65

Name some other slightly more wacky examples of consumer behaviour (go on do it I dare you) (4)

Poor Computation
Relative v Absolute (people calc propotional savings not real)
Peer Pressure
Overvaluing effect (Consumers struggle to compare stuff they've made to other products)

66

What is a positive statement?

An phrase that can be proved or disproved by evidence

67

What is a normative statement

value judgement e.g. "should"

68

What is Hayek's communication network?

The way a market functions through the price mechanism (SIR) and allocates resources efficiently as a result

69

Define ceteris paribus

All other things being equal

70

What is capital (2)?

NOT MONEY
Capital is a man made resource used for production (like a hammer)

71

What is the basic economic problem?

Infinite wants and finite resources

72

Changes in what shift the PPF out?

Quantity or Quality

73

Wealth =

Capital + money

74

Investment definition

purchase or production of capital goods

75

Define depreciation

Loss of value of goods over time

76

Why is a curved PPF more realistic

As it is unusual for a good's resources to be a perfect substitute for each other

77

What is Fiat money

Money that does not have intrisic value (i.e. not gold or silver but paper money)

78

What is a near money?

An asset that can quickly be liquidated into money

79

What does specialisation go best with?

TRADE

80

What are the advantages of specialisation AND trade? (3)

lower costs
imporved skills/productivity
specialist tools can be bought
higher variety for consumers
time is saved
workers can do jobs they are best at

81

What are the disadvantages of specialisation AND trade (3)

Repeitive work lowers motivation
high tunrover as workers get bored
Potential for structural unemployment
Over specialisation may break if one part fails
small market can't survive and be specialised

82

What is the law of diminshing marginal utility?

Decreasing additional satisfaction after each unit is consumed

83

What is disposable income

income less taxes plus benefits

84

Discretionary income?

Party money (disposable less necessity costs)

85

What is signal in price mechanism

Observation

86

What is incentive?

Process of thinking, judging and evalutating

87

What is the rationing part of SIR

Allocation of resources

88

With a tax what four things should be analysed

New price and qty
Increase in price compared tax size
Incidence (proportion) of tax passed on to consumer/producer
Government revenue

89

What is complete market failure?

A missing market

90

What is partial market failure?

Underconsumed or overconsumed

91

Formula for society (social)?

internal + external
All parties

92

What has negative externalities?

Demerit good

93

When is social benefit>private benefit?

merit good

94

What is a quasi-public good

Either excludable and non-diminishable
or diminishable and non-excludable

95

What is adverse selection also known as?

Principle agent problem

96

Name five types of government intervention?

Tax, trade pollution permits, propety rights, regulation, price setting

97

What are some common flaws in government intervention? (4)

Cost to taxpayer
Information gap (difficult to quantise market failure)
opportunity costs/conflicitng objectives
admin costss

98

What is regulatory capture?

Monopolists mislead the regulators so they are less harsh with their red tape

99

What is policy myopia?

Shortsightedness political decisions