Demand and supply

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The basic economic problem
we have an infinite number of wants and a scarce number of resources
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Capital
the machines used in production
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Enterprise
the business ideas and risk taken to invest
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Land
all the resources that come from the land e.g. coal and oil
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Labour
The workers that produce the good or service
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Resources
The materials used to produce goods or services
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Scarcity
a limited amount of resources compared to our wants/needs
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Choice
deciding between two different options because our resources are limited
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Infinite wants
we have an unlimited amount of wants and never stop needing these
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Opportunity cost
the cost of the next best alternative forgone when making a choice
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Economic goods
Goods that cost money and are scarce
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Free goods
Goods that don't cost money and aren't scarce
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Consumer goods
Goods that consumers buy
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Services
something that you buy but don't touch- something that someone does for you
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Capital goods
Machines that firms buy-man made aids to production, buildings
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Investment
where firms spend money on capital goods
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Productivity
output per person in a given period of time
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Primary sector
where raw materials are extracted from the earth
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Secondary sector
where raw materials are turned into goods
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Tertiary sector
service sector
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Market economy
where all goods and resources are allocated by firms and individuals
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Planned economy
where all goods and resources are allocated by the government
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Mixed economy
contains elements of both planned and market economy
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Specialisation
when a firm specialises it gives certain jobs to certain people who are good or become good due to specialised specific training. Individuals, firms, regions and countries focusing on producing one good or service.
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Unit of account
giving someone a fixed value
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Means of deffered payment
loans and mortgages- paying something back in chunks in a certain time.
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Store of value
you can save money without it going bad and it keeps its value
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Medium of exchange
loans and mortgages- paying something back in chunks in a certain time.
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Market mechanism
a private owner ship of business which can make profit/interacting with the desires of consumers. Demand and supply interaction to allocate resources.
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Competition
when firms or individuals try to be the best or make the most money in the market.
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Competitive market
a market situationin which there are a large number of buyers (demand) and sellers (supply).
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Market share
the percentage of the market a firm has in that market
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Innovation
new ideas and new products
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Monopoly
a situation where there is only one firm selling in the market
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Monopoly power
where a firm or individual has over 25% of the market share
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Barriers to entry
ways in which firms try to stop other firms such as a patent
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Merges/takeovers
when two firms come together to form one so consumers don’t ahve as much choice or when one firm buys or takes over another firm
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Statutory Monopoloy
occurs when key industries are given monopoly status by the government.
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Economies of scale
where a firms average costs are low because the firm is very big
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Market
where buyers and sellers meet to exchange goods and services, this does not have to mean a face to face meeting
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Demand
the quantity buyers are willing and able to buy at a given price in a given period of time.
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Extension/contraction demand
the rise/fall of quantity demanded due to a fall/rise in price.
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Shifts in demand
the rise or fall of demand due to factors other than price of that good: PASIFIC
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Population
if the population of the target age groups increases/decreases this can shift demand right/left. This can be caused by a rise/fall in infant mortality, birth rates and life expectancy
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Advertising
a successful advertising campaign can shift demand to right.
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Substitutes
if the price of a substitute good or service increases/decreases the demand for a good or service can increase/decrease shifting demand right/left.
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Income
if the average national income rises/falls this can increase/decrease the demand for normal goods or more luxury goods. However if the incomes rise this would decrease the demand for inferior goods as people would buy the superior substitute as they
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Fashion
if a good or service becomes more/less fashionable to the consumer the demand will usually follow this fashion trend and will shift right/left accordingly.
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Interest rates
if interest rates rise then it will be more difficult to get a loan and buying houses will be more expensive to the consumer so demand will shift to the left.
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Complementary goods/services
if a good or service is complementary or necessary to buy in order for the other good or service to use then this can affect demand for a good. If the price of the complementary good rises/falls then the demand for a good can decrease/increase and de
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Demand curve
graph which compares the quantity demanded and the price
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Price elasticity of demand
the numerical value given to a product explaining how elastic it is i.e. how responsive demand is to a change in price. PED= percentage change in quantity demanded/percentage change in price.
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Number of close substitutes
the more substitutes the more elastic demand will be because if the price becomes even slightly more expensive there will most likely be a cheaper good in the market that consumers can switch to. Particularly goods such as brands of food.
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Luxuries/necessities
Necessities are more inelastic because people need them to live(food) luxuries are more elastic because people don’t need them and will be likely to forgo them
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Percentage of income spent on a good
The smaller the %of income the more inelastic demand will be because if barely anything is spent on it people won’t worry if the price increases.
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Habbit forming goods
Cigarettes and drugs usually have inelastic demand because people become dependent on them so will continue purchasing it even if it becomes more expensive.
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time period
Demand is more elastic in the long term than short term: for example petrol in the short term is inelastic as people depend on it but in the long term people can create substitutes so it will become more elastic.
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total revenue
the amount of money a firm receives when selling its product not considering its total costs.
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average costs
total costs to the good or service divided by the amount produced
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profit
total revenue-total costs
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supply
the quantity of a good or service a producer is willing and able to produce at a given time at a given cost
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Capital
the machines used, if more capital is used productivity is increased meaning more will be produced in a given time so average costs will fall so supply will shift to the right.
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Enterprise
If a new business idea is successful then more will be sold and productivity might also increase so more will be produced in a given time so average costs will fall and supply will shift to the right.
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Land
If the price of raw materials increases/decreases then average costs will increase/decrease so supply will shift left/right.
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Labour
If the price of labour increases/decreases (due to an increase/decrease of number f workers/minimum wage) then the cost of production will increase/decrease so supply will shift left/right.
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Price elasticity of supply
The numerical value given to a product explaining how elastic it is i.e. how responsive supply is to a change in price. PES= percentage change in quantity supplied/percentage change in price.
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Spare capacity
When a firm is working below its full capacity (not using all its resources) it is said to have spare capacity. If the price suddenly increased then a firm with spare capacity would quickly increase its supply. High levels of spare capacity give a fi
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Level of stocks and work in progress
A high/low stock level means a firm can/cannot respond quickly to a change in price making PES elastic/inelastic.
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Production lags
In certain markets there is a time lag between the start of production and the finished product that can sometimes be over year which means that the PES would be inelastic.
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Substitutability of a good/service
Firms that can/cannot easily move the factors of production between production lines then it can/cannot respond quickly to changes in price making Supply elastic/inelastic.
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time period supply
Like demand, goods and services have fairly inelastic supply in the short term but in the long term supply can become more elastic as it can alter its scale of production.
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the equilibrium
the point where demand and supply meet.-• Unless there are restrictions placed on a market the quantity and price demanded/supplied will always meet and be at the equilibrium meaning that supply and demand greatly affect each other.
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If supply shifts to the right...
there is extension of demand as shifting supply to the right causes the good or service to be cheaper so demand extends.
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If supply shifts to the left...
demand contracts as shifting supply to the left causes the good or service to be more expensive so demand contracts
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If demand shifts to the right
there is extension of supply because the price of a good or service increases so the supplier supplies more.
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If demand shifts to the left....
there is contraction of supply because the price of a good or service decreases so the supplier will supply less.
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Indirect taxes
taxes on spending that are paid by the retailer or producer who puts up the price accordingly.
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Specific tax
tax that is defined as a fixed amount for each unit of a good or service sold, such as cents per kilogram
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ad valorem tax
a tax levied on the difference between a commodity's price before taxes and its cost of production
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Subsidy
an amount of money given to a service by the government to make this service cheaper/of a better quality for the public to use
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minimum price- the price can't go below it causing...
a glut, used on alcohol to stop binge drinking
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Other cards in this set

Card 2

Front

the machines used in production

Back

Capital

Card 3

Front

the business ideas and risk taken to invest

Back

Preview of the back of card 3

Card 4

Front

all the resources that come from the land e.g. coal and oil

Back

Preview of the back of card 4

Card 5

Front

The workers that produce the good or service

Back

Preview of the back of card 5
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