EC1 Economics

Define scarcity
When there are insufficient resources to meet all wants
1 of 70
Define choice
The selection of appropriate alternatives. Selecting one outcome between different options
2 of 70
Define opportunity cost
The benefit of the next best alternative which we give up when we make a choice
3 of 70
What is the basic economic problem?
We are trying to satisfy our unlimited wants from scarce/limited resources
4 of 70
What does a PPC show?
The maximum combination of goods and services an economy can make in a given time and with set resources
5 of 70
How does a PPC illustrate the idea of scarcity?
It is possible to produce within the boundary or on the boundary. But it is impossible to produce outside the boundary with current resources
6 of 70
How does a PPC illustrate the idea of increasing opportunity cost?
The curved PPC shows that for a country to make more of one good, the country must give up increasing amounts of the other good.
7 of 70
What is imperfect factor substitutability?
When it is difficult to transfer resources from making one product to the other, as some resources are better at making some types of goods whereas other resources are better at making other types of resources
8 of 70
What is perfect factor substitutability?
When it is easy to substitute factors from making one type of product to making another, as the resources in the country are equally good at making all the products
9 of 70
What demonstrates efficient output on the PPC?
When the economy is producing goods on the boundary. All factors of production are being fully employed
10 of 70
What demonstrates inefficient output on the PPC?
Producing goods at a point inside the curve. This shows that there are some unemployed resources.
11 of 70
What would cause the PPC to shift outwards?
If there is an increase in the quality or quantity of the factors of production e.g. better training of existing workers which increases productivity, immigration of working age people, discovery of new resources, technological advancements
12 of 70
What would cause the PPC to shift inwards?
A decrease in the quality or quantity of the factors of production e.g. lack of investment, emigration of working population, epidemics, exhaustion of natural resources, natural disasters and wars
13 of 70
What is a shewed growth?
When the PPC shifts for only one good
14 of 70
What are capital goods?
Goods which are used to produce other goods
15 of 70
What are consumer goods?
Goods which are brought by the end consumer for their own enjoyment
16 of 70
Define specialisation
The concentration on producing a narrow range of goods and services, by an individual, firm or country in cooperation with others
17 of 70
Define division of labour
When the production process is divided into a series of individual task
18 of 70
What is the difference between productivity and production?
Productivity is the output of a good or service per worker in a given time period, whereas production is the total output of goods and services by a busìness or factory in a given time period
19 of 70
What are the benefits of specialisation?
It allows countries to increase their output on narrow range of goods. Also, countries can build a surplus of goods which can exported to other countries- global output and international trade increases
20 of 70
What are the drawbacks of specialisation?
Countries may become too dependent on a narrow range of markets which may change when demand changes
21 of 70
Give two benefits and two drawbacks of division of labour
Workers get more skilled in a narrow range of task which causes workers to be more productive. Higher productivity- higher output for the business. But, workers only learn narrow range of skills and work becomes boring /repetitive- decreased motivati
22 of 70
Give two benefits and drawbacks of increasing production
The economy can make and sell more goods and services. There is more employment and income for workers. However, scarce resources may be overused and there will be stress on workforce
23 of 70
What are the benefits and drawbacks of improving productivity?
Higher output for the business, lower cost per unit, more growth in economy. However, there is a higher risk of unemployment as workers may be replaced with machinery
24 of 70
How can you increase productivity?
Businesses can invest in new technology to speed up production process, workers can be trained and educated to increase skills and motivation, government can give grants and subsidies to help businesses set up, invest and grow
25 of 70
Define exchange
The process by which goods and services are traded
26 of 70
Define market
A place where consumers who need goods and services meet with produces who are willing to supply goods and services
27 of 70
What are the objectives of economic agents?
Consumers are aiming to maximise their satisfaction for the money they have to spend. Producers are aiming to maximise their profit for the risk they have taken. Government is aiming for a fair and efficient market place
28 of 70
What is an efficient market?
When producers are able to make a profit, and they are able to provide consumers with their needs without exploiting consumers
29 of 70
Define demand
The quantity of a good that consumers are willing and able to buy at a given price in a given time period
30 of 70
What is the law of demand?
The law of demand states that if the price of a product rises, the quantity demanded will decrease whereas if the price of a product falls, the quantity demanded will increase. Price is the only variable that changes
31 of 70
Why do demand curves usually slope downwards from left to right?
The utility effect- the more of a good we consume, the less satisfaction we receive from consuming each extra unit- therefore willing to spend less. The substitution effect- if the price of one product increases we will look for other products to buy
32 of 70
What factors can shift the demand curve? Hint: laptimers
Legal changes, advertising, population change, taste/fashions, income, migration, expectation of future price changes, related goods price changes, seasons
33 of 70
Define supply
The quantity of a good that producers are willing and able to sell at a given price in a given time period
34 of 70
What is the law of supply?
The law of supply states that if the price of a product rises, the quantity supplied will increase whereas if the price of a product falls, the quantity supplied will decrease. Price is the only variable that changes
35 of 70
Why do supply curves usually slope upwards from left to right?
The profit motive- when the price of products rise businesses finds it more profitable to increase output. Entry of new firms- high prices attracts new businesses to enter the market which increases supply. Production and costs- businesses increase p
36 of 70
What factors can shift the supply curve? Hint: ratnests
Resource cost, availability of the factors of production, technology, number of suppliers, expectations of suppliers about future price changes, subsidies, taxes, supply shocks (weather, natural disasters)
37 of 70
Define equilibrium price
The price where demand and supply are equal
38 of 70
Define consumer surplus
The difference between the price a consumer is willing to pay and the price they actually
39 of 70
How is consumer surplus illustrated, and how do you calculate the area?
It is the area below the demand curve but above the market price. ((Maximum price a consumer is willing to pay- market price) ×quantity) ÷ 2
40 of 70
Define producer surplus
The difference between the market price and the price a producer is willing to accept for the product
41 of 70
How is producer surplus illustrated, and how do you calculate the area?
It is the area below the market price but above the supply curve. ((Market price- lowest price a producer will accept) × quantity) ÷ 2
42 of 70
What is joint demand?
These are goods which are brought in combination with other goods e.g. when you buy a car you also need to buy petrol (complementary goods)
43 of 70
What is competitive demand?
When one good is brought instead of another e.g. butter is brought instead of margarine (substitute goods)
44 of 70
What is derived demand?
When one good is demanded to produce another good e.g. oil (raw materials) to make petrol
45 of 70
What is composite demand?
When one good is demanded for different uses e.g. wheat is used for flour or bread
46 of 70
What is price elasticity of demand?
Measures the sensitivity of a change in quantity demanded to a change in price. PED= %change in quantity demanded ÷ %change in price
47 of 70
What is income elasticity of demand?
Measures the sensitivity of a change in quantity demanded to a change in income. YED: %change in quantity demanded ÷ %change in income
48 of 70
What is cross price elasticity of demand?
Measures the sensitivity of a change in quantity demanded of good x to a change in the price of good y. XED: %change in quantity demanded of good x ÷ %change in price of good y
49 of 70
What is price elasticity of supply?
Measures the sensitivity of a change in quantity supplied to a change in price. PES: %change in quantity supplied ÷ %change in price
50 of 70
What is the role of prices in a free market economy?
Prices provide a signal for producers to tell them to increase output or reduce output of different goods/ services depending on changes in the demand from consumers
51 of 70
What is the role of profit in a free market economy?
Profit is the incentive for producers to make more or less of a good
52 of 70
Define market failure
When a free market fails to achieve a correct allocation of scarce resources
53 of 70
Define private good
A good which is excludable and rival and which is provided in a free market e.g food, mobile phone
54 of 70
Define public good
A good which is non excludable and non-rival and which is not provided in free markets
55 of 70
Define demerit good
These are goods which would be over consumed or over provided in a free market economy. Their consumption is more harmful than actually realised
56 of 70
Define merit good
These are goods that would be under consumed or under provided in a free market economy. These goods have more private benefits that their consumers actually realise
57 of 70
What is indirect tax and what is the aim of it?
A tax levied on goods and services. The aim is to make producers increase the price of the product and decrease the quantity demanded and supplied
58 of 70
What is the different between specific and ad valorem tax?
Specific is tax per unit which doesn't change even if the original price of the product increases whereas ad valorem tax increases as price increases
59 of 70
Why does the government use subsidy as a means of government intervention?
To encourage the production and consumption of goods and services with positive externalies e.g merit goods
60 of 70
Define negative externalities
The costs of economic activity which affect third parties and are not reflected in free market price
61 of 70
What is a tradeable permit?
A permit that allows the owner to emit a certain amount of pollution and that if unused or only partially used can be sold to another polluter
62 of 70
Define positive externalities
The benefits of economic activity which affect third parties and are not reflected in the free market price
63 of 70
What is a maximum price (price ceiling) and why may it be set?
The maximum price a producer is allowed to charge to consumers in the market. It is set to increase consumption of a merit good and to make a necessity more affordable
64 of 70
Why is a minimum price set?
To make sure suppliers get a fair price and have a guaranteed income
65 of 70
What is government failure?
A situation where government intervention in the economy to correct a market failure creates inefficiency and leads to a misallocation of scarce resources.
66 of 70
What is information failure?
When consumers are unaware of the benefits and drawbacks of an economic activity. It is caused by ignorance by consumers
67 of 70
What is asymmetric information?
When one party has more information than the other party. It is caused by the exploitation of consumers
68 of 70
Define pure monopolies
When only one business supplies the good in a market. It has 100% market share
69 of 70
What are the effects on the national minimum wage on the labour market?
It creates a surplus of workers so that there is unemployment. This is because the supply of workers increase as more people are motivated to look for work. However, the demand for labour decreases as businesses want to employ fewer workers
70 of 70

Other cards in this set

Card 2

Front

Define choice

Back

The selection of appropriate alternatives. Selecting one outcome between different options

Card 3

Front

Define opportunity cost

Back

Preview of the front of card 3

Card 4

Front

What is the basic economic problem?

Back

Preview of the front of card 4

Card 5

Front

What does a PPC show?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Resource allocation resources »