Economics

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What is a normative statement?
A statement which cannot be supported or refuted because it is a value judgement
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What is a positive statement?
A statement which can be supported or refuted by evidence
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What does the production possibility frontier show?
It shows the maximum potential level of output of one good given a levelof output for all other goods in the economy
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Whatare the advantages of specialisation and the division of labour?
Workers are able to work far more productively. It is cost effective. Time is saved because a worker should be quicker at doing the work well and they are not constantly changing tasks
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What are the 4 functions of money?
1. A medium of exchange 2. A measure of value 3. A store of value 4. A method of deferred payment
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What are free market economies?
They are economies where the majority of resources are allocated through markets rather than through government and planning
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What are mixed economies?
They are economies where more resources are allocated through government planning than in free market economies.
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What is demand?
The quantity of goods or services that will be bought over a period of time at any given price
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What is an inferior good?
A good where demand falls when income increases
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What is a normal good?
A good where demand increases when income increases.
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What is supply?
The quantity of goods that suppliers are willing to sell at any given price over a peiod of time.
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Prices have 3 main functions in allocating resources. What are these?
The rationing, Signalling and incentive function
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What is an indirect tax?
An indirect tax is a tax on expenditure. E.g. VAT and excise duties. VAT is also an example of an ad valorem tax
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What is a subsidy?
A subsidy is a grant given by the government to encourge the production or consumption of a particular good or service
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What is utility?
Utility is the satisfaction gained from the consumption of goods and services
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What is supply?
Supply is the volume of goods or services that firms are willing to supply at each price level.
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If income elasticity of demand is a positive coefficient what type of good is it?
A normal good
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If income elasticity of demand is a negative coefficient what type of good is it?
An inferior good
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If income elasticity of demand is a positive coefficient greater than 1 then what type of good is it?
A luxury good (or superior good)
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What factors influence price elasticity of supply?
How long it takes to make the product/how easily it takes to stockpile supply/transferability of resources
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What is consumer surplus?
Consumer surplus is the difference between the price the customer is willing to pay and the price they do pay
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What is producer surplus?
Producer surplus is the difference between the price a firm was willing to supply at and the actual market price
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What is on top of the triangle out of producer and consumer surplus?
Consumer surplus is on the top, producer surplus is on the bottom
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What are the 4 factors of production?
Land, Labour, Capital and Enterprise
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What are free goods?
Goods that are unlimited in supply and which therefore have no opportunity cost
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What is productivity
Output per unit of input employed
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What is meant by the term barter?
Swapping 1 good for another without the use of money
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What is economic welfare?
The level of well being or prosperity or living standards of an individual or group of individuals such as a country
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What is the neo-classical theory?
A theory which typically starts with the assumption that economic agents will maximise their benefits and act rationally
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How does a change in price affect the demand curve?
It causes a movement along the demand curve
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What is the law of diminishing marginal utility?
The value or utility that individual consumers gain from the last product consumed falls the greater the number consumed. So the marginal utility of consuming the 6th product is lower than the 2nd
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What is elastic demand?
The responsiveness of demand is proportionately greater than the change in price
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What is inelastic demand?
The responsiveness of demand is proportionately less than the change in price
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What is unitary elasticity?
Where the value of PED is 1. The responsiveness of demand is proportionately equal to the change in price
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What is a complementary good?
A good that is purchased with other goods to satisfy a want. They have a negative XED
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What is a substitute good?
A good which can be replaced by another to satisfy a want. Substitutes have a positive XED
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What are free market forces?
Forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand
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What is market clearing price?
The price at which there is neither excess demand nor excess supply but where everything offered for sale is purchased
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What is the incentive function?
When changes in price encourage buyers and sellers to change the quantity they buy and sell, a rise in price encourages buyers to purchase less and sellers to produce more
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What is the rationing function?
When changes in price lead to more or less being produced, so increasing or limiting the quantity demanded by buyers
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What is the signalling function?
When changes in price give information to buyers and sellers which influence their decisions to buy and sell
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What is an indirect tax?
A tax on expenditure e.g. VAT and excise duties
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What is an ad valorem tax?
Tax levied as a percentage of the value of the good
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What is a specific or unit tax?
Tax levied on volume
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Why may consumers not act rationally?
Influence of other people’s behaviour/ habitual behaviour/ consumer weakness at computation/
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What is an externality?
The difference between social costs and benefits and private costs and benefits
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What is a quasi public good?
A good which doesn’t perfectly possess the characteristics of non rivalry and non excludability and yet which also isn’t perfectly rival or excludable
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Give an example of a private good?
Football clubs can prevent fans from seeing a game at their stadium
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Give examples of public goods?
Defence/ prison service/ police service/ street lighting
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Give an example of a quasi public good or non-pure good?
Motorists can be made to pay a toll for using a road
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What is asymmetric information?
Where buyers and sellers have different amounts of information, with one group having more information than another
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What is an information gap?
Where buyers or sellers or both don’t have the information that is available to make a decision
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Card 2

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What is a positive statement?

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A statement which can be supported or refuted by evidence

Card 3

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What does the production possibility frontier show?

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Preview of the front of card 3

Card 4

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Whatare the advantages of specialisation and the division of labour?

Back

Preview of the front of card 4

Card 5

Front

What are the 4 functions of money?

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