How the Market Works

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  • Created by: al2000
  • Created on: 09-05-15 09:33
What is the difference between a need and a want?
Needs are things essential to survive whereas wants are something that you would like to have
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Resources
Something used to create output
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Productivity
Output per worker per period of time
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What are factors of production?
The resources we have available to produce goods and services -
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Land
Includes both the land itself and all the natural resources on and below the land which are available for production
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Labour
The human input into the production process
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Capital
Refers to goods that are used to produce other goods, such as machinery
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Enterprise
Having ideas and taking risks in setting up or running a business
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What sector do mining, farming, fishing and the extraction of other raw materials come under?
The Primary Sector
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The Secondary sector
Where raw materials are manufactured into goods
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The Tertiary sector
The service sector, such as tourism, banking and public transport
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What is the basic economic problem?
Wants are infinite but resources are finite
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Opportunity Cost
The next best alternative foregone when making a choice - basically what we give up when we make a choice
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Market
Where buyers and sellers meet to exchange goods and services (does not have to be a face to face meeting)
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Market economy
Where all resources are allocated by private individuals and groups
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Planned economy
Where all resources are allocated by the government
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Mixed economy
Where some resources are allocated by the government and some by private individuals or groups
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What kind of economy does the UK have?
A mixed economy as there are public and private enterprises
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What is the difference between the public and private sector?
The public sector is where organisations are run by the government, whereas private is where firms are owned by private groups
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What is the main aim of firms in the private sector?
Profit maximisation
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Surplus
When more is produced than is required. The surplus can be exchanged for money or other goods
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What are the four main functions of money?
Store of value, Medium of account, Means of deferred payment and Unit of account
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Competitive market
A market situation in which there are a large number of buyers (demand) and sellers (supply)
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What are the main areas of competition for firms?
Price, Quality, Innovation, Advertising, Promotions
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Monopoly
A situation where there is only one firm selling in a market
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Monopoly power
When a firm has 25% of the market share eg.Tesco holds approx 31% of market share in the supermarket industry
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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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Give an example of effective demand
If I want a bike that is $500 and I have $500 to spend - I am both willing and able to buy the bike
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What causes movements along the demand curve?
Changes in the price of a good or service
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Contraction of demand
A fall in the quantity demanded due to a rise in price
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Extension of demand
A rise in the quantity demanded due to a fall in price
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Inferior goods
Goods for which the demand falls when income rises
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Factors which cause the demand curve to shift can be remembered by...
PASIFIC
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What does PED measure?
The responsiveness of the quantity demanded to a change in price
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Supply
The quantity a producer is willing and able to produce at a given price in a given period of time
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Factors which cause the demand curve to shift can be remembered by...
PINTSWC
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What does PES measure?
The responsiveness of the quantity supplied to a change in price
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How do you calculate PES?
PES= % change in quantity supplied / % change in price
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How do you calculate PED?
PED= % change in quantity demanded / % change in price
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Equilibrium
The point where demand and supply meet
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What influences price in a competitive market?
The forces of demand and supply
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What is the difference between indirect and direct taxes?
Indirect taxes are taxes on spending (VAT), Direct taxes are taxes on income and wealth (income tax)
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Subsidy
A payment given to a firm, usually by the government
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Specific tax
A tax placed on a good or service which is specific to the amount of money per unit bought eg. $2 tax on each bottle of wine
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Ad Valorem tax
A tax placed on a good or service which is a percentage of the price
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Card 2

Front

Resources

Back

Something used to create output

Card 3

Front

Productivity

Back

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Card 4

Front

What are factors of production?

Back

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Card 5

Front

Land

Back

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