• Created by: tgrev
  • Created on: 06-05-17 14:05
What are the 4 factors of production
Land (physical space and raw resources), Labour (Human workforce), Capital (sum of buildings/tech used), Entrepreneurship (managerial ability)
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How is sustainable econ activity limiting
It reduces production and consumption in the short term, yet large long term impact as future gens have reduced option
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What is opportunity cost
The benefits forgone of the next best alternative
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3 advantages of specialisation
Total output rises as a result of most productive use of resources, workers increase their skill set, firms see it possible to invest in capital goods that can increase productivity
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3 disadvantages of specialisation
Changes in demand may leave the econ with unwanted labour-> unprofitable capital and labour, structural employment may occur as the worker has skills for specific industry, countries with specialities have a strong currency making other exports cheap
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How is Income a non price determinant of demand
Positive relation between income and demand, more disposable = more demand, outward shift/imward
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How is wealth a non price determinant of demand
Positive relation between wealth and demand, increase in wealth leads to increase confidence -> more expenditure
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How is prices of other goods a non price determinant of demand
A change in a complementary good demand will impact the other in a same way, inward shift If a substitute reduces price it has increased demand, other has reduced, outward shift
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How are the costs of production a determinant of supply
Increase in costs will lead to decreased supply and is shown with an inward shift of the supply curve
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How is new technology a non-price determinant of supply
Development of new tech may increase efficiency and lower costs of production, increasing supply shown with an outward shift on the supply curve
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How is indirect taxation a non-price determinant of supply
Tax decreases supply to the market due to increases a firms costs of production
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How are subsidies a non-price determinant of supply
They encourage production by reducing costs
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How are producer cartels a non-price determinant of supply
The members increase price by restricting supply, it will shift the supply curve inwards
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How is market equilibrium achieved
When planned demand is equal to planned supply and there is no incentive for producers and consumers to change their plans. There is no excess demand or supply
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What is the signalling function of price
Prices carry information which is used by consumers and producers to make their market plans
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What is the rationing/allocative function of price
If there is scarcity in the market, then price will increase as consumers bid up the price to obtain the item. This will reduce quantity demanded
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What is the incentive function of price
The higher the price, the higher motivation to make profit, so producers have greater incentive to supply the market, consumers have obj of maximising utility, therefore a lower price will give them an incentive to increase the quantity demanded
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How is excess demand eliminated
The rationign function sees consumers bid up to obtain the good, reducing demand due to an increased purchase price
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How is excess supply eliminated
The signalling function of price leads to consumers changing their based on the info from falling prices
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How is disequilibrium caused
caused by excess demand or supply, can occur temporarily in markets as a result of a change in demand or supply, whilst econ agents adjust their plans according to the signalling function, it can also be a result of deliberate govt intervention
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What is consumer surplus
the difference between how much consumers in the market are prepared to pay vs how much they actually pay
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what will change consumer surplus
Alterations in equilibrium price will change it,
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What is producer surplus
The difference between the price producers are prepared to sell their good or service and how much they actually receive.
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What is PED
Price elasticity of demand measures teh responsiveness of quantity demanded to a change in price
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What is XED
Cross elasticity of demand measures responsiveness of demand to a change in the price of another good
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What is YED
Income elasticity of demand measures the responsiveness to a change in income
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What is PES
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price
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How do you calculate PED
%change in quantity demanded/% change in price
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How is neccesity degree a determinant fo PED
Depending on how essential the good is, demadn will be inelastic for neccesities and elastic for luxury
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How is availability of substitutes a determinat of PED
The more substitutes, the higher the PED so the good is more price elastic
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How is time a determinant of PED
Over time the consumer is able to consider alternatives when a good has increased in price
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How is proportion of income spent on the good a determinant of PED
An increase of price of chewing gum is unlikley to affect a households budget significantly, but an increase in the price of petrol or domestic heating bills might. Where price rise is less significant there is less reaction
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what does total revenue show
calculated as price x quantity demanded, it showas revenue and total expenditure by consumers. If a firm chanes price the revenue may change
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How does ped being > 1 impact price changes
Decrease in price decreases total revenue, increases in price increase total revenue
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How does PED = 1 impact price changes
Increase in price leaves rev unchanged, a decrease will also leave revenue unchanged
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How does a PED of < 1 impact price changes
Increase in price leads to increased rev, a decrease leads to a decrease
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How do you calculate YED
% change in quantity demanded/ % change in change in income
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How do you calculate cross price elasticity of demand
% change in quantity demanded of good a/ % change in price of good b
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How do complements and alternative goods impact XED
Complements have a negative price elasticity, maginitude of XED shows the stregnth fo relationship, substitutes have positive XED, magnitude plays a similar part
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How do you calculate price elasticity of supply
% change in quantity demanded / % change in price
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what is spare capacity determine PES
Refers to slack in resources of the firms which can be used if neccesary to meet unexpected increases of demand
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How does stocks of raw materials and components determine PES
The mroe stock it holds or can obtain quickly, the more price elastic supply will be similary to spare capacity
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how does factor of production sustaianbility determine PED
A firm may be able to boost production with conversion of factors towards where output is rising, some factors are mroe flexible then others, in crisis food prices may rise dramatically, these high pruices should see landowners move resources back t
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what is competitve demand
If two goods are substitutes then theu are in competitive demand. The extent of the decrease for good b depends on the XED between the 2.
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what is joint demand
Occurs when two goods are complemet, the changes due to price have a positive correlation, and extent fo decrease depends of the value fo XED, -1 they are strong complements
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What is derived demand
Derived demand describes a market in which a good is demadned not for its own intrinsic use but for another purpose, for example the production of anoter good. An increase in demadn for cars will l ead to an increased demand for steel
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what is composite demand
composite demadn occurs when a good or service has alternative uses, e.g milk can be used for cheese or dairy production, increased demand for one use fo the good will lead to a decreased demand of another purpose
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What is joint supply
this occurs when two goods are by-products e.g production of one good naturally leads to the production of another, beef and leather is a common example
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what is competitve supply
It exists when a firm can produce alternaitve goods or services from its exisitng factors of production, increase in demand for one will lead to decreased supply for another
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what si composite supply
Occurs when the demand for a good or service can be satisified via different sources e.g demadn for salt from sea salt or mines
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what is the labour market
Labour market is the pool of possible workers. Has derived demand from increases in demand
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What is the supply of labour
The amount of work that households are willing and able to supply to the labour market at any given real wage rate, upward sloping curve shows positive relation between price of labour and quantity.
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what is the demand for labour
The amount of laboru that firms are willing and able to demand at any given wage rate. The demand for labour is derived from potential increases of output
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what is labour market equilibrium
Equilibrium is achieved when planned laboru demand = planned labour supply
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How does population influence the supply of labour
Increase in population will increase the laboru force, increasing supply of labour at any given wage rate, shown by a shift outwards of the supply curve
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How do non-monetary factors influence the supply of labour
If the level of risk is high or long working hours are reuired, there is likely to be less labour supplied, yet if working conditions are favourable then this may give an incentive for labour to be supplied
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How does the tax and benifit system determine supply for labour
Changes in tax and benefit system can inimpact the supply of labour, ncrease in income tax and increase in unemployment benfits can reduce the supply of labour, leading to an inward shift of the supply curve,
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How does immigration influence the demand for labour
Increase in immigration leads to an increase of labour force, there is an increase in labour force yet decrease in wage rate. Immigration vital in shortages
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How does the minimum wage impact demadn for labour
Excess supply of labour or what is know as "real wage" unemplooyment will result if wage rate is held above market equilibrium
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what are commdity markets
global scale markets where the goods are unprocessed or partially processed such as oil/beef. These goods often suffer from price fluctuations as a result of speculation on teh stock market and particularly volatile demand and supply conditions.OilMk
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what are financial markets
Money market can be explained using theory of supply and demand, price of money is given as an interest rate, demand for money is simply demadn for cash or very liquid assets such as current accoutns. Money demand is downward sloping
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what are agricultural markets
They often suffer from price fluctuations as there are external shocks such as weather and disease which can affect harvest or production. Govt may intervene to stabilise the market price by using a buffer stock scheme
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How is sustainable econ activity limiting


It reduces production and consumption in the short term, yet large long term impact as future gens have reduced option

Card 3


What is opportunity cost


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Card 4


3 advantages of specialisation


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Card 5


3 disadvantages of specialisation


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