Production possibility frontier- shows the maximum amount of two goods or services that an economy can produce.
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Trade-off
when you have to choose between conflicting objectives because you cant achieve all your objectives at the same time.
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opportunity cost
the next best alternative that you give up in making that decision
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determinants of demand
changes in tastes and fashion, changes to real income, type of good, price of other goods, income distribution
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joint demand
goods which are complementary to each other
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composite demand
goods, services or commodities which have several different uses
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derived demand
refers to a situation where the demand for one resource creates demand for another one.
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competitive demand
refers to the demand for products which have close substitutes.
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competitive supply
a term used to describe a situation where more than one product can be produced from the same factors of production
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PED
%change in QD/%change in price, elastic= >1 inelastic= 0<PED>1
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YED
%change in QD/%change in real income, income elastic= YED>1 income inelastic= YED<1
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XED
%change in QD for good A/ %change in price of good B substitute good= + complementary= -
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determinants of supply
changes to the cost of production, improvement in technology, changes to production, indirect taxes and subsidies, number of suppliers, price of other goods
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PES
%change in QS/%change in price elastic= PES>1 inelastic= 0<PES>1
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PES explained
supply is inelastic in the short run, long run more elastic as all FOPs are variable
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Equilibrium
when supply=demand, when supply doesn't equal demand there is disequilibrium, excess demand/supply
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excess supply
this is when quantity supplied is greater than quantity demanded. This forces the price down until demand and supply meet at a new equilibrium
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excess demand
when demand for a good/service is greater than supply, price would be forced up until a new equilibrium is reached
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production and productivity
production= conversion of inputs into outputs productivity= output per unit of input employed
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labour productivity
output per worker/ output per hour worked
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division of labour
a type of specialisation where production is split into different tasks and specific people are allocated to each task. Adam Smith- one worker couldn't make 20 pins, 10 workers could make 48,000
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advantages of specialisation
people can specialise in what they are best at, better quality and higher labour productivity, can lead to EOS, training costs reduced
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disadvantages of specialisation
tasks are repetitive so workers get bored,countries become less self-sufficient, lack of flexibility
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fixed and variable costs
Fixed costs don't vary with output in the short run whereas variable costs do
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marginal cost
change in total cost/ change in output
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price takers
have no control over market price, perfectly elastic demand
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normal profit and super-normal profit
normal profit= TC=TR supernormal profit= TR>TC
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conditions of perfect competition
infinite consumers and suppliers, all price takers, perfect information, homogeneous products, no barriers, firms are profit maximisers
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perfect competition+ firms
perfect competition means supernormal profits are competed away as it acts as an incentive for new firms to enter the market, and the firms will undercut each other until there is no longer supernormal profit
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barriers to entry
natural- high sunk costs, high levels of capital investment required government- regulation, license, planning permission
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Other cards in this set
Card 2
Front
when you have to choose between conflicting objectives because you cant achieve all your objectives at the same time.
Back
Trade-off
Card 3
Front
the next best alternative that you give up in making that decision
Back
Card 4
Front
changes in tastes and fashion, changes to real income, type of good, price of other goods, income distribution
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