Edexcel Economics

A level flashcards

Economics

The study of human behaviour under scarcity

Scarcity

Describes any situation in which factors of production are finite, whereas wants are infinite

Ceteris Paribus

latin expression meaning "other things equal" which is another way of saying that all other things are assumed to be constant or unchanging

Consumers

those who demand goods and services

Producers

those who supply goods and services

Government

those who tax and distribute certain goods and services to both consumers and producers

Demand

the quantity of goods consumers are willing to buy at a given price- an inverse relationship

Supply

the quantity of goods producers are willing to sell at a given price- a direct relationship

equilibrium price

the price at which there is no tendency to change because planned purchases (demand) are equal to planned sales (supply)

Income effect

as prices fall, consumers can purchase more- even with a fixed income

substitution effect

as the price of one good rises, consumers find substitute goods more attractive

law of diminishing marginal utility

For quantity demanded to increase, prices must fall given that marginal unites generate less utility

What causes a movement along the demand curve?

it is when there is a change in quantity demanded due to an increase or decrease in price while all other factors remain constant

What causes a shift in the demand curve?

it is caused by changes in non-price factors (PASIFICS)

What is PASIFICS

POPULATION

ADVERTISING

SUBSTITUTIONS

INCOME LEVELS

FASHION/TREND

INTEREST RATES

COMPLEMENTARY GOODS

SPECULATION

What is GDP?

• Gross domestic product

• the total value of all new goods and services produced in a given year

Recession

two consecutive quarters of negative GDP growth

what are the limitations of GDP- PC

Per capita- population growth leads to an increase in GDP due to greater spending/earning/output. However, individuals may be ported if the rate of population growth is greater than the rate of economic growth

what are the limitations of GDP- HE

Hidden economy: Unpaid work isn't captured in official figures, such as: caring responsibilities; subsistence farming; black markets; hobbies

what are the limitations of GDP- I

Inequality- Rising GDP could result from the richest getting richer, rather than everyone, or even the average becoming better off

what are the limitations of GDP- ED

Environmental degradation- Critics have argued that GDP fails to consider whether economic activity is sustainable, or the damage it might do to the natural world

what are the limitations of GDP- C

Comparisons- Different estimation techniques and purchasing power make it difficult to make international/historical comparisons

what are the limitations of GDP- H

Happiness- In 2010, the ONS started measuring well-being alongside economic growth. This measures health, relationships, education and skills, as well as personal finances and the environment

Easterlin Paradox

Increases in a country's per capita income does not necessarily lead to an increase in happiness.There is little direct relationship within countries. Other factors are more important determinants such as social connections.

working age population

all those between the ages of 16-64 years.

Labour force

all those able and willing to work

employment

the proportion of the working-age population that is working

unemployment

the proportion of the working-age population that is actively seeking work but not working

underemployment

employed but seeking more hours

• not doing work that makes use of their full skills and abilities

Ways to measure unemployment

Claimant count and international labour organisation

Claimaint Count

Records the number of people claiming unemployment-related benefits

Positives and negatives of claimant count

Positive: Easy and cheap to collect

Negatives: May be susceptible to political manipulation

-Exclude people who are out of work, actively seeking work but don't claim

-Fraud could lead to overestimating population

International Labour Organisation

Surveys and estimated the number of people who are without a job + actively seeking work + available to start work in the next two weeks

Positives and negatives of the international labour organisation

Positives: More accurate

• Based on international standards

Negatives: More costly to

compile

-Only need to work for 1 hour a week to be counted as employed

Inflation

An increase in the general price level

Index

A statistical measure of relative change

Real

When a figure has been adjusted for inflation

nominal

when a figure has not been adjusted for inflation

Disinflation

A fall in the rate of inflation- prices are increasing but at a slower rate

Deflation

A decrease in the general price level

Hyperinflation

A rapid, significant and uncontrollable increase in the general price level

Problems with inflation

• Erodes the value of money, savings and wages

• Uncertainty leads to lower consumer and business confidence

• Worsens inequality- worse for those who spend a high proportion of their income on necessities

Problems with deflation

• A sign of an economic slowdown

-Discourages consumer spending: downwards spiral

• Debt value increase in real terms; borrowers worse off

The profit incentive

as prices increase, firms have a larger incentive to produce more/enter the market

Crowding out of fixed factors

As firms produce more, marginal costs increase. Firms must set higher prices to cover these increased costs

What causes a movement along the supply curve?

change in price

What causes a shift in the supply curve?

Productivity

Indirect Tax

Number of firms

Technology

Subsidy

Weather

Cost of production

Positive statements

statements that can be tested to be true or false

is, will, has, can

Normative statements

Statements that cannot be tested as they are based on value judgements

Opportunity cost

The foregone value of the next best alternative

-that which must be sacrificed when faced with a trade-off

Factors of production

the different elements that are required to produce goods and services

CAPITAL

ENTERPRISE

LABOUR

LAND

The profit incentive

as prices increase, firms have a larger incentive to produce more/enter the market

Crowding out of fixed factors

As firms produce more, marginal costs increase. Firms must set higher prices to cover these increased costs

Theory of supply

direct relationship between price and quantity

the profit incentive

crowding out of fixed factors

Theory of demand

inverse relationship between quantity and price

income effect

substitution effect

law of diminishing marginal utility

What causes a movement along the supply curve?

a change in price

What causes a shift in the supply curve?

PINTSWC

What is PINTSWC?

PRODUCTIVITY

INDIRECT TAXES

NUMBER OF FIRMS

TECHNOLOGY

SUBSIDIES

WEATHER