Full Economics Flashcards

Behavioural economics

Adds elements of psychology to traditional models in an attempt to understand decision making by the consumers

Ceteris paribus

All things being equal

Circular economy

Economic system that focuses on society wide benefits. Based on design out waste, keep products/materials in use, regenerate natural systems

Circular flow of income

Simplified model of the economy that shows the f,ow of money through the economy

Consumer surplus

The additional benefit/utility received by consumers by paying a price that is lower than the maximum price they are willing to pay.

Consumption

Spending by households on consumer goods and services over a period of time

Demand

The willingess and ability of consumers to purchase a quantity of a good or service

Demand curve

Shows the relationship between the price of a good/service and the quantity demanded

Demerit goods

Goods/services considered to be harmful to people

Economic development

A broad concept involving improvement in standards of living etc

Elasticity

A measure of responsiveness of something to a change in one of its determinants

Engel curve

Curve that shows the relationship between income and quantity demanded

Equilibrium

Quantity supply = Quantity demand and there is no tendency for the price to change. When in equilibrium, every unit that is produced is consumed. Market clearing price and quantity where there is no excess demand or supply

Excess demand

Shortage. Price of a good is lower than the equilibrium price such that the quantity demanded is greater than the quantity supplied

Excess supply

Surplus. Where the price of a good is higher than the equilibrium price, such that the quantity supplied is greater than the quantity demanded

Exports

Goods/services produced in one country and purchased by consumers in another country

Externalities

External costs or benefits to a third party when a good or service is produced or consumed

Factors or production

Land, labour, capital, entrepreneurship

Labour

Wages

Capital

Interest

Entrepreneurship

Profit

Free market economy

Means of production are privately held by individuals and firms. Supply/demand determine what,how much, how and for whom to produce.

Imports

Goods/services purchased by consumers in one country that have been produced in another country

Income elasticity of demand (YED)

A measure in the responsiveness of the demand for a good or a service to a change in incomeI

Indirect taxes

Added to the selling price of a good or a service

Inflation

a sustained increase in the average price level of goods and service

Inflation rate

Percentage change of a price index over a certain time period

Injections

Investment, government expenditure and export revenues that add spending to the circuclar flow of income

Interest rate

The price of borrowing money

Law of demand

As the price of a good falls, the quantity demanded will normally increase

Law of supply

As the price of a good rises, the quantity supplied will normally rise

Leakages

Savings, taxes and import expenditure that remove spending from the circular flow of income

Marginal costs

The additional costs of producing more than one unit of input

Marginal utility

Extra utility derived from consuming one or more unit of a good or a service

Market

Where buyers and sellers come together to carry out an economic transaction

Market demand

Horizontal sum of the individual demand curves for a product of all the consumers in a market

Market failure

A failure of markets to produce at the point where community surplus is maximised (consumer surplus + producer surplus)

Merit goods

Goods/services considered to be beneficial for people

Negative externalities of consumption

Negative effects suffered by a third party when a good/service is consumed

Normal goods

Demand for it increases as income increases

Normative economics

Areas of economics that are open to personal opinion and belief

Opportunity cost

Next best alternative when an economic decision is made

Perfectly elastic demand

Increase in price of a G/S leads to a fall in the QD of the G/S to zero

Perfectly elastic supply

Where a change in the price of a G/S leads to a fall in the QS of the G/S to zero

Perfectly inelastic demand

Where a change in the price of a G/S leads to no change in the QD of the G/S

Perfectly inelastic supply

Where a change in the price of a G/S leads to nochange in the QS of the G/S

Positive economics

Deals with areas of the subject that are capable of proven to be correct or not

Positive externalities of consumption

Benefits that are enjoyed by a third party when G/S are consumed

Positive externalities of production

Benefits that are enjoyed by a third party when a G/S is prpdiced

Price ceiling

Imposed by an authority and set below the equilibrium price, prices cannot rise above this set price

Price controls

Imposed by authority, set above or below the market equilibrium price

Price floor

Imposed by an authority and set above market price, proces cannot fall below this set price

(Price) Elastic demand

Change in the price of a G/S leads to a proportionally larger change in the QD of it

(Price) Elastic supply

Change in price of a G/S leads to a proportionally smaller change in the QD of the G/S

(Price) Inelastic demand

Change in the price of a G/S leads to a proportionally smaller change in the QD of the G/S

(Price) Inelastic supply

Change in the price of a G/S leads to a proportionally smaller change in hte QS of the G/S

PED stands for…

Price elasticity of demand

Definition of PED

Measure of the responsiveness of the QD of a G/S when there is a change in its price

PES stands for…

Price elasticity of supply

Definition of PES

Measure of responsiveness of the QS of a G/S when there is a change in its price

Producer surplus

Additional benefit received by producers by receiving a price that is higher than the price they were willing to receive

PPC

Production possibilities curve

Quantity demanded

Willingness and ability to purchase a quantity of a G/S at a certain price over a given time period

Quantity supplied

Willingness and ability to produce a quantity of a good or service at a given price over a given time period

GDP Meaning

Total monetary value of all final goods/services produced within an economy in a year

GNI

Total income that is earned by a country’s factors of production regardless of where the assets are located

GDP Formula

C + I + G + (X-M)

GDP Formula WORDS

Consumer spending + investment spending + government spending + export spending - import spending

GNI Formula

GDP + Net income from abroad

GDP Deflator formula

Nominal GDP / Real GDP / 100

rGDP with deflator formula

Nominal GDP / GDP deflator * 100

GDP / GNI per capital formula

rGDP or GNI / population

Nominal prices

GDP measured at current prices

Real GDP

GDP measured at constant prices and adjusted for inflation

Inflation

The rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.

Business cycle phases

Expansion → Peak → Contraction → Trough → Expansion + Potential output & Actual output

Inferior good

A good whose demand falls as income rises, has negative income elasticity

Substitute goods

Goods which can be used in place of each other (f.eg Apple juice and orange juice)

Complementary goods

Goods used/purchased together (f.eg a phone and a phone case)

Supply

The amount of a good or service that producers are willing and able to provide at a given price

Supply curve

A curve, or line, showing the relationship between the price of a product and the quantity supplied over a range of prices

Joint supply

Goods which are produced together, or where the production of one good involves the production of another product e.g. Meat and leather (a by-product)

Resource allocation

Examine the way that scarce factors of production are allocated to meet unlimited demand

Signalling

Conveying of information by one party to another to indicate their intentions or qualities, often used in markets where there is asymmetric information

Public good

A product which is non-rivalrous and non-excludable and so would not be provided at all in a purely free market economy (f.eg healthcare or education)

Merit goods

Considered to be beneficial for people that would be under-consumed in a purely free market economy

Demerit goods

Considered to be harmful for people that would be over-consumed in a purely free market economy

Sustainability

Implies an ability to sustain the worlds' resources over time

Short run

The period of time in which at least one factor of production (usually capital) is fixed

Long run

The period of time in which all factors are variable

Formula: Price elasticity of demand

% ∆ Quantity Demanded

÷

% ∆ Price

Formula: Price elasticity of supply

% ∆ Quantity Supplied

÷

% ∆ Price

Formula: Income elasticity of demand

% ∆ Quantity Demanded

÷

% ∆ Income

Formula: Nominal GDP

Quantity of goods + services produced × Current Prices

Formula: Real GDP

Nominal GDP

÷

Price Index* ×10

*Any price index: CPI, RPI, GDP Deflator

Formula: Aggregate demand

C + I + G + (X-M)

Formula: Unemployment rate

(# Of unemployed ÷ labor force) * 100

Formula: Percentage change

Actual - Original

÷

Original

× 100

Tradable permits

Market based policy where government sets an amount of permits that can be bought and sol by polluters

Market based policy

“You have a permit to fish 100 fish. If you do not do this, you can sell the permit to someone else to fish 100 fish.”

SPLAT

Substitutes

Proportion

Luxury

Addictive

Time