topics 1-2.10

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187 Terms

1

The basic economic problem

how best to allocate scarce resources to satisfy people’s unlimited needs and wants.

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2

Economic Agents

Households, Firms and the Government

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3

Economic Goods

Resources / Products that are limited in supply

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4

Free Goods

Resources / Products that are unlimited in supply

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5

Goods

Physical Items made in the production process

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6

Private Sector

Part of the economy where private firms and individuals produce goods and services

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7

Public Sector

Part of the economy where the government produce goods and services

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8

Services

Non-physical products

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9

Capital

The manufactured resources in the production process

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10

Enterprise

The skills a person requires to successfully combine and manage the other factors of production

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11

Factors of Production

Land, Labour, Enterprise, Capital

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12

Geographical Mobility

The extent to which labour is willing and able to move to different locations for employment purposes

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13

Labour

The human resources required in the production process

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14

Land

The natural resources required in the production process

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15

Occupational Mobility

The extent to which labour is able to move between jobs

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16

Demerit Goods

Goods or services which, when consumed, create negative spillover effects

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17

External Benefits

The positive side effects of production or consumption enjoyed by 3rd parties for which no money is paid by the beneficiary

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18

External Costs

The negative side effects of production or consumption incurred by 3rd parties for which no compensation is paid

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19

Externalities (Spillovers)

These occur when the actions of firms and/or individuals have either a positive or negative side-effect on 3rd parties

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20

Free riders

People who take advantage of goods/services provided but the govt. but not contributed to govt. revenue through taxation

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21

Market Failure

Occurs when market sources fail to allocate resources efficiently and so cause external cost or external benefits

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22

Merit Goods

Goods or services which when consumed creates positive spillover effects

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23

Private Benefits

The benefts of production and consuption enjoyed by economic agents

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24

Private costs

The actual cost of production or consumption of an economic agent

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25

Public Goods

Goods and services that are non-excludable and non-rivalrous, and are a cause of market failure as there is a lack of profit motive to produce them.

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26

Social Benefits

The true benefits of consumption or production

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27

Social Costs

The true costs of consumption or production

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28

Formula for Social Costs

Social costs = private costs + external costs

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29

Formula for Social Benefits

Social Benefits = private benefits + external benefits

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30

Economic System

The way in which an economy is organised and run; how best to allocate scarce resources

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31

Market Economy

An economic system that relies on the market forces of demand and supply, (price mechanism), to allocate resources

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32

Mixed Economy

An economic system that combines aspects of the private and market economies

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33

Planned Economy

An economy that relies on the government to allocate scarce resources

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34

Aim of the Private Sector

Earn Profit

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35

Aim of the Public Sector

To provide a service

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36

Price Elastic Supply

Describes the supply of a product that is responsive to changes in price, usually due to there being spare capacity or large volumes of stocks

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37

Price Elasticity Of Supply (PES)

Measure of the degree of responsiveness of the quantity supplied of a product to a change in its price

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38

Price Inelastic Supply

Describes the supply of a product that is unresponsive to changes in price

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39

Stocks

Are known as the raw materials, components and finished goods used in the production process

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40

Unitary prices elasticity of supply

Occurs when the percentage change in the quantity supplied is proportional to the percentage change in the price, so there is no change in the firms’s sales revenue

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41

Formula of PES

PES = Percentage change in quantity supplied DIVIDED BY Percentage change in price

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42

When is PES, price elastic?

When PES > 1.0

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43

When is PES, price inelastic?

When PES < 1.0

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44

What happens when PES is equal to 0

The supply is perfectly price inelastic, (change in price does not affect the quantity supplied)

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45

What happens when PES is equal to infinity?

The supply is perfectly price elastic, ( the quantity supplied is unlimited at a given price, but no quantity can be supplied at any other price.)

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46

Determinants of Price Elasticity of Supply

Factor substitution: (the cost & suitability of switching between factors of production)

Inventory: (Stock Levels)

Rivals: (The intensity of competition in the industry)

Spare Capacity: (The greater it is, the more responsive supply can be)

Time: (To complete the factors of production)

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47

Price Elastic Demand

Describes the demand for a product that is highly responsive to changes in price

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48

Price Elasticity of Demand (PED)

Measures the extent to which the demand for a product changes due to a change in its price

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49

Determinants of PED

Time: (to seek/switch alternatives)

Habits: (including addictions, fashions and tastes)

Income: (real disposable income)

Substitutes: (availability & price of alternative product)

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50

Decrease in demand

A leftward shift of the whole demand curve due to an unfavourable change in a non-price factor that affects the demand

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51

Decrease in Supply

A leftward shift of the whole supply curve du to an unfavourable change in non-price factors that affects supply

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52

Increase in Demand

A rightward shift in the whole demand curve due to favourable change in a non-price factor that affects demand

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53

Increase in Supply

A rightward shift in the whole supply curve due to a favourable change in a non-price factor that affects supply

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54

Price Changes caused by demand factors

  • Real Income

  • Disposable Income

  • Fashion, Habits and Tastes

  • Advertising and Marketing

  • Price of substitutes and complements

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55

Price changes by supply factors

  • Subsidies

  • Length of production time

  • State of technology

  • Weather conditions

  • Indirect taxes

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56

Equilibrium Prices

The price at which the demand curve for a product intersects the supply curve for the product.

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57

Excess demand

Occurs when the supply of a product exceeds its demand at certain price levels. This causes shortage of a product

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58

Excess supply

occurs when the quantity supplied of a product or service exceeds the quantity demanded at a given price level

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59

Contraction in Supply

This occurs when there is a fall in the quantity supplied of a product following a decrease in its price

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60

Decrease in supply

A leftward shift of the supply curve caused by unfavourable changes in non-price factors

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61

Extension in supply

This occurs when there is an increase in the quantity supplied of a product following an increase in its price

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62

Increase in supply

A rightward shift of the supply curve caused by favourable changes in non-price factors

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63

Determinants of Supply

  • Time

  • Weather

  • Opportunity Costs

  • Taxes

  • Innovations

  • Production Costs

  • Subsidies

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64

Market Supply

The sum of all supply curves in the market at each given price levels

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65

Complements

Products that are jointly demanded

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66

Contraction in demand

This occurs when there is a fall in the quantity demanded for a product following an increase in its price

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67

Decrease in Demand

A leftward shift of the the demand curve caused by unfavourable changes in non-price factors

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68

Extension in Demand

This occurs when there is an increase in the quantity demand for a product following a fall in price

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69

Increase in demand

A rightward shift of the demand curve caused by favourable changes in non-price factors

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70

Substitutes

Products that can be used in place for one another

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71

Determinants of Demand

  • Habits, fashion, taste

  • Income levels

  • Substitutes and Complements

  • Advertising

  • Government Policies

  • Economic conditions

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72

Market disequilibrium

This occurs when the market price is either above or below the equilibrium price, causing excess supply or demand

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73

Market equilibrium

When the demand = supply, and there is no shortages or surpluses

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74

Microeconomics

the study of particular and individual markets within the economy

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75

Macroeconomics

The study of economic behaviour and decision making of the whole economy, rather than individual markets

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76

Key decision makers in microeconomics

Households and firms

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77

Key decision makers in macroeconomics

Government and large multi-national companies

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78

Efficiency on the PPC

When an economy operates on the PPC

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79

Inefficiency on the PPC

When an economy operates within the PPC

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80

Movement on the PCC

When the economy moves point the PPC to another, as they try to reallocate their resources

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81

Shift of the PPC

An outward shift is when there is economic growth. An inward shift is caused by a fall in the productive capacities of the economy

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82

Opportunity Cost

the option your for go in place of another one

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83

analyse how the price mechanism provides answers to the key allocation decisions

  • What to Produce?

  • How to Produce?.

  • For Whom to Produce?

  • When to Produce?

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84

distinguish between social, private and external costs and benefits

  • Private Costs/Benefits: Direct costs and benefits to individuals or firms.

  • Social Costs/Benefits: Total costs and benefits to society, including both private and external factors.

  • External Costs/Benefits: Costs or benefits experienced by third parties who are not directly involved in the transaction.

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85

discuss ways government could use to correct market failure caused by demerit goods and merit goods

Demerit goods are discouraged through taxes, regulations, public awareness, and subsidies for healthier alternatives. Merit goods are promoted via subsidies, public provision, regulations, awareness campaigns, and income support to ensure access for all.

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86

analyse the causes of shifts in the supply curve

The supply curve can shift based on numerous factors including changes in production or raw materials costs, technological progress, the level of competition, the number of producers, the number of sellers, and changes in the regulatory and tax environment.

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87

analyse how the price mechanism provides answers to the key allocation decisions

The price mechanism allocates these goods and services to those who are willing to pay the most for them. This is because prices will rise or fall until equilibrium is reached between quantity demanded and quantity supplied.

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88

money

an item generally accepted as a means of payment

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89

forms of money

coins, notes and bank accounts

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90

functions of money

medium of exchange, store value, unit of account and standard of dffered payment

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91

medium of exchange

allows people to buy/sell products and exchange products for money

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92

store of value

can be saved, doesn’t detoriate over time and acceptable in the future

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93

unit of account

place value on an item and allows an agreement of worth

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94

standard of defered payment

allows people to borrow and lend

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95

characteristics of money : generally acceptable

not accepted as payment, it is not money

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96

characteristics of money : limited supply

something of value with little supply, if there is a lot there is no point

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97

characteristics of money : durable

will last some time, carried around easily, divisible, homogeneous and recognisable

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98

commercial banks

retail/high street banks which seek to make a profit

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99

commercial banks : current accounts deposit

Current account: Provides immediate access to money for receiving and making payments, but no interest is paid on the balance

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100

commercial banks : deposit/time accounts deposit

Deposit or time account: Requires notice before withdrawals, pays interest, and is used for saving.

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