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Flashcards from Chapters 1-24 of the Pearson Edexcel IGCSE Economics textbook.
Goods
Things that are produced in order to be sold
Finite
Having an end or limit
Infinite
Without limits
What are the four factors of production?
Land, Labour, Capital, Enterprise
Why do economists say that resources are scarce?
There is only a limited or finite quantity of resources
Needs
The basic requirements for human survival
What are examples of needs?
Water, food, warmth, shelter, clothing
Wants
People’s desires for goods and services
What are examples of wants?
Holidays abroad, better houses, bigger cars, improved healthcare, better education
Basic economic problem
Allocation of a nation’s scarce resources between competing uses that represent infinite wants
Scarce resources
Amount of resources available when supply is limited
What three decisions have to be made when addressing the basic economic problem?
What to produce, How to produce, For whom to produce
Opportunity cost
Cost of the next best alternative that is given up when someone makes a choice
What is the opportunity cost of a firm spending $100,000 on advertising?
Training its workforce, buying new machinery
Expenditure
Spending by a government
Capital goods
Purchased by firms and used to produce other goods
What are examples of capital goods?
Factories machinery, tools, equipment
Consumer goods
Purchased by households
What are examples of consumer goods?
Food, confectionery, cars, tablets, furniture
Production Possibility Curve
Line that shows the different combinations of two goods an economy can produce if all resources are used up
What happens when an economy moves from one point on the PPC to another?
An opportunity cost is incurred
Economic growth
Increase in the level of output by a nation
What happens to the PPC if a country can produce more?
It shifts outwards
What are some reasons for economic growth/an outward shift in the PPC?
New technology, Improved efficiency, Education and training, New resources
Why might negative economic growth/an inward shift in the PPC occur?
Resource depletion, Adverse weather, Increased outward migration, Wars
Variables
Something that affects a situation in a way that you cannot be sure what will happen
Maximise
To increase something such as profit, satisfaction or income as much as possible
Revenue
Money that a business receives over a period of time, especially from selling goods or services
What are the two underlying assumptions in economics?
Consumers aim to maximise benefit, Businesses aim to maximise profit
Why may consumers not always maximise benefit?
They have difficulty in calculating the benefits, They develop buying habits, They are influenced by the behaviours of others
Enterprises
Companies, organisations or businesses
Why might producers not always maximise their profits?
Performance may be influenced by other people in the organisation, Alternative business objectives, Operate as charities, Social enterprises
Administration
Activities involved with managing and organising the work of a company or organisation
Demand curve
Line drawn on a graph that shows how much of a good will be bought at different prices
Demand schedule
Table of the quantity demanded of a good at different price levels - can be used to calculate the expected quantity demanded
Effective demand
Amount of a good people are willing to buy at given prices over a given period of time supported by the ability to pay
Inverse relationship between price and quantity demanded
When price goes up, the quantity demanded falls and when price goes down the quantity demanded rises
Demand
The amount of a good that consumers are willing to and able to buy at a given price
Shift in the demand curve
Movement to the left or right of the entire demand curve when there is a change in any factor affecting demand except the price
Disposable income
Income that is available to someone over a period of time to spend - including state benefits and excluding direct taxes
Inferior goods
Goods for which demand will fall if income rises or rise if income falls
Normal goods
Goods for which demand will increase if income increases or will fall if income falls
What are the factors that may shift the demand curve?
Fashion and tastes, Price of substitutes, Price of complements, Income, Advertising, Demographic changes
Will an increase in advertising shift the demand curve to the left or to the right?
To the right
If disposable income rises, will the demand for a normal good rise or fall?
Rise
If disposable income rises, will the demand for an inferior good rise or fall?
Fall
If fashion tastes change to favour a certain clothing item, will demand for that item rise or fall?
Rise
Substitute goods
Goods bought as an alternative to another but perform the same function
Complementary goods
Goods purchased together because they are consumed together
If the price of car insurance rises, will demand for cars rise or fall?
Fall
If the price of Pepsi rises, will demand for Coke rise or fall?
Rise
Infrastructure
Basic systems and structures that a country needs to make economic activity possible
Will demand for schools and hospitals be higher in rural areas or urban areas?
Urban areas
If a certain ethnic group moves into a country, will the demand curve for cultural products of that group shift to the left or to the right?
To the right
Supply
The amount of a good that producers are willing to and able to offer for sale at different prices
Supply curve
Line drawn on a graph which shows how much of a good sellers are willing to supply at given prices
per annum (p.a.)
For or in each year
Proportionate relationship between price and the quantity supplied
When the price goes up, the quantity supplied also goes up and when the price goes down the quantity supplied goes down
Shift in the supply curve
Movement to the left or the right of the entire supply curve when there is any change in the conditions of supply except the price
Fixed supply
It is impossible for sellers to increase supply even when prices rise
What will fixed supply look like on a supply curve?
A vertical line
What is a scenario where there may be fixed supply?
Supply at venues where sports matches or concerts are held
Indirect taxes
Taxes levied on spending
What is an example of an indirect tax?
VAT
Productivity
The rate at which goods are produced, and the amount produced in relation to the work, time and money needed to produce them
What are factors that may shift the supply curve?
Production costs, Natural Factors, Subsidies, Indirect Taxes, New Technology
Will a rise in production costs shift the supply curve to the right or to the left?
To the left
Why will a rise in indirect taxes cause the supply curve to shift to the left?
Indirect taxes represent a cost to the firm
Consumption
Amount of goods, services, energy or natural materials used in a particular period of time
Subsidy
Money that is paid by a government or organisation to make prices lower, reduce the cost of producing goods or providing a service, usually to encourage production of a certain good
Why may governments use indirect taxes?
To raise revenue for government expenditure and discourage the consumption of harmful products
What is the effect of a government granting a subsidy on a good?
An increase in its supply
Will an increase in new technology shift the supply curve to the left or to the right?
To the right
Will adverse weather shift the supply curve to the left or to the right?
To the left
Equilibrium price
Price at which supply and demand are equal
Market clearing price
Price at which the amount supplied in a market matches exactly the amount demanded
Total revenue
Amount of money generated from the sale of goods calculated by multiplying price by quantity
Formula for calculating total revenue
TR = P * Q
Why is the equilibrium price known as the market clearing price?
The amount supplied in the market is completely bought up by consumers, so there are no buyers left without goods and there are no sellers left with unsold stock
If demand shifts to the right, will the equilibrium price rise or fall?
Rise
If supply shifts to the right, will the equilibrium price rise or fall?
Fall
Excess demand
Where demand is greater than supply and there are shortages in the market
Excess supply
Where supply is greater than demand and there are unsold goods in the market
How can producers restore equilibrium when there is disequilibrium in the market?
Change the price, Adjust supply
Price elasticity of demand
The responsiveness of demand to a change in price
Inelastic demand / Price inelastic
Change in price results in a proportionately smaller change in the quantity demanded
Elastic demand / Price elastic
Change in price results in a greater change in the quantity demanded
How do you calculate price elasticity of demand?
Price Elasticity of Demand = (% Change in Quantity Demanded / % Change in Price)
Perfectly elastic demand
Demand where PED = ∞ - an increase in price will result in zero demand
Perfectly inelastic demand
Demand where PED = 0 - a change in price will result in no change in the quantity demanded
Unitary elasticity with regard to demand
Where PED = -1 - the responsiveness of demand is proportionately equal to the change in price
What values would mean demand is price inelastic?
PED is less than 1
What values would mean demand is price elastic?
PED is greater than 1
What are the factors affecting Price Elasticity of Demand?
Availability of Substitutes, Proportion of Income, Luxury or Necessity, Addictiveness, Time
What acronym can be used to remember the factors affecting Price Elasticity of Demand?
SPLAT
Will goods that have lots of close substitutes have elastic or inelastic demand?
Elastic demand
Will goods that are considered ‘essential’ by consumers have elastic or inelastic demand?
Inelastic demand
If consumers have to spend a large proportion of their income on a good, will demand be price elastic or inelastic?
Price elastic
Is price more elastic in the short term or in the long term?
In the long term
Why is price more elastic in the long term?
Consumers can search for alternatives and are more prepared to switch
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