KEY FACTS flashcards - microeconomics

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84 Terms

1

main economic groups

consumers producers government

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consumers aim

to maximise satisfaction

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3

producers aim

to maximise profit

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4

government aim

to maximise welfare

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5

factors of production

land labour capital and enterprise

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6

land

land used and natural resources on and below land

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7

labour

human input into production process

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8

capital

goods used to produce other goods and services

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9

enterprise

having ideas and taking risks to organise the other factors of production

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10

needs

what a consumer must have to survive

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11

wants

what a consumer would like to have but is not essential for survival

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12

opportunity cost

the next best alternative forgone when making a choice

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13

economic sustainability

looks at impact of a decision on economic factors

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14

social sustainability

looks at whether the decision will improve quality of life and wellbeing

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15

environmental sustainability

looks at whether the decision is good for the environment and its impact on resources

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16

the basic economic problem

scarce resources and infinite wants

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17

primary sector

first stage of production when raw materials are extracted

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18

secondary sector

when raw materials are manufactured into the final good

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19

tertiary sector (service sector)

the provision of goods and services to businesses and the general public

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20

market

where buyers and sellers meet to exchange goods and services

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21

factor market

where the factors of production are bought and sold

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22

product market

where the final goods and services are offered to consumers and producers

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23

specialisation

the process by which individual firms regions and economies produce what they are best at producing

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24

division of labour

form of specialisation whereby workers concentrate on doing a few small tasks so they become more efficient

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25

exchange

the giving up of something in return for something you wish to have but do not possess

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26

derived demand

when there is demand for a good or service so producers demand the factors of production to produce it

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27

demand

the willingness and ability to purchase a good or service at the given price in a given time period

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28

law of demand

consumers buy more when price decreases and less when price increases

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29

contraction in demand

decrease in demand due to an increase in price

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30

extension in demand

increase in demand due to a decrease in price

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31

shift in demand

demand increases or decreases at any given price level

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price elasticity of demand

the responsiveness of a change in quantity demanded of a good or service to a change in price

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33

PED =

% change in quantity demanded / % change in price

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causes of a shift in demand

population advertising complements and substitutes income fashion and trends interest rates confidence

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35

supply

the quantity a producer is willing and able to supply at a given price level in a given time period

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the law of supply

the higher the price the higher the quantity supplied as more producers enter the market as it becomes more profitable to do so

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37

shift in supply

when supply increases or decreases at any given price level

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38

contraction in supply

decrease in supply due to a decrease in price

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39

extension in supply

increase in supply due to an increase in price

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40

price elasticity of supply

the responsiveness of quantity supplied of a good of service to a change in price

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41

PES =

% change in quantity supplied / % change in price

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42

causes of a shift in supply

productivity indirect taxes number of firms in the market technology subsidies weather costs of production

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43

what is market equilibrium

where the quantity demanded is equal to quantity supplied and the market clears

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44

price fulfils 3 functions

signalling incentives and rationing

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45

price

indicates worth but is not always accurate

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market mechanism

always adjusts so the new price clears the market and reaches new equilibrium

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47

competitive market situation has

large number of firms in the market and no barriers to entry and perfect knowledge of competitors

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48

why do firms compete

to enter a market to survive in a market and to make profit

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49

monopoly

sole producer or seller of a good or service

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50

legal monopoly

when a firm owns over 25% of the market

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51

oligopoly

when a small number 3-8 firms control the large majority of the market share and together have monopoly power

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52

oligopolies compete through

non price competition or they collude

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53

production

the total output of goods and services produced by a firm or industry in a given time period

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54

productivity

measures the degree of efficiency in the use of the factors of production in the production process

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55

productivity measures

total output / total input or output per worker / time period

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56

fixed cost

does not change with output

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57

variable cost

changes with output

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total cost

variable costs + fixed costs

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59

total revenue

all revenue generated by sales

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60

economies of scale

the cost advantages a firm gains by increasing its scale of production leading to a long term fall in average costs

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61

diseconomies of scale

when average costs rise due to a firm increasing its scale of production

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62

wage

amount you are paid hourly or daily

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63

salary

yearly wage

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net pay

gross pay - deductions

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65

income tax

tax levied from a persons wages

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66

national insurance

contribution paid by workers towards the cost of state benefits

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67

pension

a fixed amount paid at regular intervals to a person or their surviving dependants

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68

bank deposits

current accounts and savings accounts that you have

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69

cheques debit cards and credit cards

not money but are ways of transferring money between buyers and sellers

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70

financial sector

consists of financial institutions and their products and involves the flow of capital

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71

3 key financial institutions

banks building societies and insurance companies

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72

central bank

sets base rate for interest which impacts other financial institutions and is the bank for commercial banks and the government

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73

commercial banks

ensure money is used efficiently throughout the economy by using money people save to help businesses invest

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74

building society

mutual financial institution owned by its members with the aim to receive money from members and lend members money to purchase property

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75

insurance company

guarantees compensation for specified loss damage illness or death in return for an agreed premium

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76

money

anything generally accepted as a means of payment and is a medium of exchange that sets value of goods and services acceptable to all parties

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77

interest rates

% rate paid when money is borrowed or saved

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78

annual equivalent rate

amount of interest a savings account will earn in a year

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79

gross annual

annual income from a savings account before tax is deducted

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80

compound interest

when a saving account earns by receiving interest on the interest it has already earned on the account

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81

investment

the purchase of capital goods to produce future goods and services

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82

credit provision

banks or building societies allow you to buy now pay later

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83

liquidity provision

how easy it is to turn an asset into cash provided by banks

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84

risk management

financial sector allows pooling and spreading of risk to encourage more savings and investment

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