Economics till pg 23

These flashcards cover fundamental economic concepts, definitions, and relationships related to market structures and consumer behavior.

Economics

Study of how scarce resources are allocated to satisfy unlimited wants.

Scarcity

Limited resources but unlimited wants.

Opportunity Cost

The next best alternative foregone when a choice is made.

Positive Economic Statement

A statement based on facts that can be tested or proven true or false.

Example of a Positive Statement

An increase in tax reduces demand.

Normative Economic Statement

A value judgement based on opinion.

Example of a Normative Statement

Taxes on petrol should be increased.

Specialisation

When individuals, firms, or countries focus on producing a limited range of goods or services.

Division of Labour

Production is split into different tasks performed by different workers.

Advantage of Division of Labour

Increases productivity and efficiency.

Disadvantage of Division of Labour

Workers may become bored and lose skills.

Free Market Economy

Resources allocated through supply and demand with minimal government intervention.

Command Economy

Government allocates resources and makes production decisions.

Mixed Economy

Combination of market forces and government intervention.

Price Elasticity of Demand (PED)

Measures responsiveness of quantity demanded to a change in price.

PED Formula

Percentage change in quantity demanded divided by percentage change in price.

PED greater than 1

Elastic demand.

PED less than 1

Inelastic demand.

PED equal to 1

Unit elastic demand.

Income Elasticity of Demand (YED)

Measures responsiveness of demand to a change in income.

YED greater than 0

Normal good.

YED less than 0

Inferior good.

YED greater than 1

Luxury good.

Cross Elasticity of Demand (XED)

Measures responsiveness of demand for one good when the price of another good changes.

XED greater than 0

Substitute goods.

XED less than 0

Complementary goods.

Consumer Surplus

Difference between maximum price consumers are willing to pay and the price they actually pay.

Producer Surplus

Difference between minimum price producers are willing to accept and the price they receive.

Consumer Surplus on a Diagram

Area above market price and below the demand curve.

Producer Surplus on a Diagram

Area below market price and above the supply curve.

Demand Curve

Represents maximum willingness to pay.

Supply Curve

Represents minimum price producers are willing to accept.