Economics-Karteikarten | Quizlet

production possibilities curve

A curve showing the different combinations of two goods or services that can be produced. It looks at the opportunity cost of a decision

global recession

an extended period of economic decline around the world

Opportunity cost

The value of the next best alternative foregone

Current expenditures

short-term government spending on things such as wages, salaries etc.

Capital expenditures

long-term investments on things such as hospitals, schools, dams etc.

Supply and Demand graph

shows relationship between supply and demand

- supply to the sky: positive slope

- demand to the dirt: negative slope

market equilibrium

where supply and demand meet

market disequilibrium

all the points where supply and demand don't meet

Microeconomics

the study of the allocation of recourses to individuals and firms

macroeconomics

the study of the economy as whole

how are recourses allocated in a market economy?

by looking at supply and demand

supply

the willingness and ability of individuals and firms to provide goods and services at a given price

demand

the willingness and ability of individuals and firms to purchase goods and services at a given price

law of supply

when price increases, supply increases

law of demand

when price increases, demand decreases

individual supply

what an individual in an industry supplies

market supply

the sum of all suppliers in an industry

individual demand

what an individual consumer demands

market demand

what all consumers as a whole demand

the market system

when buyers and sellers exchange goods and services for money

price elasticity of demand

how much demand changes when price changes. If demand changes a lot when price changes, then demand is elastic

price elasticity of supply

how much supply changes when price changes. If supply changes a lot when price changes, then supply is elastic

Elastic goods

goods that are very sensitive to a change in price. These are usually goods that have many substitutes, as people will then buy the substitute if the price increases

Inelastic goods

goods that are not very sensitive to a change in price. These are usually very necessary and cannot be replaced. They will be constantly demanded no matter the price, as they cannot be bought anywhere else

Factors of production

Land, Labour, Capital and Enterprise

Land

where all natural recourses come from

Labour

the human input into production

Capital

the input of other recourses to make more

Enterprise

they organize the factors of production and take risks

Free good

a good that comes with no opportunity cost

Economic good

a good that comes with an opportunity cost

Geographically immobile

Unable to move location for different reasons

Occupationally immobile

Unable to change jobs to another factor of production

The basic economic problem

Unlimited wants but scarce recourses

complements

two goods that are bought and consumed together e.g., ink and printer

substitutes

two goods that are seen as similar to each other, and can replace one another e.g., pepsi and coke. If the price of one of them increases, consumers will buy the cheaper substitute

subsidies

financial assistance provided by the government

Factors that shift the demand curve

Taste and preferences

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Price

Population

Income

Complements

Substitutes

Factors that shift the supply curve

Cost of production

Other good prices

Weather

Technology

Income

Price

Subsidies

Public Sector

the part of the economy that is controlled by the government

Private sector

the part of the economy that is controlled by indiviudals and firms

Free economy

an economy that is controlled entirely by the market forces: demand and supply. There is no government intervention or regulation

Market economy

an economy that is controlled by both the market forces and the government

Planned economy

an economy that is controlled entirely by the government

Market failure

any situation where the allocation of resources by a free market is not efficient (at too high cost, for the wrong people, to the wrong places etc.)

Private cost

a cost paid by the consumer or the producer

Social cost

a cost paid not by the consumer or producer, but by a third party.

negative externalities

when the social cost is greater than the private cost. The cost is not paid by the consumer or producer, but by a third party e.g., a factory produces toxic chemicals as a byproduct which causes lung cancer for many of the people who breathe the air in outside

positive externalities

when the social benefit is greater than the private benefit e.g., a person instals a street light in front of their house to light it up, however this also provides light for 60 other houses on the street

Missing markets

pure public goods that clearly provide a benefit to the consumer, but for several reasons are unlikely to exist in a market economy e.g., police service, street lighting. Demand for them is high, however supply is absent

Lack of competition

when a market gets dominated by one or a few small firms

Lack of information

when there is no free flow of information between buyers and sellers, which results in the wrong goods being purchased, or the wrong prices being paid etc.

Money

anything that serves as a medium of exchange and a measure of value

Central bank

an independant public instituition that's responsible for the financial stability of the country. They are the bank to the government and control the commercial banks. They control money supply

commercial bank

a bank that offers services to the general public and to companies. They provide loans and carry operations for the withdrawal of money. They are controlled by central banks.

Factors affecting spending

1) Consumer confidence= if the consumer has a lot of confidence, they are likely to spend more

2)Wealth= the higher wealth, the more a consumer will spend

3)Disposable income= the money left after tax. The higher the income, the more spending

4)Rate of interest= if there is a high rate of interest to pay, the spending will be low as they will not want to need to loan money

Factors affecting borrowing

1) rate of interest= if the rate of interest is high, then borrowing will be low

2)wealth= if wealth is high, then borrowing is low

3)availability of loans= if the availability of loans is high, then borrowing is low

4)consumer confidence= if consumer confidence is high, then borrowing is high

Wage factors for motivating labour

1) overtime pay

2)bonuses

3)wages/salary

Non-wage factors for motivating labour

1) holiday

2)job satisfaction

3)working conditions

4)location

extrinsic motivation

doing something for a reward

instrinsic motivation

doing something because you enjoy it and is personally rewarding you

wage

a fixed regular payment, typically paid on a daily or weekly basis

Factors that affect demand for Labour

1) size - the more and larger businesses there are, the more labour will be demanded

2) substitutes - is it easy to replace workers with capital?

3) profit of firms - the more money they have, the more people they can employ

Factors that affect supply for Labour

1)wage rate - the higher the wage rate, the more willing people are to join the workforce

2)working conditions - the better the working conditions, the more willing people are to join the workforce

Minimum wage policy

the minimum amount of money paid for a work or service, that an employer is required to pay to labour for their work performed

Productivity equation

Productivity = Output/number of workers

PED equation

% change in quantity demanded / % change in price

PES equation

% change in quantity supplied / % change in price

Specialization

when a worker becomes an expert in a particular profession e.g., landscape architect

Barter system

a system of exchange in which goods or services are traded directly for other goods or services without the use of money.

Problems with the Barter system

no divide of value, some goods may be worth more than others, double coincidence of wants

Advantages for workers being specialized

1) they have less work to do, as it is fast and easy for them

2)less mistakes will be made, as they are good at what they do

3)commission paid for work produced

4)Job satisfaction

Disadvantages for workers being specialized

1) it may become boring for them after a while

2)they might not get paid as much, if it is a low paid job they are good at

3)risk of unemployment, as the worker may be good at a very specific job

4)low motivation

Advantages for a firm of having specialized workers

1) increases in productivity and efficiency

2)increases in quality

3)less education needed to teach them, due to their good specialization

Disadvantages for a firm of having specialized workers

1) firms have to pay more wages and commision

2)less flexibility in the workplace

3)poor quality if the workers are unmotivated

Trade union

workers' organizations that try to improve working conditions e.g., striking

collective bargaining

negotiating as a group with the employer to reach an agreement e.g., better working conditions, or a higher pay

benefits of joining a trade union

1) strength in numbers - the more people, the more influence and power they have

2)better working conditions

3)increased pay

what a trade union can do, to get attention

1) slow down and be less efficient

2)strike - employees don't come into work and protest

3)employers don't carry out any duties

4)employers come to work, but just sit in the building and refuse to work

Firms can be classified into 3 sectors of economy:

1) Primary - firms which extract raw materials e.g., farms

2)Secondary - firms which produce a finished good e.g., factories

3)Tertiary - businesses and services e.g., hotels

Private sector forms of businesses

1) sole tradership - 1 owner

2) partnership - 2-20 owners

3) limited companies - businesses whose shareholders have limited liability (investors' and owners' private assets are not at risk if the company fails. In other words if they lose more money than they have invested in the business, they are not affected by it)

Economies of scale

cost advantages gained by an increase in production and when production becomes efficient e.g., supermarkets buy goods in large masses and therefore receive discounts which reduces the average cost. The profit of a firm is at highest, when the average cost is lowest

Diseconomies of scale

when a company or business grows so large that the costs per unit increase e.g., if a product is made up of two components, and one of them is produced at a slower rate, the company is forced to slow down the rate of the other component, increasing the cost per unit

Ways in which a firm can achieve economies of scale

1) increasing production and lowering costs

2)purchasing economies of scale - buying goods in large amounts so that you receive discounts

3)technological advancement that changes the production process and benefiting from technical economies of scale

Internal economies of scale

The cost benefits that an individual firm can enjoy when it expands

External economies of scale

The cost benefits that all firms in the industry can enjoy when the industry expands

Advantages for a business to remain small

1) less risks

2) less money spent on space and recourses

3) flexibility to easily change and fix something

4) better communication as there are less workers

Advantages for a business to grow

1) generate more sales and profit

2) lower costs due to economies of scale

3) the ability to reduce threat of competition

4) an increase in recourses and stock, increases output

5) ability to develop into MNCs

Labour intensive production

There is more Labour than capital in the process of production

Capital intensive production

There is more Capital than Labour in the production process

Advantages of labour intensive production

1) worker communication - they can come up with new ideas or feedback on improvement

2) workers can connect and provide a personal level of service to customers that helps build customer loyalty

3) flexibility to change things easily

Disadvantages of Labour intensive production

1) productivity varies along with the workers health and energy levels

2) workers being absent from work causes problems or delays in production

3) there may be shortages of the skilled labour required

Advantages of capital intensive production

1) the firm can gain from technical economies of scale and reduce the average total cost

2) problems being caused by workers not coming into work are no longer a threat

3) no possible trade union threats

Disadvantages of capital intensive production

1) the cost to purchase and install machinery may be very high

2) low level of personalisation as once the machinery is installed, its very difficult to make changes

3) there is no ability to improve processes

Two types of market structure

Perfect competition and Monopoly

perfect competition

a market structure in which a large number of firms all produce similar products, which creates a lot of competition. Price is controlled by demand and supply

Features of Perfect Competition

1) large numbers of buyers and sellers

2) the products sold by each firm are similar to each other

3) every firm has no control over price charged

4) it is easy to break into the market

5) products are cheaper than in monopoly

6) lower price than monopoly

7) cheaper

8) higher efficiency

Monopoly

when a single firm sells one unique product in the market. They often have no substitutes for the product, and they are usually quite expensive

Features of monopoly

1) they have a low number of buyers and sellers

2) the products are very unique and rarely have substitutes

3) the firm has control over price charged

4) it is not easy to break into the market

5) quite expensive

Government

a group of people that have the authority to govern over a country or state