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| Question | Answer |
| What does the Economic system ask? It is the main decisions of an economy. | WHAT, HOW AND WHO? (producing goods and services) |
| Trade off | Every choice made means another choice not made. |
| Resource allocation | Choosing where to put resources. |
| What is the economic problem? | There are unlimited wants, and scarce resources |
| What are the Factors of Production? | CELL Capital (working-i.e. stocks of finished or unfiinished goods and fixed capital-i.e. machinery) Entreprise (new ideas) Land (land for crops, wind power, fish etc) Labour (workers-human input!) |
| What is the income of the Factors of Production? | Capital- Interest Entreprise- Profit Land- Rent Labour- Wages |
| What are the economic objectives for consumers, workers, firms and governments? | Consumers- (low) Price, (good) Quality (broad) Choice Worker- (good) Wages, (safe) Working conditions Firms- (high) Profits, survival, (good) reputation. Governments- A steady, successful economy. |
| What is the danger of increasing production? | Destroying Natural Resources. Our ecolofical footprint affects the sustainability of the economy, and future living standards. |
| What is a positive statement? | A statement which can be proven with data. (capable of being verified) It is an empirical approach, and an oobjective statement. |
| What is a Normative Statement? | It is a statement which cannot be verified, as there is not dat to prove it. It is a value judgement and a subjective statement. |
| What is the central purpose of an economy? | To produce goods and services to produce what we need and want. |
| How do we increase economic welfare of citizens? | Meet our needs and wants more effectively within an economy. |
| What is a successful economy? | An economy which produces goods/services in the right quantities by the right methods, to people who value them most. |
| What does Economics Study? | The range of choices of resource allocation, and whether they were right. |
| How are we resources? | Our skills and abilities are resources, and so is time (it is non-renewable) |
| What choices do consumers have to make within an economy? | Consumers have limited income, so they need to make choices to maximise their own well-being and economic welfare. They make the decisions for the most satisfaction (utility) |
| What do workers want in an economy? | Better wages, better working conditions and job security. |
| What do Firms want in an economy? | They want to maximise profit, and the needs of different stakeholders are considered when making economic decisions. |
| What do the government do in an economy? | They are meant to represent the people and act in their own interest, but their interests vary and they often have a political view, as they want to be re-elected. |
| What happens if consumers change their wants? | The profit for gooods and services previously demanded will fall, and entrepreneurs will change their behaviour to produce new products to re-increase profit, so workers change to meet entrepreneurs requirements otherwise wages will fall. Resources are also allocated to what consumers now demand. In theory, consumers drive allocation, but in reality new inventions and clever marketing are very influential. If price alters, choices by all agents alter and they allocate themselves to new activities. |
| What is a Production Possibility Frontier? | It shows opportunity cost, scarcity and choice. It is a curve that shows the combinations of 2 or more goods and services which can be produced wen all FOP are being used efficiently. |
| What is the principle of diminishing returns? | As more resources are allocated to Good X, extra output decreases beause not all FOP are equaly suited to producing different goods and services. |
| What can cause a shift in the PPF? | Improvements in productivity/efficiency. More FOP exploited (i.e. increase size of workforce, increase capital equipment available) |
| What are the functions of money? | SUMS Store of Value Unit of account Medium of Exchange Standard of deffered payment |
| Problems money solved | Countless Currency Dilemmas Brought Changes Carry- you had to carry G to the market. Comparison- difficult to compare prices. Difference- cant always divide goods, had to make up the difference. Bartering- someone who had what you wanted and wanted what you had. Changing goods- such as tomatoes which rotted quickly. |
| Price is one of the main determinants of demand, but what are the non-price determinants of demand? | PITLAID Price of substitutes/complements Interest Rates Tastes Legislation Advertising Income Demographic Change |
| What are the non-price determinants of Supply? | SUPPLY Subsidies and Tax Unrest/War Price of FOP Price of products in joint supply Level (State) of technology Yield (Weather) |
| What is the equilibrium point? | Where demand is equal to supply, and there is an equilibrium price and quanitity. |
| What is the equilibrium/market clearing price? | Where D=S Changes in D and S lead to a new equilibrium price. |
| What do prices do? | They perform a signalling function, adjusting to show where resources are required. They Transmit preferences and ration scarce resources. |
| What iis elasticity? | It measures the responsiveness of one variable to changes in another. |
| What is PED? | The responsiveness of demand to changes in price. |
| What is the formula for PED? | %change in QD/ %change in Price |
| What does PED=0 mean/look like? | Perfectly inelastic, vertical line. Demand doesn't change when price changes, such as for drugs. |
| What does PED = 0-1 mean/look like? | Inelastic- the percentage change in demand is smaller than the percentage change in price. Such as cigarettes. |
| What does PED=1 mean/look like? | It means it is unit elastic, so the % change in price is equal to the % change in demand. |
| What does PED >1 mean? | It is elastic, the % change in demand is bigger than the % change in price. |
| What influences Price Elasticity of demand? | SPLAT Substitutes- availability/price of Proportion of income of consumers (higher the POI, the higher the elasticity) Luxury or Necessity Addiction/brand loyalty. Time |
| What are the benefits of specialisation? | Increase in production leads to lower average costs (EOS) and saves time, wages increase and it leads to an effective system of exchange. |
| What are the benefits of division of labour? | Increased aptitude (get better at them), time saving (training and switching tasks), working to natural strengths, use of capital equipment (becomes worthwhile) |
| What are the benefits of increased productivity? | Lower average costs, increased competitiveness in international markets, increased profits, increased real wages, growth of the economy. |
| What is the cost-benefit principle? | In many decisions where economics consider a cost and a abenefit, marginal ideas are used (benefits of consuming a little extra and the costs) |
| What are rational decision makers? | They weight the marginal benefit of one option with its marginal cost (including opportunity cost) |
| What should producers do with elastic demand to increase total revenue? | They should decrease the price, because it will increase demand by much more. |
| What should producers do with inelastic demand to increase total revenue? | They should increase price, because demand will not change by much, so they can charge more per unit, without losing many sales. |
| What happens with indirect tax with elastic PED? | Producers must absorb lots of the tax, because otherwise the higher prices may lose too much demand. |
| What happens with indirect tax when demand in inelastic? | Producers can pass most of the added cost onto consumers in the form of higher prices, without too much lost demand. |
| What is income elasticity of demand? | It measures the responsiveness of demand to changes in income. |
| What is the formula for YED? | % change in quantity demanded/ % change in income |
| Are necessities income elastic or inelastic? | Necessities are usually income inelastic. |
| Are luxuries income elastic or income inelastic? | Income elastic because people will stop buying them if their incomes decrease. |
| What is a normal good? | As income increases, so does demand |
| What is an inferior good? | When income increases, demand decreases, such as bus travel. |
| What is cross elasticity of demand? | The responsiveness of demand of one good to chages in price of another related good. (complementary/substitute) |
| What is the formula for XED? | % change in demand for good A/ % change in price of good B |
| What are complementary goods? | They are in complementary demand, so always have a negative XED as an increase in price for one leads to a decrease in demand for the other. |
| What are substitute goods? | Goods in competitive demand. As the price for good A decreases, the demand for good B decreases ( as everyone is buying good A) |
| What is a strong, weak and no relationship between goods in competitive or complementary demand? | Strong= Elastic XED Weak= Inelastic XED No relationship= XED of 0. |
| What happens when a consumer becomes a habitual purchaser of a product? | The XED against rival products will start to decrease. |
| What is price elasticity of supply? | Responsiveness of supply to changes in price. It is the relationship between a change in quantity supplied and a change in price. |
| What is the formula for PES? | % change in quantity supplied/ % change in price |
| If supply is elastic... | Producers can increase output without an increase in costs or time delay. |
| If supply is inelastic... | Firms find it hard to change production in a given time period. |
| Factors affecting PES | SETUPS Storage Entrants to market Time- milk supply more elastic than agricultural because shorter time span from cows producing milk to product in market. Unemployment Levels Producer substitues- elasticity higher when capital and labour occupationally mobile (i.e. printing press switch betweeen magazines and cards) Spare Capacity- businesses can increase output without a rise in costs. most elastic in recession. |
| What 3 roles does the price mechanism play in a market? | Signalling Function Transmit preferences Rationing function |
| What does signallng function mean? | - adjust to demonstrate where resources are needed -prices increase due to increased demand so signal to producers they need to increase supply |
| What does transmittance of preferences mean? | -consumer choice send info to producers about changing needs and wants. increase prices incentive to increase output |
| What does rationing function mean? | Prices ration scarce resources when demand outstrips supply shotage= price is bid up, leaving those with a willingness or ablity to pay Popularity of auctions to allocate resources, and clear the market |
| What happens with decision making in a market economy system? | Decision making is decentralised (no single body like government responsible). It is a feature of an organic market system. |
| Why does market failure occur (price mechanism) | The signalling and incentives of price mechanism fail to operate optimally, loss of socio-economic welfare, could be based on imperfect information. |
| Government intervention can... | Change incentives (i.e. with tax/subsidies) |
| What are the benefits of specialisation? | Increase production Decrease average costs Saves time Increases wages |
| What does specialisation need to be paired with if it is to be effective? | An effective system of exchange. |
| Benefits of high productivity | Increased output and supply Lower average costs Increased wages (increase spending, so AD) |
| Economies of Scale | When an increase in business size leads to a decrease in average costs |
| Fixed costs | Remain the same, no matter the business level of output, however the greater the total volume of units produced, the lower the fixed cost per unit. |
| Variable costs | Vary directly with the ouput of the business, such as raw materials |
| Average total cost | Total cost / output |
| What are the internal economies of scale? | THE FAT MONKEY NICKED MY PIE Technical Financial Marketing Network Managerial Purchasing |
| Internal Economies of scale: Technical | As a business increases in size, it can afford more efficient technology, so average costs decrease. (the law of increased dimensions) |
| Financial Internal Economies of Scale | Easier to increase finance, by negotiating lower interest rates for larger businesses etc. |
| Marketing Internal Economies of Scale | The higher the ouput of a firm, the further the marketing budget goes, because the budget can be spread out over the increased output. |
| Purchasing | Firms can get better deals with suppliers when bulk-buying. |
| Managerial Internal Economiees of Scale. | Businesses can employ specialist managers, and can justify them. |
| Network internal economies of scale | With a large business, the cost of adding one user to the network is close to 0, but the benefits are huge (can interact/trade with existing members) Such as online auctions/air transport networks. |
| External economies of scale | The advantages a firm can gain due to the growth of a whle industry. It is more likely to occur when the industry is concentrated in one area.(outside a firm, inside an industry) such as improved transportation links which may benefit several firms. |
| Diseconomies of scale | A firm may eventually experience an increase in average costs with growth, sue to control, corporation and coordination. |
| What are the three Cs? | Control- Managing productivity and output quality is costly in large firms, they also may lose control of fixed costs. Corporation- Large firm, loss of morale and alienation, not ccoonsidered important part of firm, productivity decrease, costs increase waste factor inputs. Coordination- achieving efficient flows of information in large firms is costly, have to manage 100s of supply contracts. |
| How to avoid Diseconomies of scale | Outsourcing Human resource management Performance related pay |
| Do economies of sccale always improve consumer welfare? | No! EOS could lead to: -mass production lead to standardisation of products so limited choice -Firm could use EOS to increase monopoly power, increase proces, reduce allocative efficiency, decreased consumer welfare. -Could be used as a barrier to entry and protect monopoly power -Lack of markeet demand would lead to lots of spare capacity |
| Production | The process of making raw materials and Factors of Production into finished goods and services |
| Specialisation | When a firm or FOP concentrates only on producting a good/part of a good |
| Division of Labour | Production is broken down into many separate tasks |
| Productivity | The measure of the efficiency of a business |
| Labour productivity | Output per worker |
| Productive efficiency | Producing at the minimum average cost and minimum wastage of resources (make more with less) |
| Social Costs | Private costs + External costs |
| Social Benefits | Private benefits + External benefits |
| What are positive externalities? | When social benefits are greater then private benefits ( which means there are external benefits) |
| What are negative externalities? | When social costs are larger than private costs (means there are external costs) |
| Example of negative externality | Smoking is an example of a negative externality. The cigarette is a de-merit good. |
| Example of positive externality | Immunisation is an example of positive externalities. The vaccination is a merit good. |
| Why do merit goods cause markekt failure? | When merit goods are consumed, it leads too positive externalilties. Unless the governmnet intervenes, these are under-consumed. |
| Why are de-merit goods a form of market failure? | When de-merit goods are consumed, it produces negative externalities. Without government intervention, these are over-consumed. |
| Government intervenes to ensure... | resources are allocated efficiently |
| Market Failure | When the market fails to produce the best use of resources, when market mechanism fails to allocate resources efficiently. |
| Allocative efficiency | When society produces goods or services which are wanted by consumers |
| Complete market failure | Missing market |
| Partial markt failure | The market exists but there is mis-allocation |
| Information failure | Consumers may make the wrong decisions because they don't have enough information to make an informed choice |
| Allocative iinefficient | Welfare is not maximised |
| Asymmmetric information | One party in a transaction has more information than the other |
| Factor immobility | An example of market failure. Factors of production do not get to where they need to be Such as not enough capital investment in North England because ntrepreneurs don't know about the business opportunities there. |
| What are the 2 main types of factor immobility? | Occupational Immobility Geographical immobility |
| Occupational immobility | Barries to mobility of Factors of Production between different sectors of the economy, so factors remain unemployed or used inefficiently. Some capitaal inputs are mobile (computer) but some are industry specific(printing press) Workers redundant in steel industry find hard to get jobs-specific skills. mismatch between skills on offer, and skills required (structural unemployment) leads to waste of scarce resources and market failure. |
| Geographical immobility | Barriers to people moving from one place to another too find work: family/social ties financial costs of moving costs of living variations between regions and counties variations in house price shortage of affordable housing in some areas |
| Merit good | Government waants to maximise consumption because it is desirable A good or service where social benefits are greater than private benefits Increase government spending on merit goods== positive social rate of return If left to private sector probably underconsumed. |
| Demerit good | Negative externalities of consumption, could lead to potential market failure |
| Under provision of merit goods and overprovision of demerit goods may result from... | ...Imperfect information! |
| Joint Supply | When a product is made as a by-product of the manufacturing process of another product, such as Leather being made due to the demand for beef. |
| Composite Demand | When a product is used for more than one purpose, so an increase in demand for one of the products leads to a decrease in supply for another, which will increase the price. (i.e. cows= meat/milk) |
| Complementary demand | When two goods are demanded together, such as a stapler and staples. An increase in price for one of the products wll lead to a decrease in demand for the other. |
| Derived demand | Demand comes from demand for the good/service the product makes. Such as demand for healthcare increase the demand for doctors. or the demand for cars increasing the demand for steel. |
| Sustitute Demand | Goods that are in competitive demand. An increase in the price of one good, will increase demand for the other. |
| Inequality | In a market economy an individuals ability to consume goods and services depends on their income and wealth and an unequal distribution may lead to unsatisfactory resource allocation. |
| What happens if people don't have sufficient economic votes to have an impact on the market system? | The free market system won't always respond to needs and wants. |
| What are the problems of inequality? | The rich get richer, and spend their money abroad. The poor get poorer, which creates social and health problems. The economy misses out on labour spending potential of the poor, and the poor have less power too. |
| Private good | It is excludable, so the seller can exclude a consumer from consuming it if they are not willing or able to pay. It is rival, sso one persons consumption will decrease the amount available for others to consume. It is Rejectable, and can be rejected if tastes change. |
| Public goods | Non-excludable, benefits derived from provision can't be limited to only those who have paid. Non-rival consumption, one persons consumption will not reduce the amount available for others. (ie flood defence, national defence service) |
| Why are pure public goods not provided by the private sector? | They cannot get a profit from providing it. |
| Why are public and private goods market failure? | The free market may fail to provide important public goods, and underprovide quasi-public goods. |
| What can the government do to correct public and private good market failure? | The government must decide the output of public goods to supply, and estimate the social benefit. The electoral system provides an oppertunity to see public choice of voters. |
| What are quasi-public goods? | Non-pure public goods, that are semi-non-rival, and semi-non-excludable. |
| What is a competitive market? | A market where a large number of firms compete with each other. |
| Benefits of competitive market? | Lower Prices, better products, better information and more choice |
| What is a monopoly? | The opposite of a competitive market, there is little or no competition, as one firm dominates the market. |
| Monopoly characteristics | Abnormal profits High barrier to entry unique product |
| Problems of monopoly | Higher prices, inferior product, less information, less choice, inefficient |
| What are the main problems with monopoly? | They are not Allocatively or productively efficient |
| What are the benefits of monopoly? | Massive profits (can invest capital in research and development), can reduce average costs (EOS) international competitiveness increases, the competitive market may over provide products, so monopolies restrict output, and improve resource allocation? |
| What are the main characteristics of a monopoly? | SPEW Service- lack of competition affect quality of service for consumers Prices- how high are they compared to competitive market Efficiency- productivee and allocative Welfare- overall welfare outcomes- net welfare loss? |
| What are laissez-faire economics? | The free markekt system, where D and S set prices and allocate resources. Government just protects property rights, maintaisn currency value and upholds the rule of law. |
| Why do the government intervene in a free market economy? | The main reasons are: to correct market failure to achieve more equitable distribution of income and wealth To improve the performance of the UK economy domestically and internationally. |
| What are minimum prices used to correct? | Over demand for demerit goods |
| How does minimum prices work? | The government set a minimum price which has to be above the market clearing price. |
| Advantages of minimum price | Reduce consumption of demerit goods reduce negative externalities Equity- improves equality Provides labour market incentives Reduces labour market discrimination |
| Disadvantages of minimum price | Could create Unemployment doesn't help those out of work if good is inelastic won't affect demand much |
| What are maximum prices used to correct? | Underconsumption of merit goods Immobility and inequality (i.e. rent) Control monopoly power (EU price caps) |
| How does maximum prices work? | Maximum price must be set below the market clearing price |
| Advantages of maximum price | Helps improve inequality and immobility Consumers benefit from lower prices |
| Disadvantages | Lower prices may lead to decreased suppply, which leads to unemployment, black markets aand rationing |
| What are pollution permits used to correct? | The negative externalities from pollution. |
| How does it work? | Firms sign up to the scheme, and are given a permit for a certain level of pollution they are allowed to use. f they don't reach this level they can sell off the remaining permit, and if they produce more, they must buy off another permit holder, or face a fine. |
| Advantages of a pollution permit | It reduces the negative externalities of pollution It provides an economic incentive to reduce waste and pollution Firms with lower pollution have a competitive advantage |
| What are the disadvantages of pollution permits? | They don't provide compensation for the victims of pollution. Needs regular inspection and fines to enforce The pollution may be simply shifted to another source |
| What is provision of information used to correct? | Over consumption demerit goods Underconsumption merit goods Immobility Information failure |
| Hoow does provision of information work? | Through advertising, and information supplies which explain negative or positive effects, or potential opportunities. |
| Advantages of provision of information | Easy to understand Allows the government to influence market Can be very influential Protects society from serious effects of market failure Everyone will benefit (health) by decreasing demerit consumption and increasing merit consumption. |
| Disadvantages of provision of information. | It costs a lot, using TV aand radio adverts, or billboards, so is expensive. Takes a lot of persuasion and doesn't always work Hard to calculate the effects Hard to create laws because the governmeent are not always behind them Government don't receive any revenue No diret compensation for market failure sufferers |
| Judgement of provision of information | Relatively efficient and effective Not sustainable (cost) Yes equitable |
| What is government provision used to correct? | Underconsumption of merit goods (i.e. education) Provision of public goods Redistribution of income |
| How does government provision work? | The government decides where they allocate resources. they may decde to help the spport system of kids and yound adults with SEN, or improve transport links with HS2, provide merit goods such as Hyde Park, and the NHS. |
| Advantages of government provision | Helps improve inequality (i.e. provision of healthcare is fair for everyone) Helps improve immobility Increases consumption of merit goods It is efficient as it improves skills in the long run, and controls social problems It is effective when provided with information |
| What are the disadvantages of government provision? | It is expensive, so may not be sustainable It is available to everyone, but it is hard to make sure that everyone makes use of it. It means there is less oppertunity for the private sector because it takes away investment etc as G provides it. |
| What are examples of regulation? | Licensing, permissions, competition policy |
| What is regulation used to correct? | Over consumption of demerit goods Underconsumption of merit goods Inequality Monopoly, information failure |
| How does it work? | Legal regulations and standards aim to correct market failure by overruling market forces It can involve prohibition and government advertising to inform the public of firms which break the rules (i.e. smoking ban) Competition, law, minimum wage, food labelling. |
| What are the advantages of regulation? | It can be very effective It is fair Income equality increases Less need for unions to form to protect people against corporate abuse. Reduce the risk of unrealistic information Reduce consumption of demerit goods Stops monopoly power |
| Disadvantages of Regulation? | Takes time and money to monitor, many firms subsequently move abroad to escape these regulations (Such as Apple Factories) |
| What is indirect tax used to correct? | Over- consumption of demerit goods inequality pollution |
| How does indirect tax work? | The government places a tax on certain products, which increases the price of production, so should increase the price of the product, and decrease supply and demand. |
| Advantages of indirect tax | It is a market based solution which means in theory we have the choice to pay It raises revenues to help pay for governmet spending |
| Disadvantages of indirect tax | If the good is relatively inelastic, the higher price will not make much of a difference on demand. It is a regressive tax, so everyone pays the same, regardless of income. Creates underground markets, such as smuggling. It increases business costs, so decreases competitiveness. |
| What are subsidies used to correct? | Inequality, immobility, merit goods |
| How do subsidies work? | The government gives a payment in order to change relative prices. It shifts supply to the right, which should decrease price and increase demand. |
| What are the advantages of subsidies? | They are effective They improve inequality They improve immobility Increasing merit good consumption leads to positive externalities. |
| Disadvantages for subsidies | They are expensive for the tax payer, and they distort price signals in the long run |
| What are buffer stocks used to correct? | Fluctuating prices of agricultural products |
| How do buffer stocks work? | The government buys spare crops when harvest is good, and they sell them to the market when harvest is poor |
| Advantages of buffer stocks | They help maintain farmer incomes, which increases the incentices for farmers to grow legal crops It helps to maintain traditional farming communities. Increases capital investment which should increase productivity Prevents excess consumer prices. |
| What are the disadvantages of buffer stocks? | It is an expensive scheme- start up, storage etc. Not all crops last very long Can encourage over supply of farmers It is hard to estimate the correct average cost. |
| What is government failure? | Where government intervention may lead to a deepening of the market failure, or create a new failure. (usually when it is inefficient, inequitable and misplaced) |
| What are the potential causes of government failure? | THE GREEN GOBLIN RAN PAST POSTMAN PAT'S CAT The law of unintended consequences Government intervention and evasion Government intervention and disincentive effects Regulatory capture Political self-interest Policies based on imperfect information Policy Myopia Costs of admin/enforcement |
| What is The law of uniintended consequences? | When people act in unexpected ways (such as the shadow market) which leads to unintended consequences |
| What is Government intervention and evasion? | When a policy could lead to increased tax avoidance/smuggling/evasion or grey markets. |
| What is Government intervention and disincentive effects? | When the incentives are worsened, which decreases productivity |
| What is Regulatory Capture? | When the government operates in favour of producers, not consumers |
| What is political self-interest | When politicians or civil servants make decisions to ake themselves look good |
| What is policy Myopia? | When politicians look for short term fixes rather than making considered analysis. |
| What are policies based on imperfect information? | When the government does not have enough information to make a cost/benefit analysis, which leads to misguided policies, and long term damage. |
| What are costs of admin and enforcement? | When the social benefits could be swamped by admin costs |
| What are the problems of government failure? | We can only accuse goverment failure in hindsight. Free market economists believe the price mechanism should be given the freedom to operate. Limited information meeans it is hard to make a fully informed and objective judgement. Government failure is more likely to occur when decisions are made in the vested interest of specific interest groups |
| Goods | Tangible products that we can touch |
| Services | Intangible products that we can't touch |
| Economic welfare | The benefit or satisfaction people in an economy get from the allocation of resources |
| Opportunity cost | The cost of the next best alternative foregone when a decision is made. |
| Free goods | Goods with no opportunity cost (i.e. air) |
| Economic Goods | Goods that are scarce, and so have an opportunity cost |
| Economic activity | Trade between individuals or nations (Charity works, DIY, illegal trade, trade) |
| Scarcity | There are not enough resources to meet all needs |
| Factor incomes | When the owners of FOP sell or loan them for payment |
| Factor market | Where factors of production are bought and sold. the stock market is a market for buying and selling capital. |
| Free market economy | There is limited government involvement, the price mechanism sets the equilibrium price and quantity. The main role of the ggovernment is to ensure the markets are fair |
| Market | A place that brings together a buyer and a seller to agree a price to exchange goods and services |
| Buyers | Consumers who demand what is being sold |
| Sellers | Suppliers who produce what is being demanded |
| Supply | The quantity of a product a producer is willing and able to splly at a given price in a given time period. |
| Planned economy | Lots of government involvement in the economy, it helps to allocate resources, set prices, distribution. |
| Mixed economy | An economy with elements of public and private entreprise (Nearly all economies in the world) |
| Wholesale | Selling for trade |
| Decoupling | A process of trying to increase resource efficiency and break the link between increasing demand and resource depletion. |
| Derived demand | When the demand for one good/service comes from the demand for another good/service (I.e. the demand for steel derives from the demand for cars) |
| Compposite demand | A good that is demanded for more than one purpose, an increase in demand for one good or service will decrease supply for the other, so increase prices. (i.e. cows used for milk or meat) |
| Joint demand | When the demand for two goods is interdependent. Such as staplers and staples. |
| Price mechanism | The means by which millions of decisions taken by producers and consumers interact to determine the allocation of sarce resources between competing uses. |
| Secondary market | When buyers and sellers are prepared to re-sell items already purchased using a second market (such as eBay) |
| Production | The process of making raw materials and FOP into finished goods and services |
| Income | A flow of earnings to a FOP over a period of time |
| Wealth | A stock of owned assets |
| Absolute poverty | Measures the number of households living under a certain income threshold, or households that cannot afford basic goods or services. It varies from country to country. |
| Relative Poverty | The extent to which a household's financial resources fall below an average income level. most common UK thresholld is 60% or less of average income. |
| Demand | The quantity of goods and services that a consumer is willing and able to pay at a given price level in a given time period |
| Effective demand | When the desire to buy something is backed up by the ability to pay. |
| Latent demand | A willingness to buy among people for a good or service, but the consumers lack the purchasing power to be able to do so. |
| What are discretionary incomes? | Disposable incomes minus essential payments (such as gas) |
| Ostentatious consumption | When a higher price is regarded as being due to higher product quantity so consumers are prepared to pay higher prices. (snob value effect) such as perfume. |
| Speculative demand | When a buyer purchases a good or service in the hope that it will rise in price, and create a profit (i.e. housing/shares) |
| Supply | The quantity of a good or service a producer is willing and able to supply at a given price level in a given time period. |
| Producer surplus | The difference between what producers are willing to supply the product for, and the price they actually receive. |
| Consumer surplus | The difference between the amount that a consumer is willing and able to pay for a product, and the amount they actually do pay. It is a measure of the welfare gain that people gain. |
| Social efficiency | When social welfare is maximised, when MSB=MSC |
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