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Flashcards by Jasmine Wells, updated more than 1 year ago
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Created by Jasmine Wells
over 8 years ago
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| Question | Answer |
| What is a need? | A necessity that is crucial for survival. E.g. Food, shelter, water. |
| What is a want? | Wants are something that you desire, but do not need to survive. E.g. Television, iPhone |
| What is the fundamental economic problem? | Scarcity |
| Define scarcity. | Scarcity results from there being unlimited wants but limited resources to satisfy these wants. Scarcity forces choices to be made. |
| What is opportunity cost? | Opportunity cost is the next best alternative given up as a result of choosing another item. |
| What does the study of economics involve? | Economics is the study of choices leading to the best possible use of scarce resources in order to best satisfy human wants and needs. |
| What is a resource? | Resources are the inputs used to produce a good or service. They are also known as the factors of production. |
| What are the 3 basic economic questions? | - What to produce (what goods/services and its quantity.) - How to produce (Scale of production, how to use their resources) - For whom to produce for. (How to distribute their goods and services.) |
| What is resource allocation? | Refers to assigning available resources or factors of production to goods and services that are being produced. |
| Define the term 'reallocation of resources'. | Reallocation of resources occur when a decision has been made to change the amount of goods/services that are being produced. |
| What does overallocation mean? | Overallocation of resources can occur when TOO MUCH of a particular good/service is being produced when demand is lower. |
| What is under allocation? | Under allocation of resources is when TOO LITTLE good/services are being produced when there is a high demand. E.g. healthcare, education |
| What is meant by distribution of income? | The amount of output people can purchase depends on the person's income. The distribution of income affects the distribution of output. |
| What is meant by redistribution of income? | When distribution of output/income changes, e.g. social group receives more income, this is called redistribution of income. |
| What are the four factors of production? | Land Labour Capital Entrepreneurship |
| Define Land | Refers to all natural resources provided by nature. E.g. Land, mineral, oils |
| Define Labour | Are the physical and mental efforts of people to contribute to the production of goods and services. |
| Define Capital | Are all the finance, machinery and equipment needed to manufacture goods. |
| Define Entrepreneurship | The skills and abilities of the person who fuses all the factors of production. Entrepreneurship involves individuals to take business risks, and to seek new opportunities when producing a good or service. |
| What are the four different types of capital? | Physical capital Human capital Natural capital Financial capital |
| Define what is meant by physical capital | Are the man made inputs to produce greater quantities of output. E.g. Machinery |
| Define Human Capital | The skills and abilities as well as knowledge and physical well being which enables workers to be more productive. |
| Define Natural Capital | Refers to all the natural resources provided by nature, which affects mankind's ability to live, survive and produce in the future. |
| Define Financial Capital | Refers to the investments in financial instruments, e.g. stock and bonds, income for shareholders. |
| What is the Production Possibilities Curve (PPC)? | PPC represents all different combinations of how or how much two good can be produced by an economy, given its available resources, production efficiency, and whether there is a full employment of resources or not. |
| Define what is meant by productive efficiency. | Means producing by use of the fewest possible resources at the lowest possible cost. |
| In terms of Economics, what is meant by a 'positive statement'? | A Positive Statement is a statement which can be tested empirically. Positive concepts involve something that is, something that was or something that will be. E.g. The unemployment rate is 5%. |
| In terms of Economics, what is meant by a 'normative statement'? | A Normative Statement is a statement where value of judgement is subjective. E.g. The unemployment rate SHOULD be lower. |
| What is a hypotheses? | An educational guess about the relationship of cause and effect of a single event. |
| What is a theory? | An explanation of related events usually based on a hypothesis that has been tested and approved. A theory EXPLAINS why things happen. |
| What is a Law? | A statement that usually has a universal validity. Laws are usually based on theories. |
| What is a model? | Models represent important aspects of the real world being investigated, allowing social scientists to focus on important relationships. Models are often illustrated by the use of diagrams and mathematical equations. |
| What is Ceteris Paribus? | Means that all other things are assumed to be constant/unchanging. Ceteris paribus is useful when economists want to be able to isolate the effects of variables. |
| What is rational decision making? | Means that individuals are assumed to act in their best self interest, trying to maximise the satisfaction the expect to receive from their economic decisions. |
| What is meant by irrational decision making? | Irrational decision making are mainly based on emotions, without any consideration of the possibilities of the outcomes caused by the decision made. |
| Define Economic Growth | When Is an increase in quantity of output of an economy. This means more goods and services are being produced, therefore potentially increasing the country's standard of living. |
| What is negative economic growth? | Occurs when there has been a decrease in the quantity of output of an economy. |
| Define economic development. | Refers to raising the standard of living and well being of people. E.g. Reduction of poverty. |
| Define what is meant by sustainability. | Sustainability occurs when societies grow and develop without leaving behind fewer/lower quality resources for future generations. This can be achieved by increase use of renewable resources. |
| What is a market? | A means by which buyers and sellers come together to exchange goods and services. |
| What is meant by demand? | Demand refers to the amount of good an individual/consumer is willing and able to buy at a certain price, in a given time period, ceteris paribus. |
| What is the law of demand? | That there is a negative causal relationship between the price of a good and its quantity demanded over a particular time period, ceteris paribus. |
| Define marginal utility? | The extra benefit derived from each additional unit consumed. |
| Define market demand | Is the sum of all individuals demands for a good and consumers marginal benefits. |
| What is supply? | Supply is the quantity a firm is willing and able to produce and supply to the market at different possible prices, in a given time period, ceteris paribus. |
| What is the law of supply? | States that there is a positive causal relationship between price and quantity of a good supplied, over a particular time period and its price, ceteris paribus. |
| What is the market equilibrium? | The point where quantity supplied equals quantity demanded and there is no tendency to change. |
| What is the formula for the demand function? | Qd= a -bP Qd= Quantity demanded and is the dependent variable (depends on price) P= Price (independent variable) a= the Q intercept (Horizontal axes) -b = Slope calculated by change in Qd/ Change in P |
| What is the formula for the Quantity supplied function? | Qs= c+dP Where Qs= Quantity supplied, and is the dependent variable P= Price and is independent variable c= represents the Q intercept d= represents the slope calculated as: Change in Qs/ Change in P |
| What are signals in the term of prices? | As signals, prices communicate information to decision makers. |
| What is the role of incentives in the term of prices? | As incentives, prices motivate decision makers to respond to the information. |
| Define economic efficiency? | Can be referred to as allocative efficiency, meaning that producing the combination of goods mostly wanted by society. |
| Define consumer surplus. | Difference between the highest prices consumers are willing to pay and the price actually paid. |
| Define producer surplus. | Represents the difference between the price received by firms for selling their good and the lowest price they are willing to accept. |
| Define allocative efficiency, | Means tat the benefits from consumption are maximised for the whole of society. |
| What is social surplus? | The sum of producer and consumer surplus. |
| Define elasticity | Refers to the responsiveness of one variable when there is a change in another related variable. |
| What is a price elastic? | If there is a large responsiveness to quantity demanded. |
| What is price inelastic? | IF there is a small repsponsiveness of quantity demanded. |
| What is price elasticity of demand? | Is a measure of the responsiveness of the quantity of a good demanded to changes in its price. If the responsiveness is large, then the product would be classified as price elastic. If the responsiveness is small, then the product would be classified as price inelastic. |
| What is cross price elasticity of demand? (XED) | Is a measure of the responsiveness of demand for one good to a change in the price of another good, and involves curve shifts. |
| What is income elasticity of demand? (YED) | Is a measure of the responsiveness of demand to changes in income, and involves demand curve shifts. It is related to the direction of change of demand given a change in income (increase or decrease), and on the size of the change. |
| Define Price elasticity of supply (PES) | Is a measure of the responsiveness of the quantity of a good supplied to changes in its price. If there is a large responsiveness in the quantity supplied, then it is supply elastic. However, if there is small responsiveness in the quantity supplied due to a change in price, it is considered to be price inelastic. |
| What is an indirect tax? | Indirect taxes are imposed on spending to buy goods and services. |
| What are the two types of indirect taxes? | -Excise taxes: taxes that are imposed on particular goods and services. e.g. petrol, cigarettes - Spending taxes : taxes that are imposed on all/most goods: e.g. VAT |
| What is the difference between specific and ad Valorem tax? | Specific- is a fixed amount of tax per unit of the good/service sold. E.g. £5 per pack of cigarettes. Ad Volarem - A fixed percentage of price of good/service -i.e. Amount of tax increases as prices of goods and services increase. |
| What is a stakeholder? | A groups or individual who has a direct interest in something and is therefore affected by it. E.g consumers, government. |
| What is welfare (deadweight) loss? | Represents welfare benefits that are lost to society because resources are not allocated efficiently. |
| What is tax incidence? | Is the burden of the tax. - "Who holds the burden" |
| What is a subsidy? | A subsidy is an amount of money granted by the government to assist firms, consumers or industries in effect to decrease overall cost of production. |
| What are price controls? | Refers to setting a minimum or maximum price, by the government or a private organisation, do that prices are unable to adjust to their equilibrium level determined by the forces of demand and supply. Price controls often result in price disequilibrium, and therefore shortages and surpluses arise. |
| What is a price ceiling? | A legal maximum price for a particular good. |
| What is a price floor? | A legally set minimum price for a product or service. |
| What is a minimum wage? | Laws that determine minimum price of labour that an employer must satisfy. |
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