4951641
| Question | Answer |
| model | a simplified representation of reality used to provide an insight into economic decisions and events |
| ceteris paribus | in latin means 'other things being equal' : when looking at one variable assuming all other influences constant |
| positive statement | a statement that is fact and about what it is (no opinion) |
| normative statement | a statement that involves a value judgement about what 'ought to be' |
| scarcity | a situation that arises when people have unlimited wants in the face of limited resources |
| opportunity cost | in making a decision the value of the next best alternative forgone |
| marginal analysis | an approach to economic decision making based on considering the additional (marginal) benefirs and costs of a change in behaviour |
| economic agents | respinible for makong decisions in the economy (households, firms and the government) |
| factors of production | resources used in the production process; inputs into production, particularly including labour, capital, land and entrepreneurship |
| renewable resources | natural resources that can be replenished, such as forest, solar energy |
| non renewable resources | natural resources that once used cannot be replenished |
| ppf | a curve showing the max combinations of goods and services that can be produced in any given period with available resources |
| potential economic growth | an expansion in the productive capacity of the economy |
| GDP | a measure of economic activity carried out in an economy over a period |
| division of labour | a process whereby the production procedure is broken down into a sequence of stages and workers are assigned to a particular stage |
| market | a set of arrangements that allows transactions to take place |
| functions of money | goods and services can be compared unit account. reflect value of goods society places on them, measure of value standard of deferred payment medium of exchange |
| Market economy | market is allocatively effective based on demand. adam smith said it was the 'invisible glove' lassez faire Karl Marx thought position would be exploited and would be bad for labour which would result in a revolution |
| Command Economy | government directs and allocates resources, strong incentives to factories to meet targets. Nails, one based on weight(very big not many), one based of quantity (lots of very small nails) |
| Mixed economy | on where resources are allocated partly through price signals and partly on the basis of intervention by the state Friedrich von Hayek |
| demand | the quantity of a good or service a consumer chooses to but at any possible price in a given period |
| diminishing marginal utility | describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed |
| law of demand | states there is an inverse relationship between the quantity demanded and the price of a good or service, ceteris paribus |
| snob effect | upwards sloping demand curve. people value a good due to high price, especially when others observe them consuming showing they are rich enough to afford. known as Veblen effect |
| normal good | where the quantity demanded increases in respone to an increasr in consumer incomes |
| inferior good | where quantity demanded decreases in response to an increase in consumer incomes |
| substitutes | two goods are said to be substitutes if demand for one good is likely to rise the price of the other good raises |
| complements | two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall |
| elasticity | a measure of the sensitivity of one variable to changes in another variable |
| ped | sensitivity of QD to a change in price if a good or service |
| income elasticity of demand | sensitivity of QD to a change in consuner incomes |
| cross price elasticity | qd of one good in comparison to another |
| if YED is positive and greater than 1 | luxury good, incomes rise more spent on it |
| XED postive less than 1 | necessity, incomes rise consuners spend proportionally less |
| XED is negative less than 1 | weak compliment |
| if XED is positive and greater than 1 | strong substitute |
| supply | quantity of a good or service that firms choose to sell at any possible price in a given period |
| firm | an organisation that brings together factors of production in order to produce output |
| total revenue curve | 'n' quadratic, total rev peaks at unitary elasticity |
| competitive market | one where price of the good or service they are selling, because of competition to other firms |
| influences of supply | production costs technology of production tax and subsidies price of related goods firms expectations about future prices (busin confidence) |
| how to work out amount of subsidy or tax? | difference between two lines at same quantity |
| cartel | an agreement between firms in a market on price and output with the intension of maximising their joint profits |
| movement along supply curve | based on price of good it is the amount firms are willing to supply |
| PES | a measure of the sensitivity of quantity supplied of a good to a change in the price if that good |
| comparative statistic analysis | examines the effect on the equilibrium of a change in the external conditions affecting the market |
| consumer surplus | the value that consumers gain from consuming a good or service over and above the price paid |
| MSB | the additional benefit that society gains from consuming an extra unit of a good |
| producer surplus | diference between the price recieved by firms for a good and the price at which they would be prepared to supply that good |
| marginal cost | the cost of producing an additional unit of output |
| allocative efficiency | achieved when society is producing an appropriate bundle of goods relative to consumer preferences |
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