Economics Micro Theme 1 Parts 1 And 2

Front 1

What are the three economic agents?

Back 1

Consumers, Producers, government

Front 2

What is the economic problem?

Back 2

The inability to meet everyone’s needs and what’s

Front 3

What are the three key choices that economists make?

Back 3

What to produce? How to produce? For whom are we producing?

Front 4

Difference between positive and normative statements

Back 4

Positive Statements are objective and they can be tested or rejected by referring to evidence or facts, while normative statements express a value or judgement about what ought to be. They are subjective.

Front 5

What does Ceteris Paribus mean?

Back 5

All other things being equal

Front 6

What assumptions do economic models make about humans?

Back 6

People are rational and self interested

Front 7

What is opportunity cost?

Back 7

The benefit lost from the next best alternative foregone. E.g When choosing economics a level over maths a level, maths a level is the opportunity cost

Front 8

What are economic goods and free goods

Back 8

Economic Goods are resources that are scarce. Free Goods have no opportunity cost. E.g. Breathing air

Front 9

What are the factors of production? (Check Hints for acronyms)

Back 9

Capital

Enterprise

Land

Labour

Hint 9

CELL

Front 10

Define Capital

Back 10

Goods used to produce consumer goods

Front 11

What the Production Possibility Frontier? (Is it similar to anything from Macroeconomics?)

Back 11

Represents the maximum productive potential of an economy. Similar to Long Run Aggregate Supply.

Front 12

What two types of good will the PPF show?

Back 12

Capital Goods(y-axis) and Consumer Goods (x-axis).

Front 13

Why is the PPF curved?

Back 13

The opportunity cost varies as not all factors of production will be equally suited to both capital goods and consumer goods

Front 14

What else can PPF show?

Back 14

The opportunity cost of moving from different pints on the curve. It shows what you lose in terms of either consumer or capitalist goods.

Front 15

What causes a shift in the PPF?

Back 15

The quantity and quality of the factors of production.

Front 16

What could be possible reasons for an outward shift in the PPF? (To the right)

(5 Reasons)

Back 16

Government Investment (Capital)

Deregulation (Enterprise)

Recovered Land (Land)

Immigration (Labour)

Training programs (Labour)

Front 17

What could be possible reasons for an inward shift in the PPF? (To the left)

(6 possible)

Back 17

Strict Labour Laws

Epidemic

Natural Disaster

War

Soil Erosion

Emigration/Brain Drain

Front 18

When does a market exist?

Back 18

When there are buyers and sellers of a good.

Front 19

What is assumed in neoclassical economics in relation to market functions?

Back 19

It is assumed that consumers, firms and the government make rational decisions to try and maximise utility, maximise profits and maximise social welfare respectively.

Front 20

What are the four major functions of money?

Back 20

Medium of Exchange (avoid bartering life is more efficient)

Unit of Account (comparing the value of things)

Means of deferred payment (taking out loans)

Store of a value (you can save it)

Front 21

Define Demand

Back 21

Demand is the quantity of goods or services that will be bought at any given price over a period of time

Front 22

What is the law of demand? What three things is it dependent on?

Back 22

Law of demand is the inverse relationship between quantity demanded and price. i.e. demand curve is downsloping

Exist due to:

1. The Substitution Effect (rising price of a good causes consumers to buy cheaper alternative)

2. The Income Effect (rising price of a good means that consumers won’t be able to afford it)

3. DDiminishing Marginal Utility

Front 23

What are movements along demand/supply curves referred to as?

Back 23

Contractions (when output is decreasing)

Expansions (when output is increasing)!

Front 24

When do contractions and extensions take place?

Back 24

Only when price changes. Other factors cause a shift left or right.

Front 25

What causes a shift in the demand curve?

Back 25

Population

Advertising

Substitute Goods (Their Price)

Income (except for inferior goods)

Fashion Trends

Interest Rates

Complimentary Goods (Their Price)

Hint 25

PASIFIC

Front 26

Define Diminishing Marginal Utility

Back 26

as more units are consumed, the product provides less satisfaction)

Front 27

Define Consumer Surplus

Back 27

The difference between between how much buyers are prepared to pay for a good and what they actually pay

Hint 27

Demand Curve and Y-Axis (C is near D in the alphabet)

Front 28

How does the signalling function shown to be at work on graph?

Back 28

Supply Shifts Out or In as Producers enter or exit the market due to a higher or lower price respectively.

Demand shifts out or in as consumers leave or enter the market due to higher or lower prices respective.

Eventually causes price to decrease.

Front 29

How do prices change with excess supply and excess demand?

Back 29

Prices are reduced with excess supply but rise with excess demand

Front 30

Define Producer Surplus

Back 30

The difference between the market price which firms receive and the price at which they are prepared to supply

Hint 30

Made with the supply curve and the y-axis. (P is near S in the alphabet)

Front 31

Define the Price Mechanism

Back 31

Price mechanism allocates resources in a free market. Price is determined by how demand and supply interact with each other.

Front 32

Define Supply

Back 32

The quantity of goods that sellers are prepared to sell at any given price over a period of time.

Front 33

What causes a shift in the supply curve?

Back 33

Policies and Regulations

Indirect Taxes

Number of Firms

Technology

Subsidies

Weather

Costs of Production

Hint 33

PINTS WC

Front 34

Define Producer Surplus

Back 34

The difference between the market price which firms receive and the price at which they are prepared to supply

Hint 34

Made with the supply curve and the y-axis. (P is near S in the alphabet)

Front 35

Define the Price Mechanism

Back 35

Price mechanism allocates resources in a free market. Price is determined by how demand and supply interact with each other.

Front 36

What are the two ways that the Price mechanism adjusts to change in the short term?

Back 36

Incentives and Rationing

Front 37

How does the signalling function shown to be at work on graph?

Back 37

Supply Shifts Out or In as Producers enter or exit the market due to a higher or lower price respectively.

Demand shifts out or in as consumers leave or enter the market due to higher or lower prices respective.

Eventually causes price to decrease.

Front 38

What is the metaphor used to describe how the price mechanism is able to set price? Who came up with it?

Back 38

Adam Smith described the ‘invisible hand’ of the market,

Front 39

How does an increase in demand affect consumer and producer surplus?

Back 39

Increases both of them

Front 40

How does a decrease in supply affect consumer and producer surplus?

Back 40

It decreases both of them

Front 41

Explain what “Incentives” means in regards to the effect of a price change. Give an example

Back 41

Changes in price incentivise existing producers to act different. E.g. higher oil prices encourage existing producers to increase output. (Expansion along supply curve)

Front 42

Explain how rationing works. Use an example

Back 42

When there is insufficient supply to meet demand a change in price will ration the resource by consumers’ willingness to pay. E.g. Rare football stickers can be auctioned on eBay