Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
71 Cards in this Set
- Front
- Back
- 3rd side (hint)
|
Positive Statements |
Based on facts which can be tested as true or false and are value free. |
|
|
|
Normative Statements |
Based in value judgements which cant be tested true or false. Can be agreed disagreed but not proven. |
Personal preferences beliefs and subjective statements used in normative statements |
|
|
Consumer Goods |
Directly provide utility and satisfaction |
|
|
|
Capital Goods |
Indirectly provide utility and satisfaction and used to produce consumer goods |
|
|
|
Specialisation |
When an individual firm region country concentrates on the production of a limited range of goods and services |
|
|
|
Division of Labour |
Specialisation of workers on specific tasks in production process |
|
|
|
Advantages of Specialisation |
Productivity Output Profit |
|
|
|
Disadvantages of Specialisation |
Structural Unemployment Resource Depletion Unfavourable Exchange Rate |
|
|
|
Advantages of Free Market |
Competitive Prices Better Quality of Products Greater choice of Products and Jobs Profit and Working Incentive |
|
|
|
Disadvantages of Free Market |
Unequal Distribution of Income Monopolies Information Gaps Lack of regulation Externalities ignored |
|
|
|
Advantages of Command Market |
Cooperation between firms Maximise Output Reduce Inequality Externalities noticed Gov provision of merit and public |
|
|
|
Disadvantages of Command Market |
Price Mechanism doesn't operate Shortages and Surpluses occur Inefficient allocation of resources Poor quality products Lack of choice for products and jobs Lack of profit and work incentive Slow rate of economic growth |
|
|
|
Function of Money |
Medium of Exchange Measure of Value Store of Value Method of Deferred Payment |
|
|
|
Consumers |
Allocate income to maximise utility and satisfaction |
|
|
|
Producers |
Allocate resources to maximise output and profit |
|
|
|
Marginal Utility |
Utility gained from consuming additional product |
|
|
|
Shifts in Demand |
Price of Complementary Products Price of Substitute Products Fashion Advertising Real Incomes Tax |
|
|
|
Price Elasticity of Demand PED |
Responsiveness of demand of product to change in price |
|
|
|
PED Type of Goods |
Inelastic: Between -1 and 1 Elastic: More than 1 or Less than -1 |
|
|
|
PED on Pricing Products |
Elastic: Lower Price Higher Revenue Inelastic: Higher Price Higher Revenue |
|
|
|
Income Elasticity of Demand YED |
Responsiveness of demand of product to change in income |
|
|
|
YED Type of Goods |
Normal Good: Positive YED Inferior Good: Negative YED Luxury Good: Greater than 1 YED |
|
|
|
Cross Elasticity of Demand XED |
Responsiveness of demand of product to change in price of another product |
|
|
|
XED Type of Goods |
Substitute Good: Positive XED Complementary Good: Negative XED |
|
|
|
Determination of PED |
Availability of Substitute and Complementary Products Type of Good (Normal/Inferior) % of Income Spent on Goods Time Period Brand Image Addictiveness |
|
|
|
Shifts in Supply |
Improvements in Technology Labour, Capital, Transport Costs Indirect Tax and Subsidies |
|
|
|
Price Elasticity of Supply |
Responsiveness of Supply of product to change in price |
|
|
|
PES Type of Goods |
Inelastic: Greater than 1 Elastic: Less than 1 |
|
|
|
Determination of PES |
Level of Spare Capacity State of Economy Level of Stock of Finished Goods Perishability Easy of entry into industry |
|
|
|
Function of Price Mechanisms |
Rationing: Allocation of scarce resources Incentive: Incentive for firms to gain extra profit Signalling: Changes in supply demand and price |
|
|
|
Consumer Surplus: Extra consumers willing to pay for product Producer Surplus: Extra money paid to producers above what they are willing to accept |
|
|
|
|
Types of Taxes |
Indirect: Imposed on products supplied and purchased Direct: Imposed on individuals and firms Specific: Charged as a fixed amount per unit of good Advolerem: Charged as a % of price of product |
|
|
Inelastic Demand and Elastic Supply |
Greater Tax Burden on Consumer |
|
|
Elastic Demand and Inelastic Supply |
Greater Tax Burden on Producer |
|
|
|
Subsidies |
A Gov grant to firms which reduced production costs and increases output |
|
|
Inelastic Demand and Elastic Supply |
Greater Subsidies benefit on consumers |
|
|
Elastic Demand and Inelastic Supply |
Greater Subsidies Benefit on Producers |
|
|
|
Views on Consumer Behavior |
Influence of Others Habitual Behaviour Weakness at computation |
|
|
|
Market Failure |
When Price Mechanism causes inefficient allocation of resources |
|
|
|
Types of Market Failure |
Externalities Underprovison of Public Goods Information Gaps |
|
|
|
External Costs: Negative third party effects outside market transaction |
Private Costs: Costs internal to market transaction which price mechanism takes into account |
|
|
When External Costs internalised |
Social Market Equilibrium: MSC=MSB Free market ignores external costs Causes welfare loss Underpricing and Overproduction |
|
|
|
External Benefits: Positive third party effects outside market transaction |
Private Benefits: Benefits internal to market transaction |
|
|
|
Social Market Equilibrium: MSC=MSB Free Market ignores external benefits Causes welfare gain but external benefits ignored due to underpricing and underproduction |
|
|
|
Impact of External Costs |
Overproduction Underpricing Welfare Loss Unavailability for future Pollution Need for Gov Intervention |
|
|
|
Impact of External Benefits |
Underproduction Underpricing Welfare Gain Underproduction for future Need for Gov Intervention |
|
|
|
Public Goods |
Goods have non rivalry and non excludability |
|
|
|
Private Goods |
Have rivalry and excludability |
|
|
|
Merit Goods: Goods with external benefits |
Demerit Goods: Goods with external costs |
|
|
|
Free Rider Problem |
Rational Consumers don't pay to get rewards. Price Mechanism does not work ad goods non excludable Firms no longer produce these goods so Gov has to |
|
|
|
Information Gaps |
When Producer Consumer Gov have insufficient info to make rational decisions |
|
|
|
Advantages to Indirect Taxes |
Works with market forces Social Optimum reached Tax Revenue used to internalise costs Tac difficult to avoid |
|
|
|
Disadvantages to Indirect Tax |
Difficult to quantify and place monetary value on Reduce competitiveness Inelastic goods unaffected Capital Flight Illegal Markers form Tax Revenue not used on victims |
|
|
|
Advantages to Subsidies |
Consumption of Demerit Goods decrease Consumption of Merit Goods increase Works with marker forces Social Optimum reached |
|
|
|
Disadvantages to Subsidies |
Difficult to quantify and place monetary value on Opportunity Cost Over dependency |
|
|
|
Minimum Price Schemes |
|
|
|
|
Advantages of Minimum Price Schemes |
Reduce exploitation Help low income households Reduce inequality |
|
|
|
Disadvantages of Minimum Price Schemes |
Distorts Price Mechanism as excess demand causes misallocation of resources Supply reduced in long run Problems on how allocate on excess demand Producer Surplus decreases Difficult for Gov to enforce and monitor |
|
|
|
Maximum Price Schemes |
|
|
|
|
Advantages of Maximum Price Schemes |
Reduce Consumption of Demerit Goods Increase Consumption of Merit Goods Increase Producer Surplus Reduce Exploitation |
|
|
|
Disadvantages of Maximum Price Schemes |
Disrupts Price Mechanism as excess supply causes misallocation of resources Inelastic goods unaffected Consumer Surplus falls Causes over dependency Loss in quality of product Gov buying stockpiles have OC Difficult for Gov to monitor and enforce |
|
|
|
Advantages of Trade Pollution Permits |
Price Mechanism internalises External Costs Gov can sell permits to generate revenue Incentive to become eco friendly Cleaner firms benefit Used at later date |
|
|
|
Disadvantages of Trade Pollution Permits |
Difficult to place monetary value Difficult to set correct supply Costs passed on to consumers Overreliance created as now incentive to become green Fluctuations in price cause uncertainty on whether to clean up |
|
|
|
State Provision of Public Goods: Correct Market Failure by providing the public goods |
State Provision of Information: Encourage Production and Consumption of Merit Goods |
|
|
|
Advantages of Regulation |
Simple to understand Consumer protected Producers fined Deterrent for producers and consumers Reduce asymmetric info |
|
|
|
Disadvantages of Regulation |
Expensive and Difficult to monitor Increase AC causing lack of competitiveness Regulatory Capture |
|
|
|
Government Failure |
Gov Intervention leads to misallocation of resources and net welfare loss |
|
|
|
Distortion of Price Signals |
Gov Intervention distorts price mechanism in max and min price schemes |
|
|
|
Unintended Consequences |
Illegal Markers Overdependence Shortage or Surplus of Products |
|
|
|
Administration Costs |
Costs which arise from formulation monitoring and enforcing gov actions |
|
|
|
Information Gaps |
Gov make non rational economic decisions due to lack if knowledge causing misallocation of resources |
|
