Unit 1 Flashcards

1
Q

What are the factors of production?

A

CELL (mnemonic)

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2
Q

CELL (mnemonic)

A

Capital
Enterprise
Labour
Land

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3
Q

Needs

A

Something essential to survive

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4
Q

Wants

A

Something you would like to have, but is not essential to survival

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5
Q

Resources

A

Something used to produce output

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6
Q

Productivity

A

Output per worker per period of time

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7
Q

Capital

A

Goods that are used to produce other goods and services

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8
Q

Enterprise

A

Having ideas and taking risks in setting up or running a business

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9
Q

Goods

A

Items that you can touch and see

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10
Q

Service

A

Something that someone provides for you, that you cannot touch

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11
Q

Primary sector

A

Where the extraction of raw materials takes place

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12
Q

Secondary sector

A

Where raw materials are manufactured into goods

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13
Q

Tertiary sector

A

The service sector

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14
Q

Opportunity cost

A

The next best alternative foregone when making a choice

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15
Q

Market

A

Where buyers and sellers meet to exchange goods and services

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16
Q

Market economy

A

Where all resources are allocated by private individuals and firms

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17
Q

Planned economy

A

Where all resources are allocated by the government

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18
Q

Mixed economy

A

Where some resources are allocated by the government, and other resources are allocated by private individuals and firms

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19
Q

Private sector

A

The sector of the economy where firms are owned and run by private individuals and groups - their main aim is profit maximization

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20
Q

Public sector

A

The government sector of the economy, where organisations are owned and run by the government

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21
Q

Benefits of specialisation to a firm

A

Workers become quicker at producing goods
Production becomes cheaper per good
Production levels are increased

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22
Q

Benefits of specialisation to a worker

A

Specialised workers tend to get higher pay
Workers’ specific skills will be improved
More motivation from job satisfaction

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23
Q

Costs of specialisation to a firm

A

Greater cost of training workers
Quality may suffer if workers get bored
More expensive workers

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24
Q

Costs of specialisation to a worker

A

Boredom from doing the same job every day
Workers’ skills may suffer as they are only doing one job
Workers may eventually be replaced by machinery

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25
Q

Advantages of competitive markets to a consumer

A

Consumers can ‘shop around’ to get highest quality and lowest prices
Firms will try hard to innovate in order to provide more benefits for consumers
Firms will compete through location, opening hours and customer service

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26
Q

Disadvantages of competitive markets to a consumer

A

If all firms are small they can’t gain economies of scale and so lower prices
Confusion over too much competition

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27
Q

Advantages of competitive markets to a firm

A

Firms that can successfully provide products will thrive and earn profits
It may be able to grow large and gain market share

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28
Q

Disadvantages of competitive markets to a firm

A

Firms that fail to satisfy consumers sufficiently will fail

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29
Q

Surplus

A

When more is produced than required

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30
Q

Money

A

What we pay in exchange for goods and services

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31
Q

Medium of exchange

A

To buy something in a shop, you must have money - money is the medium of exchange in this case

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32
Q

Unit of account

A

If I were to say that a magazine is £1, I am giving this magazine a unit of account

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33
Q

Store of value

A

If I put £100 in a bank and take my £100 out later, it has kept its value (store of value).

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34
Q

Means of deferred payment

A

When you defer a figure of payment over a few payments over a period of time (e.g. loans).

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35
Q

Competitive market

A

A market in which there are many buyers and sellers

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36
Q

Monopoly

A

When there is only one firm selling in a market

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37
Q

How can firms achieve monopoly power?

A

Merger and takeover
Statutory monopoly
Internal expansion
Branding
Cost barriers

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38
Q

Statutory monopoly

A

Key industries are given monopoly status by the government

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39
Q

Internal expansion

A

When a firm builds more factories and shops

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40
Q

Cost barriers

A

Firms with low average costs can keep prices below the price at which small firms could enter the market

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41
Q

Monopoly power

A

When a firm has more than 25% of the market share

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42
Q

What are the advantages of a monopoly?

A

R&D for a consumer
International competitiveness for a firm
Exploitation of economies of scale for a firm

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43
Q

What are the disadvantages of a monopoly?

A

High prices for a consumer
Poor quality for a consumer

44
Q

Demand

A

The quantity buyers are willing and able to buy at a given price in a given period of time

45
Q

Effective demand

A

A consumer must be both willing and able to buy the good and service when demand is effective

46
Q

Contraction of demand

A

The fall in the quantity demanded due to a rise in price

47
Q

Extension of demand

A

The increase in the quantity demanded due to a fall in price

48
Q

Factors that cause the demand curve to shift

A

PASIFIC

49
Q

PASIFIC

A

Population
Advertising
Substitutes
Income
Fashion and trends
Interest rates
Complements

50
Q

Inferior goods

A

Good for which the demand falls when income rises

51
Q

Substitutes

A

Goods that can be used instead of each other

52
Q

Interest rates

A

The reward for saving, and the cost of borrowing

53
Q

Complements

A

Goods that are in joint demand

54
Q

Price elasticity of demand (PED)

A

The responsiveness of the quantity demanded to a change in the price of a good

55
Q

PED =

A

% change in quantity demanded / % change in price

56
Q

Factors that influence PED

A

Number of close substitutes within the market
Luxuries and necessities
Percentage of income spent on a good
Habit-forming goods

57
Q

How do the number of close substitutes in a market influence PED?

A

The more substitutes are available in the market, the more elastic demand will be in response to a change in price

58
Q

How do luxuries and necessities influence PED?

A

Necessities tend to have a more inelastic demand, whereas luxury goods and services tend to be more elastic

59
Q

Supply

A

The quantity a producer is willing and able to produce in a given period

60
Q

Factors that cause the supply curve to shift

A

PINTSWC

61
Q

PINTSWC

A

Productivity
Indirect taxes
Number of firms entering market
Technology
Subsidies
Weather
Costs of production

62
Q

Price elasticity of supply (PES)

A

The responsiveness of quantity supplied to a change in price

63
Q

Factors that influence PES

A

Level of stocks
Production lags
Substitutability of factors of production

64
Q

How does the level of spare capacity influence PES?

A

If a price were to suddenly increase and the firm had spare capacity, it would be able to react very quickly and increase supply

65
Q

How does the substitutability of the factors of production influence PES?

A

If a firm can easily move the factors of production it uses in producing its goods between production lines, it will be able to respond mre quickly to changes in price

66
Q

Equilibrium

A

The point where demand and supply meet

67
Q

Indirect tax

A

A tax on spending

68
Q

Specific tax

A

A specific amount of a good or service per unit bought

69
Q

Ad valorem tax

A

A percentage of the price of a good or service

70
Q

Subsidy

A

A payment given to a firm by a company

71
Q

Minimum price

A

A price set above the equilibrium, and the price is not allowed to go below it

72
Q

Maximum price

A

A price set below the equilibrium, and the price is not allowed to rise above it

73
Q

Fixed costs

A

Costs that do not vary with output

74
Q

Variable costs

A

Costs that vary directly with output

75
Q

Total costs

A

All the costs of producing a good or service added together

76
Q

Total costs =

A

Fixed costs + Variable costs

77
Q

Average costs =

A

Total costs / output

78
Q

Output

A

The number of goodsor services produced by a firm

79
Q

Total revenue =

A

Price x Quantity sold

80
Q

Profit =

A

Total revenue / costs

81
Q

Production

A

The process of combining scarce resources to make an output

82
Q

What are the benefits of higher productivity from competition?

A

Lower average costs
Lower, more competitive price
Higher profits

83
Q

Specialisation

A

When an individual, firm, or country only produces a limited range of goods or services

84
Q

Internal growth

A

Growth generated from an increase in sales

85
Q

External growth

A

Growth through a merger or takeover

86
Q

Merger

A

Agreed coming together of two firms

87
Q

Takeover

A

When one firm seeks to take over another

88
Q

Integration

A

The coming together of two firms through a merger or takeover

89
Q

Economies of scale

A

As a firm grows larger in size, the long run average costs fall

90
Q

Internal economies of scale

A

When one firm grows in size and benefits from lower average costs

91
Q

External economies of scale

A

When a whole industry grows in size, so a firm within that industry benefits from lower average costs

92
Q

The 6 types of internal economies of scale

A

Risk bearing
Financial
Marketing
Technical
Managerial
Purchasing

93
Q

Risk bearing economies of scale

A

As a firm grows larger, it is able to spread the risk over a larger number of outlets/factories/products

94
Q

Financial economies of scale

A

As a firm grows larger, it is able to obtain cheaper sources of finance

95
Q

Marketing economies of scale

A

As a firm grows larger, it will be more cost-effective to advertise nationally

96
Q

Technical economies of scale

A

As a firm grows larger, it will be able to invest in machinery that can increase productivity

97
Q

Managerial economies of scale

A

As a firm grows larger, it is able to employ specialist managers to make workers more efficient

98
Q

Purchasing economies of scale

A

As a firm grows larger, it will be able to take advantage of price reductions from suppliers, as it can buy in bulk

99
Q

Diseconomies of scale

A

When a firm grows too large and average costs rise

100
Q

Causes of diseconomies of scale

A

Loss of control
Lack of co-ordination / lack of co-operation

101
Q

Reasons for the differences in wages within and between occupations

A

Differences in productivity of workers
Elasticity of supply of labour
Trade union power
Compensation

102
Q

How does the elasticity of supply of labour affect a difference in wages?

A

The more inelastic the supply, the higher the wage

103
Q

Why might a doctor’s salary be higher than a nurse’s salary?

A

A doctor’s salary is higher because the supply of doctors is inelastic, due to the high level of qualifications needed

104
Q

Why does compensation affect a difference in wages?

A

Higher pay may be a reward for risk-taking in certain jobs - working in poor conditions or unsocial hours

105
Q

National minimum wage

A

A pay floor introduced by the government, which sets a wage level below which producers cannot legally go

106
Q

What are the arguments for a national minimum wage?

A

Higher tax revenue
Income is more fairly distributed across the population
Poverty is reduced

107
Q

What are the arguments against a national minimum wage?

A

More expensive to employ workers, so firms may cut jobs and increase unemployment
Other workers may demand higher wages to maintain pay differentials
Higher wage costs lead to rising inflation