Economics (A-Level)
Curated flashcards for UK A-Level Economics (AQA, Edexcel, OCR). Covers microeconomics — markets, demand and supply, elasticities, market failure and government intervention — and macroeconomics — national income, aggregate demand and supply, fiscal and monetary policy, the global economy, and the labour market.
Ämne: Ekonomi · Nivå: Gymnasium (16–19) · 414 kort
Innehåll
- Economics is the study of how scarce resources are allocated among competing uses to satisfy unlimited human wants.
- The basic economic problem is scarcity: resources are finite while human wants are infinite, forcing choices to be made.
- Opportunity cost is the value of the next best alternative forgone when a choice is made.
- The four factors of production are land, labour, capital and enterprise. Their rewards are rent, wages, interest and profit respectively.
- The three fundamental questions every economy must answer are: what to produce, how to produce it, and for whom to produce.
- A production possibility frontier (PPF) shows the maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed.
- A point inside the PPF indicates inefficient use of resources (unemployment); a point beyond it is currently unattainable.
- The PPF is typically concave to the origin (bowed outward) because resources are not equally suited to producing all goods, giving increasing opportunity cost.
- Economic growth is shown by an outward shift of the PPF, caused by more resources or improved technology and productivity.
- Capital goods are goods used to produce other goods (e.g. machinery, factories); consumer goods are bought for final use and satisfaction.
- In a free-market economy resources are allocated through the price mechanism with minimal state involvement; in a command economy the state allocates resources centrally.
- A mixed economy combines markets and government intervention. Most real economies, including the UK, are mixed economies.
- Adam Smith's 'invisible hand' describes how individuals pursuing self-interest in markets can unintentionally promote the good of society through the price mechanism.
- The law of demand states that, ceteris paribus, as the price of a good rises the quantity demanded falls, giving a downward-sloping demand curve.
- A change in the good's own price causes a movement ALONG the demand curve; a change in any other determinant SHIFTS the whole curve.
- Conditions of demand (shift factors) can be remembered as PIRATES: Population, Income, Related goods, Advertising, Tastes, Expectations, Seasons.
- For a normal good, demand rises as income rises. For an inferior good, demand falls as income rises (e.g. own-brand value products).
- Substitutes are goods in competitive demand (e.g. tea and coffee). Complements are goods in joint demand (e.g. cars and petrol).
- Diminishing marginal utility means each extra unit consumed gives less additional satisfaction; this helps explain the downward-sloping demand curve.
- The law of supply states that, ceteris paribus, as the price of a good rises the quantity supplied rises, giving an upward-sloping supply curve.
- Conditions of supply (shift factors) can be remembered as PINTSWC: Productivity, Indirect taxes, Number of firms, Technology, Subsidies, Weather, Costs of production.
- Market equilibrium occurs where demand equals supply. At this price there is no tendency to change — the market clears.
- If price is above equilibrium there is excess supply (a surplus), putting downward pressure on price; below equilibrium there is excess demand (a shortage).
- The three functions of the price mechanism are rationing (allocating scarce goods), incentivising (signalling profit) and signalling (conveying information to buyers and sellers).
- Consumer surplus is the difference between the price a consumer is willing to pay and the price they actually pay. It is the area below the demand curve and above the market price.
- Producer surplus is the difference between the price a producer is willing to accept and the price they actually receive. It is the area above the supply curve and below the market price.
- A subsidy shifts the supply curve downward/rightward, lowering price and raising quantity. The incidence is shared between producers and consumers.
- Joint supply occurs when producing one good automatically produces another (e.g. beef and leather, or crude oil and petrol).
- A composite demand exists where a good is demanded for two or more distinct uses, so more demand for one use reduces supply available for the other (e.g. land for farming vs housing).
- Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. PED = % change in quantity demanded ÷ % change in price.
- PED is normally negative because of the inverse relationship between price and quantity demanded; economists usually refer to its absolute value.
- Demand is price elastic when |PED| > 1, price inelastic when |PED| < 1, and unit elastic when |PED| = 1.
- Determinants of PED include availability of substitutes, proportion of income spent, whether the good is a necessity or luxury, addictiveness, and the time period.
- If demand is price inelastic, a rise in price increases total revenue. If demand is price elastic, a rise in price decreases total revenue.
- Income elasticity of demand (YED) = % change in quantity demanded ÷ % change in income. It measures how demand responds to income changes.
- Normal goods have positive YED; inferior goods have negative YED. Luxuries have YED > 1 (income elastic), necessities have YED between 0 and 1.
- Cross elasticity of demand (XED) = % change in quantity demanded of good A ÷ % change in price of good B. It measures responsiveness between two goods.
- Substitutes have positive XED (a rise in the price of one raises demand for the other); complements have negative XED. A value near zero means the goods are unrelated.
- Price elasticity of supply (PES) = % change in quantity supplied ÷ % change in price. It measures how responsive producers are to price changes.
- Determinants of PES include spare capacity, availability of stocks, factor mobility, ease of entering the industry, and the time period considered.
- Supply tends to be more price elastic in the long run because firms have time to adjust all factors of production and capacity.
- Market failure occurs when the free market fails to allocate resources efficiently, leading to a loss of economic and social welfare.
- An externality is a spillover cost or benefit to a third party not involved in the transaction. Externalities are a key cause of market failure.
- A negative externality of production (e.g. factory pollution) means the marginal social cost exceeds the marginal private cost, leading to overproduction.
- A positive externality of consumption (e.g. vaccination, education) means the marginal social benefit exceeds the marginal private benefit, leading to underconsumption.
- Public goods are non-rival (one person's use does not reduce availability to others) and non-excludable (you cannot prevent non-payers from using them), e.g. national defence and street lighting.
- The free-rider problem means people can consume a public good without paying, so private firms cannot profit and the good is under-provided by the market.
- A merit good is one that is under-consumed because consumers undervalue its private benefits (e.g. healthcare, education); it also tends to have positive externalities.
- A demerit good is over-consumed because consumers underestimate its private costs (e.g. cigarettes, alcohol); it also tends to have negative externalities.
- Asymmetric information occurs when one party in a transaction has more or better information than the other, leading to market failure (e.g. used-car sellers, insurance).