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Flashcards by PatrickNoonan, updated more than 1 year ago
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| Question | Answer |
| The fundamental economic problem is one of ‘scarcity’. Explain this concept | Scarcity means that while the supply of resources / factors of production are limited the demand for these is unlimited (unlimited wants/limited resources). Hence, society must choose on the use to which the resources are put. Making choices involves an opportunity cost. |
| Define the ‘Marginal Efficiency of Capital’ (MEC). | It is the extra profit earned as result of employing one extra unit of capital. |
| Outline two possible reasons for a fall in MEC | 1. An increase in interest rates. 2. An increase in the cost of capital goods. 3. A decrease in the price of the finished goods. 4. A decrease in the productivity of capital / deterioration in the capital goods used. |
| Read each statement below and indicate if the price elasticity of demand (PED) for the product is most likely to be elastic or inelastic. | (Next Card) |
| Consumers are strongly attached and loyal to the product. | Inelastic |
| Many close substitutes are available for the product. | Elastic |
| The product is a luxury product. | Elastic |
| The product accounts for only a small fraction of a consumer’s weekly expenditure. | Inelastic |
| Collusion may be a feature of an oligopolistic market. Explain what is meant by ‘collusion’ | Rival sellers in the industry come together for their mutual benefit. |
| Collusive practices may be undermined by price wars. Outline two benefits of price wars for the consumer. | 1. Lower prices / value for money a. Consumers will benefit from the availability of commodities at lower prices. b. Consumers will be able to get better value for their limited income. 2. Higher disposable income With lower prices consumers will now have a higher disposable income resulting in a better standard of living. 3. More choice As consumers now have a greater disposable income they can choose how to spend this additional income. |
| Outline three mechanisms for restricting free trade. | Tariff - A tax on imports. Quota - A limit on the quantity of goods imported. Embargo - A total ban on imports. Subsidy - A payment to exporters to reduce production costs. Administrative barriers - Rules / regulations applying to imports. Exchange controls - Limit the amount of foreign currency available to importers to buy imported goods. |
| Explain what is meant by the economic term ‘Paradox of Thrift’ | An increase in savings by individuals could result in a fall in national / total savings due to reduced consumption, reduced demand, falling incomes, job losses and so total savings will fall. Increased savings represent a diminishing circular flow of income. |
| Outline four contributions of Adam Smith to economic thought. | (a) The pursuit of self -interest This best benefits the individual and hence best benefits society. (b) The Division of Labour Increased productivity and increased country’s wealth. (c) Labour Theory of Value The value of a product was equal to the amount of labour that went into producing the product. (d) State protection of property rights Encourages the accumulation of personal wealth. (e) 'Invisible hand of competition' Allows a self-regulating market to operate thus ensuring economic progress is achieved. (f) Perfect Competition Free entry into markets; profits sufficient to reward entrepreneurs; inefficiency penalised and price based on the cost of production. Monopolies would not persist. |
| Define the term 'Average Propensity to Consume' (APC) | The proportion / fraction of total income which is spent on goods and services. |
| A recent report to the Irish government highlighted the growing issue of alcohol abuse in Ireland. (a) Outline one private cost | 1. Decreased disposable income. 2. Possibility of long term illness / deterioration in health. 3. Possible absenteeism from work / less opportunities for promotion. 4. Increased private insurance costs. 5. Decreased productivity in work. |
| and one social cost related to excessive alcohol consumption. | 1. Increased health care costs. 2. Possible increase in crime /vandalism / risk of road accidents. 3. Increased absenteeism from work / disruption to provision of service. 4. Opportunity cost of money spent on health care. |
| Describe one advantage of the government imposing a minimum price on alcohol products | 1. Reduction in alcohol consumption. 2. Possible reduction in ‘binge’ drinking by younger consumers. 3. Reduction in admission to A&E so lower healthcare costs. 4. Better use of scarce resources in hospitals. 5. Reduction in crime / vandalism / road accidents. 6. May close the gap in price between pubs and supermarkets – boost for pub trade. |
| one disadvantage | 1. Increased prices for consumers / reduced disposable income. 2. Reduced competition on the market / restricted consumer choice. 3. Possible increase in cross border shopping for alcohol. 4. Pub closures with possible job losses. 5. Increase in smuggling/purchase of alcohol products in the black economy. |
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