Y11 Economics - Ch5, 6 and 9 Revision

Match the following definitions

• Virtual Marketplace

• situations in which goods and services are exchanged without the buyers

  and sellers meeting or needing to be in the same place to physically interact

• Physical Markets

• places where buyers and

  sellers actually meet to exchange goods

  and services

• Competition

• the pressure that market

  forces place on businesses to reduce prices

  and improve the quality of their products

Match the following definitions relating to Efficiency

• Allocative Efficiency

• the cost-saving

  advantages that a firm gains by increasing

  its scale of production

• Economies of Scale

• the ability of

  an economy to achieve the maximum

  quantity of output from a given quantity of

  productive resources

• Law of Diminishing Marginal Returns

• occurs where a country’s

  productive resources are used in the economy

  in combinations that generate the maximum

  benefits for consumers and the country

• Dynamic Efficiency

• once

  the most efficient level of production has been

  reached, adding an extra factor of production

  (such as a new employee) will cause a

  relatively smaller increase in output than that

  gained from each existing factor of production;

  the marginal productivity will decrease

• Productive Efficiency

• the ability of an

  economy to respond to changing consumer

  demands by reallocating resources to new

  industries or production processes

What is the optimum number of workers?

• 2

• 3

• 4

• 5

• 6

Match the following definitions of market structures

• Monopolistic Competition

• the market situation in which

  one seller sells a product for which there

  is no close substitute, allowing it to be the

  price setter

• Monopoly

• the market situation in which a

  small number of firms are selling similar but

  not identical products

• Oligopoly

• the market

  situation in which a large number of buyers

  and sellers are exchanging similar but not

  identical products

• Perfect Competition

• a theoretical market

  structure in which many buyers and sellers

  trade a homogenous product, there are

  no barriers to entering the market and all

  producers are price takers

Reorder the following from low concentration (on the left) to high concentration (on the right)

• Perfect Competition

• Duopoly

• Oligopoly

• Monopolistic Competition

• Monopoly

Match the following definitions for market failure

• Demerit Good

• a good or service that is not

  produced in sufficient quantities by markets

  because individuals do not value them

  highly enough to pay for them; a private

  good with positive externalities

• Externalities

• indirect costs and benefits

  associated with the production and

  consumption of certain goods and services

  that the market fails to take into account;

  these benefits or costs are imposed on a

  third party, who normally cannot pay or be

  compensated for them through the market

  mechanism

• Market Failure

• the inability of the market

  to determine the use and allocation of

  resources in the way society most desires,

  because certain conditions are lacking, for

  example, limited market power, externalities

  and public goods

• Public good

• a private good with

  negative externalities

• Merit Good

• goods such as national

  defence, a beach or road that are non-rival

  (consumption does not reduce quantity) and

  can be consumed by people that are not

  paying for the good

Match the following definitions for modified markets

• Public Good

• a product or service

  provided by the government sector for

  societal use and benefit, usually in response

  to a market unable to supply that product or

  service at a reasonable cost

• Regulation

• a process of imposing a set of

  government laws and rules on a market

• Deregulation

• a process of removing a set

  of government laws and rules imposed on

  a market

• Private Good

• a product or service

  provided by the business sector for use

  and consumption by individual consumers,

  usually for personal benefit and utility

Match the following definitions for difficulties in market modification

• Property Rights

• legislated measures

  created by government to administer the

  ownership, uses and disposal of property

  and resources

• Tradable Permit System

• when consumers

  or firms in a society can derive a benefit

  from the consumption of a good or service

  without having contributed directly to the

  cost of that good or service

• Free-Rider Problem

• the overuse or

  destruction of a common property good

  because it has no price and so markets do

  not ration its consumption

• Tragedy of the Commons

• a government

  tool where allocated pollution permits are

  created, allowing firms to emit a certain

  amount of pollution; these permits are then

  tradeable on an open market between

  competing firms

• Pigovian Tax

• a form of taxation that is

  imposed on any commercial activity in

  a marketplace that produces negative

  externalities; the purpose of the tax is

  to correct a suboptimal and socially

  undesirable outcome

Match the following definitions for income inequality

• Income Distribution

• allocation of returns

  (rent, wages and salaries, interest, profit)

  from the four factors of production (land,

  labour, capital, enterprise) among the

  population of the country

• Wealth

• payments to households in the

  form of wages, rent, interest and profit

• Income

• the degree to which

  income is unevenly distributed among

  people in the economy

• Wages

• payments to employees as a

  return for the provision of labour or human

  effort to the production process (usually

  calculated on the basis of actual production

  or hours worked)

• Income Inequality

• total assets owned by an

  individual or income unit, and the nation

  at any one time; includes physical

  assets such as real estate and consumer

  durables (car, boat, jewellery) as well

  as financial assets (shares, bonds,

  debentures)

Match the following definitions for income inequality

• Interest

• payments received

  by individuals and families from the

  federal government in the form of cash

  social service benefits, such as pensions,

  unemployment benefits and family

  allowances

• Profit

• payments to higher level

  employees and professionals, calculated

  on an annual basis, not usually related

  to production achieved or hours

  worked

• Salaries

• the price paid for the use of capital,

  usually expressed as an annual percentage

  of the value of the capital

• Transfer Payment

• payments in return for the use of

  land or other natural resources used in the

  production process

• Rent

• the price paid for the use of capital