경제학 1등할래 💪🏼 Flashcards
(101 cards)
1
Q
기업의 의사결정에서 short run perspective meaning and characteristics?
A
The short run is a time frame in which the quantity of one or more resources used in production is fixed.
Short run decisions are easily reversed.
2
Q
Short term decision making on injection of more labor - any subject law?
A
Law of diminishing return: as a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes.
Hence, labor should be injected until MP and AP crosses, that is at maximum average product.
3
Q
What makes the demand curves move to the right? (6)
A
Increase in substitute goods price
Decrease in complementary goods price
Increase of the future price
Increase in income
Increase in population
Increase in preference
4
Q
What is income effect and its implication?
A
It shows how demand changes according to the change in income. Normal goods have positive corelation, while inferior goods have negative one. That is, if income increases, the demand for inferior goods reduce.
5
Q
Why is the Product Possibility Frontier out-bowed?
What is the allocative efficiency?
A
Because an opportunity cost per unit increases.
Allocative efficiency is when the marginal benefit and marginal cost equals for one product and it matches on the PPF. Basically the PPF line itself represents.
6
Q
What is externality and give examples of positive/ negative ones.
A
A cost or a benefit that arises from the production or consumption of a private good, and that falls on someone other than its producer or consumer.
+ promotion of diversity and acceptance from producing music, less overall chances of infection from flu vaccine
- damage of marine life from production of plastic bags, enviornmental pollution from cement industry
7
Q
Conditions of perfectly competitive market
A
a very large number of suppliers
perfectly homogenous product
one given price - each supplier is a price taker
free or easy exit and entry barriers
8
Q
Give 2 reasons why the ATC curve is U shaped.
A
Diminishing marginal product of labor.
- TFC distributed to bigger quantity - therefore average diminishes.
- But once variable costs increase, when the increase in variable costs is bigger than the decrease in the fixed costs, the ATC increases.
9
Q
What is maximum average product
A
AP = MP in labor x avg product graph.
10
Q
What is minimum efficient scale?
A
Lowest point of Long Run Average Cost curve in output x average cost graph.
It does not refer to the maximum profit, but minimum requirement to maintain production.
11
Q
What is the normal profit?
A
Zero economic profit, minimum required return given the injected capital.
12
Q
What is economic profit?
A
Economic profit = Revenue - explicit cost - implicit cost (opportunity cost) = TR - TC
13
Q
Economic loss?
A
EL = TFC + TVC - TR = TFC + (AVC - P) * Q
If shutdown, Q = 0, hence EL = TFC.
14
Q
Shutdown point?
A
When there is no different between profit maximizing point and minimum AVC.
15
Q
Paul Samuelson‘s rule?
A
When MSB = MSC, efficient quantity of a public good.
16
Q
Pigovian Tax?
A
Deadweight loss
The amount of marginal external cost
17
Q
GDP 의미, 최종재, 측정에 대한 접근방식, 순환경제, 용어 종류
A
의미
Gross domestic product, the market value of final goods and services in a given time period within a country
최종재
Final good: items bought by final users.
Intermediate: bought for production of final goods.
순환경제
Circular flow of expenditure and income = equality of income and value of production
Approaches
1. Expenditure approach: Y = C + I + G + X - M
2. Income approach: Sum of incomes that firms pay households for factors productions (wages, interest, rent, profit)
3. Product approach
Types
Nominal: In current prices
Real: in base year prices (adjusted to inflation)
Critiques: qualitative variables that GDP does not reflect - living standards, environmental damages…
Other indicators: Gross National Hapiness, Gini index
18
Q
Best affordable point?
A
Where indifference curve and budget line crosses.
19
Q
Price effect and income effect?
A
When the price in good A reduces, the quantity increases along with the demand curve, therefore in the preference map, the budget line rotates outwardly.
When income decreases, budget line moves to make the triangle smaller, and the demand curve moves to the left.
20
Q
Consumer,producer surplus?
A
Consumer surplus: excess of the benefit received from a good, over the amount paid for it. CS = (MB- P)*Q
Producer surplus: price received for a good - minimum supply price (marginal cost), summed over the quantity sold.MC = S, hence producer surplus refers to (P - MC) * Q
21
Q
Efficiency?
A
Market equilibrium when MSC = MSB.
When the sum of consumer surplus and producer surplus is maximized.
22
Q
BEP and Production threshold
A
BEP, when CM = C fix or MC = ATC
Production threshold, when CM = 0 or MC = AVC.
23
Q
Market failure and sources!!!
A
Markets don‘t always achieve an effective outcome.
Market failure happens when there is too little of an item (underproduction) or too much of an item (overproduction)
Sources: externalities, public goods and common resources, monopoly, high transactions costs, taxes and subsidies, price and quantity regulations
24
Q
Econ coordi - 4 complimentary social institutions
A
firms (hire), markets (info exchange arrangement), property rights (social agreement), money (payment measure)
25
Energy trillema
Affordability, environmental protection, security of supply
26
What will the substitution effect for energy carriers tend to be?
In the short term, the substitution effect is low, as substitutions usually involve high investments and risks.
In the long run, the substitution effect is higher, as market participants are more flexible in their investment decisions.
27
How to reduce GHG emissions?
1. Policy induced standards
2. Financial policy regulation for lower emissions
1) FiT
2) Emissions allowance
28
Coase theorem
Externalities can be internalized to be solved. Without government‘s intervention, market is able to solve them through voluntary negotiation. The optimal amount of emissions is when the marginal loss and marginal profit meet.
29
Functions of externalities
1. Steering effect: reconsideretion looking at high costs. Redirect the behavior of actors
2. Revenue function: revenues can be used to solve externalities
30
Spark spread?
Gross Margin for a gas plant, from selling one unit of electricity
Dark spread: coal-fired plants
Quark spread: nuclear
Bark spread: biomass
Clean spread: including the price of ETS.
31
Particularities of electricity market (5)
fewcs
1. Rather high willingness to pay for most electricity applications = form value of electricity
2. Factor-specific grid is needed
3. Generation and demand must be in equilibrium at each single moment.
4. Generation, marketing and sales can be organized competitively, whereas grids are natural monopolies.
5. Electricity generation is sensitive to environment. (weekly load profile)
32
Definition of natural monopolies in math formulas
1. Economies of scope (necessary condition). Cost function is sub-additive,
C(Q1) + C(Q2) > C(Q1+Q2)
2. Economies of scale (stronger sufficient condition)
Monotonous decreasing unit cost function
33
Elements of market reform in the EU (6)
Tariffs
Unbundle
Balancing
Wholesale
Retail
Liquid
1. wholesale competition: non-discrimatory competition between national and european power generators (‘single electricity market’)
2. Transparent wholesale power prices and liquid energy exchanges
3. Non-discriminatory TPA to grids, achieved by unbundle generators and grid operators
4. Regulated grid access tariffs
5. Retail competition (all customers have the right to change the power supplier)
6. Implementation through balancing groups: set of entry and/or exit points to the grid, managed through balancing group managers (BGM) or aggregators
TUB WRL
34
Types of unbundling (5)
accounting, informational, organizational, legal, ownership unbundling
35
BG/BRP definition and roles
BGM - B, LMS
Conservation of mixing benefits of network users collectives despite heterogeneous supply relations
1. Load forecast and EM
2. Collection of meter data from own generation and consumers via meter operations
3. Announcement of exchange schedule to TSO
4. Billing of balance deviations from TSO.
36
BGM‘s supply strategy (BGM inclues ISO, ISO inclues TSO, DSO)
FB VC IRR - BGM got strategic VC from FB on IRR.
1. Frequency control secured by spinning reserve and control power
2. Voltage control secured by reactive power
3. Black start capacities after blackout, secured by contracts with qualified generators
4. Compensation for transmission losses, secured by electricity purchase on wholesale markets
5. Redispatch in case of congested grid lines
6. Cross border interconnection management
7. Refinement of fluctuating electricity produced from renewables
37
Why the optimal power plant dispatch depends on marginal costs and not on average costs?
If Profit function is differentiated, given that the operator is price taker,
price equals variable cost.
38
Profit given the CO2 price formula
P stands for profit
P(Q, Em) = p*Q - C(Q, Em) - p_em(EM - g(EM’))
Here G(EM’) is free allowance.
39
Cournot game and Nash equilibrium
Production of a company is affected by production of another company. Strategic cooperation.
E.g. OPEC - they don’t decide price, they do only production.
Optimal equilibrium is the Cournot equilibrium, called Nash equilibrium.
40
Missing money problem?
In liberalized markets the wholesale power prices can exceed marginal costs. In these situations, the regulator may come under public pressure to intervene, with the consequence that the electricity market on its own (so called ‘energy only market’) is unable to generate sufficient revenues for financing investment in capacity.
To correct this failure, capacity payments to power generators may be introduced, which may be financed by a general electricity levy.
41
What is Annuity value and what does it have something to do with pricing?
The present value of an annuity is the value of a stream of payments, discounted by the interest rate.
Interest factor RBF
NPV = -I_0 + CF*RBF
Annual net Cashflow AN is therefore,
= NPV / RBF
And the price is established when AN = 0.
p = -I_0 / RBF / Q + oc
42
Chain of wholesale power markets
1. Years/ quarters/ months ahead of delivery
1) OTC Forwards (continuous)
2) EEX Futures (continuous)
2. Gate closure at 10am of the day ahead
Reserve/Regulation power auction (pay-as-bid)
3. Hourly blocks, gate closure at 12 noon of the day ahead
EPEX day ahead auction (uniform price)
4. 15 min blocks, gate closure up to 7 mins ahead delivery
EEX Intraday (continuous)
43
Types of bilateral contracts
1. Cash trade (spot trade)
2. Forward trade: conditions of the deal are fixed, but the contract is physically settled at a later date.
3. Derivative trade
1) futures: like forwards, but financial settlement with clearing
2) Call-option: like forwards, but the buyer can withdraw from the contract
3) Put-option: like forwards, but the seller can withdraw from the contract
4) swap: combination of two or more contracts
44
Some terms and definitions - long, short position
How to increase the liquidity and reliability of the prices?
Long position: profit increases with the price of underlying
Short position: profit decreases with the price of underlying
Standardization of contracts helps increasing the liquidity and thus the reliability of the prices
45
Reasons of interconnection
E E (SNLm)
economically indivisible, positive network externalities - N-1, economies of scale, load flattens
1. Economically complicated to separate in the first place. One transmission line is operated by multiple entities.
2. Positive network externalities
1) In case of local power plant breakdown, another plant provides electricity as a backup function. N-1 criterion - requirement for a high supply security. Elements remaining in operation within a TSO’s control area after occurrence of a contingency are capable of accommodating the new operational situation without violating operational security limits.
2) Bigger plants require more electricity and therefore interconnection provides economies of scale.
3) Time profile of the aggregate load becomes flatter.
4) Reduced market power of an individual generator, to avoid misuse of market power.
46
Optimal grid fees?
First-best solution: in the interest of welfare maximization, the price for access to network should be equal to marginal cost. But since the MC is lower than average cost, the operators can not generate enough revenue if MC is charged.
1. Public regulations’s second-best solution: AC can be charged. But then they will do less efforts to reduce costs and the customers who were willing to pay higher than MC cannot be served, generating welfare loss.
2. Split Tariff: Charge AC those who are willing to pay higher than AC, charge MC for those who are willing to pay less.
## Footnote
high WtP - charge AC or MC?
47
Cournot point?
Equilibrium of a monopoly firm to decide the price, where MC equals MR.
48
Inverse demand curve?
To see the price trend, based on the fixed demand.
P = a-bQ
49
Elasticity depending on the load profiles
Off-peak customers
>>>>>> Peak customers
50
Averch-Johnson effect?
Side effect of a regulation, in the perspective of welfare optimum
In the regulated market, firms tend to overinvest in capital and underinvest in labor in order just to improve the financial profit.
Regulator cannot fully achieve the welfare optimum, as there are always regulation shortcomings.
51
Types of regulation and their side effects
1) Rate of return regulation: over or under investment depending on the rate of return
2) Cost-plus regulation: after determining the verified costs, the profit rate is fixed. —> incentive to generate costs
3) Price cap regulation: grid operator cannot increase price —> under investment, lack of supply security
4) Revenue cap regulation: grid operator cannot increase revenue —> supply reduction
52
Why averch-Johnson effect occurs?
Information asymmetry - grid operator is well aware of the information than regulator. Costs, system requirements, demand conditions, efficiency improvement dynamics, investments, maintenance, etc.
53
What should be kept in mind, when creating a regulation?
DMHim
1) collecting data, verifying, legal dispute and supervising
2) mismatch with business
3) hidden agendas of regulation (manipulation of the regulator)
54
What social benefits are something to do with energy storage?
In the portfolio management, it is important to reduce unrealized social benefits. When the price is high, producers want to discharge while customers don’t.
As the producer rent and consumer rent shows in the graph. Define the revenues from storage operation and unrelaized social benefit!!
55
Economic feasibility of merchant investments in energy storage, grid investment
Merchant investment in energy storage is more feasible when price spreads between different time periods are bigger.
Grid investment is more feasible when the price spread between regions are bigger.
Cannibalization effect of storage investment -risk of underinvestment into storage capacities.
56
Forward premium, contango and backwardation?
Forward premium = current forward price - expected spot price
If forward premium is higher than the expected spot price, it‘s called Contango.
If spot price is higher than the forward premium, it’s called Backwardation.
57
Explain the operation of a merchant energy storage facility. What determines the annual revenues in this case?
FCR: frequency containment reserve
aFRR: automatic frequency restoration reserve
mRR: manual frequency restoration reserve
RR: replacement reserve
Storage earns revenue from opportunistically buying and selling electricity at hourly or sub-hourly intervals while fossil fule power plants sell electricity at a price higher than the costs to generate it. Storage price forecasts need to be input into software that can simulate storage dispatch taking into imperfect daily dispatch.
58
In case of market entry of new merchant electricity storage capacities cannibalization may become an issue.
Yes, and the prices continue downwards trend for the next two years.
The main opportunity for stand-alone projects in Germany continues to be the ancilary service market. As FCR prices continue thier downward trend in the next two years, projects should tap into the secondary reserve market which is over 3 times larger than FCR market which is now opening to batteries.
## Footnote
FCR market saturates. Projects should be able to tap into the secondary reserve market, which is 3 times larger than FCR market.
59
In case of cannibalization, there is a risk of underinvestment into storage capacities so that the security of gas supply may be challenged. How this issue may be managed by the gov?
1. The main economic reason for building energy storage is the revenues from providing frequency response services, which typically have much smaller cycling requirements. (In the UK, providing Dynamic Containment only requires around 0.2 cycles a day up from 0.1 at launch, compared to a full cycle that is required for arbitrage. However, frequency response market saturates. Therefore, projects should be able to tap into the secondary reserve, which is over 3 times larger.
2. Capacity market to support stand-alone projectsmay be introduced to increase liquidity through long-term contracts.
3. Promote co-location.
The LCOE is still high for widespread adoption of co-located solar and storage projects, but the higher revenue from higher PPA prices - combined with the cannibalization risk reduction provided by a BESS asset - significantly improves the profitability of such projects. Government can faciliate co-location with various measures such as FiT, simplified permitting process and grid fee exemption.
60
Markets coordinate decisions through___________
Price adjustement
61
What does production efficiency mean?
When we cannot produce more of any one good without giving up some other good
62
Opportunity cost is a ________
Opportunity cost of a can of cola is the inverse of the opportunity cost of a pizza.
1 pizza costs 5 cans of cola. One can of cola costs 1/5 of a pizza.
(Not relavant to PPF curve)
63
Opportunity cost of producing one more pizza is the ___________
Marginal cost of a pizza.
64
Is the point below PPF efficient?
No. Resources are either unemployed or misallocated.
65
Choices respond to _______
Incentives
We can predict how choices will change by looking at changes in incentives.
Incentives are also the key to reconciling self-interest and the social interest.
66
What is opportunity cost?
The highest valued alternative that must be given up to get it.
It has two components: the things you can’t afford, and can’t do.
67
Social interest’s 2 dimensions and explain
1. Efficiency: it is not possible to make someone better off without making someone else worse off.
2. Equity: fairness.
68
The quality of labor depends on _______
Human capital, which is the knowledge and skill that people obtain from education, on-the-job training, and work experience.
cf. the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services are capital.
69
________ is a reward that encourages an action or a penalty that discourages an action.
Incentives
70
_______ as a regulator
Price
At prices above the equilibrium price, a surplus forces the price down.
At prices below the equilibrium price, a shortage forces the price up.
71
6 main factors that change supply of a good
FFN STR
Prices of factors of production
Prices of related goods produced
Expected future prices
Number of suppliers
Technology
State of nature
72
Best affordable choice
MRS = Relative price
On the budget line
On the highest attainable indifference curve
73
Magnitude of the slope of the indifference curve measures the _____________
Marginal rate of substitution
74
___________ Is a general tendency for a person to be willing to give up les of good y to get one more unit of good x, while at the same time remaining indifferent as the quantity of good x increases
A diminishing marginal rate of substitution
75
The budget equation?
Expenditure = Income
Ps*Qs + Pm*Qm = Y
76
Increasing marginal returns arise from _____________
Diminishing marginal returns arises because …..
Increased specialization and division of labor.
each additional worker has less access to capital and less space in which to work.
77
Perfect competition arises when the firm’s minimum efficient scale is ________
Small relative to market demand, so there is room for many firms in the market.
78
In perfect competition, _______ can influence the price
No single firm
It must take the equilibrium market price
79
In perfect competition, each firm’s output is a _______
Perfect substitute for the output of the other firms, so the demand for each firm’s output is perfectly elastic.
80
Firms enter as long as firms are making economic profits.
In the long run, the market price ________
Falls/rises until firms are making zero economic profit.
81
What is excludable?
If only the people who pay for it are able to enjoy its benefits
82
What is rival?
If one person’s use of it decreases the quantity available for someone else
83
Inefficient private provision
The _________ results in too little of the good being produced by a private firm.
free-rider problem
84
Approaches to overcoming the inefficiency (negative externalities)
Establish property rights
Mandate clean technology
Tax or price pollution
85
__________________ shows link between productivity and living standards.
the equality or income and value of production (GDP)
86
Income elasticity grater than 1: _________
Income elasticity positive and less than 1: __________
Elastic
Inelastic
(Normal goods)
87
If demand is elastic, a 1% price cut will increase the quantity sold by_____ than 1% and total revenue __________
If demand is inelastic, a 1% price cut will increase the quantity sold by _____ than 1% and total revenue __________.
If demand is unit elastic, a 1% price cut will increase the quantity sold by _____ than 1% and total revenue __________.
More, increases
Less, decreases
N/a, does not change
88
Determinants of supply elasticity
SRI
Resource substitution possibilities
Time to respond
Inventories
89
Determinants of elasticity of demand
SNIDL
Availability of substitute goods
Necessity
Good’s price as a percentage of income
Duration
Brand loyalty
90
Supply and Demand for Coffee - case study
Equilibrium quantity _________
Remains constant! (Demand, supply together moved)
91
Shifts in the supply curve
The prices of factors of production
The prices of related goods produced
Expected future prices
The number of suppliers
Technology
Other factors (natural conditions, government policies, etc)
92
If the people who consume the good are the only ones who benefit from the good, the market demand curve is the ________________
Marginal social benefit curve
93
Acknowledging externalities
Publishing research about externalities about negative effects
Public demands I.e. protests demanding changes
94
Methods of mitigating externalities
And subjects who should try to quantify externalities and mitigate them
Gov and socially responsible enterprises
Ban of production/consumption
Limiting production (I.e. quotation)
Taxing products
Subsidizing products
Other policies that aim at reducing consumption (like the photos on cigarette packs)
95
Gov imposing price ceiling (e.g. rent ceiling) can lead to?
Housing shortage
Increase in search activity
Emergence of black market
96
_____________ is a monetary measure of the market value of all goods and services produced by a country’s citizens in a period of time
Gross National Product, GNP
97
Strategic long-term investment, operational production Volume, decommissioning of operating equipment
Decision making?
(3) 0 (2) Cfix (1)
(3) Negative cm - production threshold undershot
(2) operational production - production threshold exceeded
(1) Long-term investment - BEP exceeded
98
수요공급 곡선의 X, y 절편
Prohibitive price, saturation quantity
99
What is ISO
Alternative to ownership unbundling - grid assets are operated by a company that is independent from generation/supply
VDR
- Vertically integrated company remains owner of the grid
- Design - various ways. Especially regarding the division of responsibilities (network planning and extension, maintenance, information exchange)
- Responsible - ISO controls flows over the transmission network, while network owner is responsible for maintenance and expansion.
100
Merit order of power plants
On perfectly competitive markets the profit maximum of generators is reached if the dispatch of plants are organized according to their marginal cost.
Allocating all power plants according to their marginal costs gives the merit order.
Compared to fossil fuel plants, wind and PV generators have low marginal costs and therefore stand at the beginning of the merit order.
101
Clearing of open positions
To cover the counterparty risk, each trader is obliged to sustain a margin account at the energy exchange (or the clearing house). In addition, the trader has to open a maintenance account and to transfer an initial market that depends, among others, on the expected volume of his open positions.
If a trader holds an open position and the future price exceeds the contracted price, the clearing house transfers the price difference times contract size from the maintenance account to the margin account of the seller and from the margin account to the maintenance account of the buyer.
Debits and credits are adjusted at the end of each trading day according to the market price at closure.
If the maintenance account drops below a maintenance margin, the trader has to remargin in the maintenance accounts with short time. Otherwise all open positions of the trader are closed.
