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Economics > Contemporary Issues (1,2,3) > Flashcards

Contemporary Issues (1,2,3) Flashcards

1
Q

What is technical efficiency?

A

A given output is produced with minimum inputs.

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2
Q

Cost efficiency

A

A given output is produced at minimum costs (relies on technical efficiency).

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3
Q

Pareto efficiency

A

There is no other distribution of resources which could make one individual better off without making anyone else worse off.

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4
Q

Define asymmetric information?

A

Within an economics transaction, one party has more information than another.

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5
Q

What are externalities?

A

The costs and/or benefits of actions by one party which affect other parties. Externalities exist wherever a transaction affects an uncompensated party. Can be both positive and negative.

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6
Q

What is a monopsony?

A

Only one buyer in there market.

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7
Q

What is ‘moral hazard?

A

Lack of incentive to guard against risk where one is protected from its consequences

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8
Q

What is ‘adverse selection?

A

Refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality. In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to get life insurance.

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9
Q

What is the ‘cream skimming’ problem?

A

Occurs when an insurer knows more about consumers’ expected costs than the consumers themselves.

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10
Q

What is indirect targeting?

A

Premiums are based on the average risk for the group. Again this can lead to high premiums and non-insurance for some groups.

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11
Q

PPP?

A

Purchasing power parity - an estimate of the exchange rate required to equalise the purchasing of different currencies, given the price of good and services in the countries concerned.

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12
Q

What is a Product Market?

A

In product markets households provide income to rms in exchange
for goods and services like cars and haircuts.

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13
Q

What is a Factor Market?

A

In factor markets firms provide income to households in exchange
for labour and capital (investments).

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14
Q

What decisions do households make in the Labour Market?

A

When to enter, which occupation, number of hours, when to quit/retire.

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15
Q

What decisions do firms make in the Labour Market?

A

Number of workers to hire/ hours to work, when to layoff or close plant, pension or retirement policy.

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16
Q

How does a government establish the environment of a labour market?

A

Unemployment insurance, workers compensation/ pensions, laws to protect workers and firms.

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17
Q

What factors affect the position of the labour demand curve?

A

Consumer demand, Productivity of labour, non-wage costs of hiring labour.

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18
Q

What assumptions are made based on the basic model of the labour market?

A

Workers have full mobility and potentially that the labour supply relates to a given sector rather than the whole labour market.

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19
Q

What factors might affect the position of the labour supply curve?

A

Individual skills, Other options being available (unemployment benefits), Migration, Non-monetary (e.g. working conditions), Regulations can restrict supply.

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20
Q

Why might unemployment hinder individuals?

A

Reduces standards of living; Has a big impact on sense of well-being, health and mental health; increases chances of future unemployment and depresses future wages.

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21
Q

The Claimant Count?

A

The number of people on job-seekers

allowance.

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22
Q

Unemployment Rate?

A

the percentage of the labour force without
a job but registered as being willing and available for work, usually
a higher proportion than would be measured if using the claimant
count.

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23
Q

Labour Force?

A

those people holding a job or registered as being

willing and available for work.

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24
Q

Participation Rate?

A

the percentage of the population of working

age declaring themselves to be in the labour force.

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25
Q

What is frictional unemployment?

A

The irreducible minimum level of employment in a dynamic society. (people between jobs).

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26
Q

What is Structural Unemployment?

A

Unemployment arising from a mismatch of skills
and job opportunities when the pattern of demand and
production changes.

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27
Q

Demand-decient unemployment?

A

Occurs when output is
below full capacity. (`Keynesian’ unemployment occurs in the transitional period
before wages and prices have fully adjusted).

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28
Q

Classical unemployment?

A

Created when the wage is
deliberately maintained above the level at which labour supply
and labour demand schedules intersect.

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29
Q

What is the difference between volunteers and involuntary unemployment?

A

Voluntary occurs when a worker is unwilling to work at a given wage rate whereas involuntary occurs when the worker is willing to work but cant ge ta job.

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30
Q

What is the natural rate of unemployment?

A

The rate of unemployment
when the labour market is in equilibrium (also called equilibrium
unemployment). If unemployment falls below the natural rate then prices will start
to rise.

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31
Q

Why do we spend so much on education?

A

Higher education is usually associated with higher incomes. Education is an investment in human capital.
Higher taxes.
less likely to commit crimes or be on welfare.
May raise productivity of those they interact with.
Tend to have more stable employment, reducing stress and negative health risk.

32
Q

What are fixed inputs? (2 examples)

A

Inputs that cannot be easily changed. (plant and equipment)

33
Q

What are variable inputs?

A

Factors that can be easily changed.

34
Q

Are workers seen as fixed or variable inputs?

A

Variable because they can be hired and fired more easily than replacing a machine.

35
Q

What is Diminishing Marginal Returns?

A

there exists a point where, because there
are some fixed inputs, the additional resources like workers
increases production, but does so at a decreasing rate. (Piano example.)

36
Q

What is Tangible Capital?

A

Assets that yield income and other useful outputs over long periods of time. e.g. Stocks, Bank Accounts.

37
Q

What is Physical Capital?

A

Machines which are part of a production or

services process.

38
Q

What is Human Capital?

A

The skills, knowledge, and experience
possessed by an individual or population, viewed in terms of
their value or cost to an organization or country.

39
Q

What is the Net Present Value (NPV)?

A

The NPV of an investment is the difference by the cost and the interest-adjusted value of future payment.

40
Q

What is the NPV formula?

A

NPV = -C + (P/(1 + r)^t)
You insure a cost of C this year in order to get a future payment of P after t years. The interest rate is r.
NPV must be > 0 for an investment to be worthy.

41
Q

How can adverse selection be resolved?

A

A screening process or by providing choices from a menu of contracts.

42
Q

Why is demand for healthcare rising around the world?

A

Demand side; People are getting richer, the population is raging and more expensive conditions due to sedentary lives
Supply side; labour intensive and technological improvements allows more advanced treatments.

43
Q

How does the US health system operate?

A

Private insurance is the norm, but insurance for the old (medicare) and poor (medicaid) is provided by the state.
Those without the above must by their own.

44
Q

Why is the US system failing?

A

Outcomes aren’t better in the US despite higher spending. There is also no incentive to keep costs down as it is a reimbursement system.
Costs could be reduced if GPs were used more.

45
Q

What is the Affordable Care Act?

A

A policy passed by Obama in 2010. It was meant to ensure all Americans had access to health care and 92% of the population should be insured.

46
Q

What are the negatives of the NHS?

A

Its an integrated system with poor incentives for cost reduction, low responsiveness to consumer needs and retaining to manage consumer demands.

47
Q

What are quasi-markets?

A

Menat to introduce some features of competitive markets.

48
Q

What factors effect the labour supply curve?

A 
Individual skills
unemployment benefits
Size of population
Working conditions and other non-money components
Labour market regulation
49
Q

What are Keynesian demand management policies?

A

To be used if the labour market is away from its equilibrium. They increase the demand for goods and services, thereby increasing demand for workers.

50
Q

In terms of money in the economy, when is a raise in the minimum wage positive?

A

As long as the gains from higher wages are greater than the losses from those losing their jobs. Demand for labour has to be inelastic.

51
Q

What is the traditions argument against the minimum wage?

A

What is gained by employees is less than what is lost by producers.

52
Q

What are the two main criticism of the traditional argument against the minimum wage?

A 
The good (labour) isn't fixed. People may increase effort if paid more.
Elasticity; If demand is inelastic then the negatives of an increase in the minimum wage are small.
53
Q

How do you analyse the raising of the minimum wage to combat employment?

A

The Employment Effect: who benefits?

The Business response; Who pays for the higher earnings.

54
Q

In a tobacco market, what would the demand curve be?

A

The social benefit curve as we assume only the consumers benefit from smoking.

55
Q

What are the best ways to combat obesity?

A

Product taxes, restricting advertisement, educational programmes, subsidising healthy meals and incentives to promote healthy living.

56
Q

Wha does competition policy promote?

A

Efficiency, innovation, economic growth and consumer welfare gains through lower prices , better quality , more choices and easy access.

57
Q

What does perfect competition assume?

A

A large number of producers and consumer, a homogenous product, no asymmetric information, no consumer or producer has influence over the price of the product.

58
Q

What are the adverse consequences about monopolies?

A

Prices are higher and output is less, discrimination between consumers and rent seeking.

59
Q

What is rent seeking?

A

Strategic actiivity to achieve or maintain a monopoly position. May result in excessive advertising that doesn’t increase consumer or producer welfare.

60
Q

What are the two authorities set in place to deal with competition policy and what are their roles?

A

Competition Commission - investigative

Competition Tribunal - Adjudicative

61
Q

What are the main areas of competition policy?

A

Anticompetitive agreements
Abuse of dominance position
Mergers.

62
Q

When is it considered that a monopoly has abused its dominance?

A 
Exploitative practices (against customers for insurance)
Exclusionary Practices (removing competition)
63
Q

What are the three types of mergers?

A

Horizontal (most harmful as it reduces number of players,
Vertical
Conglomerate (different lines of business. May result in firms becoming to large and abusing their financial resources).

64
Q

What key steps are there in analysing anti-competitive cases o mergers?

A
  1. Abusive Conduct
  2. Legal Assessment
  3. Dominance Position - e.g. market power. Used as an early indication of dominance.
  4. Barriers to entry
  5. Legal Assessment - what are the effects,
  6. Competition Authority Action
65
Q

What is the gini coefficient?

A

A number between 0-1. The higher the number the higher the level of inequality.

66
Q

What are some reasons for increased inequality in the US? (Bottom Group)

A

Bottom groups;
Robotic production
Competition from Asia and Europe making it unaffordable to keep post-WWII wages.

67
Q

What are some reasons for increased inequality in the US? (Top Group)

A

Capital markets more profitable due to capital being generated from all over the world.

68
Q

How did the financial crash impact inequality?

A

The educated had a better chance to bounce back. Top earning firms tended to pull away from the rest and become more profitable.

69
Q

Why can inequality be beneficial?

A

Encourages people to work harder but it becomes a problem when those at the bottom see it as unjustified.

70
Q

How can we approach inequality?

A

Inequality limits growth so we must reduce it. This can be done by increasing opportunities for bottom and middle income groups thereby improving the degree of upward income mobility.

71
Q

Why can it be said that an increase in the wealth of the poor will have a greater impact on growth?

A

The marginal propensity to consume is higher for the poor.

72
Q

The than income redistribution, what other measures can be applied?

A

Increase in access to public services. The unemployed can be retrained and transition to new jobs due to competition in Asia and Europe.

73
Q

What was the main cause of the financial crash?

A

The housing bubble.

74
Q

Why did some states in the US experience higher house price rises than others?

A

Physical Barriers To Expansion.
Median Family Income.
Population Growth.

75
Q

What were the original mortgage agreements?

A

20% down-payment
30% of income > mortgage payments, property taxes and insurance.
If a borrower defaulted, the bank would take the loss.

76
Q

What is leverage?

A

Total liability / equity

77
Q

Equity?

A

Assets - Liabilities.

Economics (6 decks)

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