ALL NOTES Flashcards
LAST MINUTE PUSH (204 cards)
1
Q
What is money?
A
Anything that is generally accepted as a medium of exchange
Money can also be used to pay for goods or services or settle debts.
2
Q
List the properties of money.
A
- General acceptability
- Durability
- Portability
- Homogeneity and divisibility
- Recognisable
- Stable value
- Relative scarcity
3
Q
What are the functions of money?
A
- Medium of exchange
- Unit of account
- Store of value
4
Q
What are the forms of money?
A
- Clay discs
- Gold
- Coins
- Notes
5
Q
What does M1 represent in South Africa?
A
Currency and chequable deposits
6
Q
What does M2 represent in South Africa?
A
M1 + All short and medium-term deposits
7
Q
What does M3 represent in South Africa?
A
M2 + long-term deposits
8
Q
Define asset demand for money, Da.
A
Households may hold their financial assets in many forms, including bonds or money.
9
Q
Define transactions demand for money, Dt.
A
Households keep money to purchase goods and services.
10
Q
What is the equilibrium interest rate?
A
The intersection between demand and supply that determines the equilibrium price.
11
Q
True or False: An increase in the money supply will lower the equilibrium interest rate.
A
True
12
Q
What is the relationship between interest rates and bond prices?
A
Bond prices fall when interest rates rise and vice versa.
13
Q
What are the operational functions of the South African Reserve Bank (SARB)?
A
- Issue banknotes and coins
- Banker to government
- Custodian of other banks’ cash reserves
- Clearance of interbank claims
- Custodian of foreign reserves
- Bank of discount and lender of last resort
- Collection and analysis of statistics
14
Q
What are the tools of monetary policy?
A
- Open market operations
- The reserve ratio
- The repo rate
15
Q
What happens during expansionary monetary policy?
A
The Reserve Bank lowers the interest rate to boost borrowing and spending.
16
Q
What happens during restrictive monetary policy?
A
The Reserve Bank increases the interest rate to reduce borrowing and spending.
17
Q
What is the fractional reserve system?
A
Only a portion of demand deposits are backed up by cash in bank vaults or deposits at the central bank.
18
Q
What is the money multiplier (m)?
A
The reciprocal of the required reserve ratio (R).
19
Q
Fill in the blank: The money multiplier exists because the _______ and deposits lost by one bank become reserves of another bank.
A
reserves
20
Q
What is the repo rate?
A
The interest rate paid on overnight loans between commercial banks and the Reserve Bank.
21
Q
What is the cause-effect chain for expansionary monetary policy?
A
- Excess reserves increase
- Money supply rises
- Interest rate falls
- Investment spending increases
- Aggregate demand increases
- Real GDP rises
22
Q
What is the cause-effect chain for restrictive monetary policy?
A
- Excess reserves decrease
- Money supply falls
- Interest rate rises
- Investment spending decreases
- Aggregate demand decreases
23
Q
What are the challenges in evaluating monetary policy?
A
- Speed and flexibility
- Isolation from political pressure
- Recognition lag
- Administrative lag
- Operational lag
24
Q
What is the balance sheet of a commercial bank?
A
A statement of assets and claims on assets that summarizes the financial position of the bank at a certain time.
25
How do banks create money?
By lending out excess reserves.
26
What is the primary goal of banks when managing their assets?
* Profit
* Liquidity
27
What is the definition of 'labour' in the context of the economy?
The term ‘labour’ applies to:
* Blue- and white-collar workers of all varieties
* Professional people such as lawyers, physicians, dentists, and teachers
* Owners of small businesses and retailers who provide labour as they carry on their own businesses
## Footnote
Labour encompasses a wide range of employment types and roles in the economy.
28
What does the Quarterly Labour Force Survey (QLFS) provide information about?
The QLFS provides information about the South African labour market, including demand for labour and employment statistics
## Footnote
The QLFS is a key source of data for understanding labour dynamics in South Africa.
29
How is the demand for labour characterized in a competitive labour market?
The demand for labour is characterized by a downward-sloping curve: the higher the wages, the higher the demand for labour
## Footnote
This reflects the principle that higher wages attract more job seekers, increasing the overall demand.
30
What is the supply of labour in a competitive labour market?
The supply of labour is characterized by an upward-sloping curve: employers must pay higher wage rates to attract more workers
## Footnote
This indicates that as wages increase, more individuals are willing to enter the labour market.
31
What are the assumptions of a purely competitive labour market?
Assumptions include:
* Numerous firms compete to hire a specific type of labour
* Many qualified workers with identical skills supply that type of labour
* Individual firms and workers are 'wage takers'
## Footnote
These assumptions create a framework where wages and employment levels are determined by market forces.
32
What does it mean for an individual firm to be a 'wage taker'?
A 'wage taker' means that individual firms cannot exert control over the market wage rate and must accept the prevailing wage
## Footnote
This is a fundamental characteristic of competitive markets where firms have no market power.
33
What is the marginal cost of resource (MRC)?
The marginal cost of resource (MRC) is the extra cost of employing one additional unit of labour
## Footnote
Understanding MRC is crucial for firms when making hiring decisions.
34
What is the impact of unions on wage levels?
Unions can lead to higher wages, but this is dependent on factors such as occupation, industry, race, and gender
## Footnote
Higher union wages can also result in fewer employment opportunities in non-unionized sectors.
35
What are the positive and negative views regarding unions?
Positive views:
* Longer-run positive impacts
* Reduced worker turnover
* Increased informal training
Negative views:
* Losses via feather-bedding and work rules
* Losses via strikes
* Losses via labour misallocation
## Footnote
This reflects the complex role unions play in the labour market.
36
What is affirmative action in the context of employment?
Affirmative action consists of special efforts by employers to increase employment and promotion opportunities for groups that have suffered past discrimination
## Footnote
This policy aims to address historical inequalities in the workforce.
37
Fill in the blank: The price paid per unit of labour services is known as the _______.
[wage rate]
38
What are the primary reasons for high productivity in labour?
Reasons for high productivity include:
* Plentiful capital
* Access to abundant natural resources
* Advanced technology
* Labour quality
## Footnote
These factors collectively enhance the efficiency and effectiveness of labour.
39
What is the case against the minimum wage?
Arguments against minimum wage include potential job losses, increased unemployment, and higher prices for consumers
## Footnote
Critics argue that minimum wage laws can lead to unintended economic consequences.
40
What defines a pure monopoly?
A pure monopoly is characterized by:
* A single seller
* Unique product with no close substitutes
* Price maker
* Blocked entry for competitors
## Footnote
Pure monopolies have significant control over market prices due to the lack of competition.
41
What is price discrimination in the context of monopolies?
Price discrimination occurs when a monopolist charges different prices to different consumers for the same good, based on their willingness to pay
## Footnote
This practice can increase a monopolist's profits by capturing consumer surplus.
42
What is the economic effect of monopoly on efficiency?
Monopoly creates an efficiency loss as it results in a price greater than marginal cost, leading to underproduction and a deadweight loss
## Footnote
This inefficiency contrasts with the allocative efficiency found in competitive markets.
43
What are regulated monopolies?
Regulated monopolies are government-owned or government-regulated public utilities that provide essential services
## Footnote
Regulation aims to control prices and ensure fair access to essential services.
44
What is the dilemma of regulation for monopolies?
The dilemma of regulation involves balancing fair return prices with socially optimum prices while ensuring adequate service provision
## Footnote
Regulators must navigate the trade-offs between affordability and the financial viability of the monopoly.
45
What is the condition for price in a perfectly competitive market?
P = ATC
46
What is the dilemma faced in regulation?
Dilemma of regulation
47
What are the potential perils associated with online price discrimination?
The Potential Perils of Online Price Discrimination
48
What is a pure monopoly?
A market structure where one firm dominates and offers a unique product.
49
What is imperfect competition?
A market structure where firms have some control over price due to product differentiation.
50
Define average revenue in a competitive market.
AR = TR/Q = P
51
What is total revenue?
TR = P * Q
52
What does marginal revenue represent?
Change in revenue from selling one more unit of output.
53
What are barriers to entry?
Obstacles that prevent new competitors from easily entering an industry.
54
What does it mean to price-discriminate?
Charging different prices to different consumers for the same good.
55
What is the condition for profit maximization in terms of marginal revenue and marginal cost?
MR = MC
56
What is a price maker?
A firm that has the ability to set the price for its product.
57
What is allocative efficiency?
A situation where resources are allocated in a way that maximizes total surplus.
58
What are regulated monopolies?
Monopolies that are subject to government regulation to control prices and output.
59
Define socially optimum price.
The price that results in the most efficient allocation of resources.
60
What is a fair-return price?
A price that allows a firm to cover its costs and earn a normal profit.
61
What are the four basic market models?
* Pure Competition
* Monopolistic Competition
* Oligopoly
* Pure Monopoly
62
What defines pure competition?
Very large number of firms, standardized product, very easy entry/exit.
63
What characterizes a pure monopoly?
One firm, unique product, entry/exit is completely blocked.
64
What is monopolistic competition?
Large number of sellers, differentiated product, non-price competition.
65
What defines an oligopoly?
Few sellers, standardized or differentiated product.
66
What is the relationship between the number of firms and product type in pure competition?
A very large number of firms offering a homogenous product.
67
What is the demand curve for a competitive firm?
The firm's demand curve is also its AR curve.
68
What signifies the break-even point?
Total Revenue equals Total Cost.
69
What is the significance of the MR=MC rule?
It is used for profit maximization in all market structures.
70
What is the total revenue test?
A method to determine price elasticity of demand based on changes in total revenue.
71
What is price elasticity of demand?
A measure of how much the quantity demanded of a good responds to a change in its price.
72
What does a price elasticity of demand greater than 1 signify?
Elastic demand
73
What does a price elasticity of demand less than 1 signify?
Inelastic demand
74
What is unit elasticity?
When %ΔQ = %ΔP
75
How is the price elasticity of demand calculated?
Ed = %ΔQ / %ΔP
76
What happens to demand when the price increases?
Quantity demanded typically decreases.
77
What is the midpoint formula used for?
To calculate price elasticity of demand using average values.
78
What does it mean if Ed = 0.5?
Inelastic demand
79
What is the formula for calculating cross elasticity of demand?
Cross elasticity = %ΔQd of good A / %ΔP of good B
80
What does an elasticity value of Ed = 2 indicate?
Demand is elastic.
81
What does it mean if the quantity demanded decreases from 6 to 3 when the price increases from R5 to R10?
Elasticity of Demand = 0.5 (Inelastic demand)
82
What is the formula for Price Elasticity of Demand (Ed)?
Ed = %ΔQ / %ΔP
## Footnote
%ΔQ is the percentage change in quantity demanded and %ΔP is the percentage change in price.
83
What characterizes elastic demand?
Ed > 1
## Footnote
This means that the percentage change in quantity demanded is greater than the percentage change in price.
84
What characterizes inelastic demand?
Ed < 1
## Footnote
This indicates that the percentage change in quantity demanded is less than the percentage change in price.
85
What is unitary elastic demand?
Ed = 1
## Footnote
In this case, the percentage change in quantity demanded equals the percentage change in price.
86
What does perfectly inelastic demand mean?
Ed = 0
## Footnote
Quantity demanded does not change regardless of price changes.
87
What does perfectly elastic demand mean?
Ed = ∞
## Footnote
Any increase in price will cause quantity demanded to drop to zero.
88
What is the total revenue formula?
Total revenue = Price (P) x Quantity demanded (Qd)
## Footnote
This formula helps analyze the relationship between price changes and total revenue.
89
How does elastic demand affect total revenue when price decreases?
Total revenue increases
## Footnote
Because the percentage change in quantity demanded is greater than the percentage change in price.
90
How does inelastic demand affect total revenue when price decreases?
Total revenue decreases
## Footnote
The percentage change in quantity demanded is less than the percentage change in price.
91
What are the determinants of price elasticity of demand?
* Substitutability
* Proportion of income
* Luxuries vs. necessities
* Time
* Product durability
## Footnote
These factors influence how sensitive demand is to price changes.
92
What is price elasticity of supply?
The responsiveness of quantity supplied to a change in price
## Footnote
It measures how much more or less producers are willing to sell as prices change.
93
What does it mean if supply is perfectly inelastic?
Es = 0
## Footnote
Quantity supplied does not change regardless of price changes.
94
What does it mean if supply is perfectly elastic?
Es = ∞
## Footnote
Any decrease in price will cause quantity supplied to drop to zero.
95
What is cross elasticity of demand?
Exy = %ΔQd of product X / %ΔP of product Y
## Footnote
It measures how sensitive the demand for one product is to the price change of another product.
96
What is the interpretation of Exy > 0?
Substitute goods
## Footnote
When the price of one good rises, the quantity demanded of the other good also rises.
97
What is the interpretation of Exy < 0?
Complementary goods
## Footnote
When the price of one good rises, the quantity demanded of the other good falls.
98
What is income elasticity of demand?
Ei = %ΔQd of product X / %ΔIncome
## Footnote
It measures the responsiveness of quantity demanded to changes in consumer income.
99
What does Ei > 0 indicate?
Normal goods
## Footnote
Demand for these goods increases as income increases.
100
What does Ei < 0 indicate?
Inferior goods
## Footnote
Demand for these goods decreases as income increases.
101
What is the law of demand?
Ceteris paribus, as price falls, quantity demanded rises, and vice versa
## Footnote
This describes the inverse relationship between price and quantity demanded.
102
What is a demand schedule?
A table showing the relationship between price and quantity demanded
## Footnote
It provides a clear representation of how quantity demanded varies with price.
103
What is market demand?
The sum of all individual demands at various prices
## Footnote
It reflects the total demand for a product in the market.
104
What are the factors that can shift the demand curve?
* Consumers' tastes
* Number of buyers
* Income of consumers
* Price of related goods
* Consumer expectations
* Population growth
## Footnote
These factors can lead to increases or decreases in demand.
105
What happens to demand when consumer expectations increase regarding future prices?
Demand increases
## Footnote
Consumers buy now to avoid higher future prices.
106
What is the relationship between population growth and demand for necessary goods?
Higher population leads to higher demand for necessary goods such as food.
107
What happens to the demand for cool drink A when studies prove its health benefits?
Increase in demand.
108
What is the result of a 10 percentage point increase in the marginal tax rate on demand for new motor cars?
Decrease in demand.
109
What happens to the quantity demanded of coffee when its price decreases from R4 to R3?
Increases from 4 to 8 units.
110
What are coffee and sugar classified as in economic terms?
Complement goods.
111
What happens to the demand for sugar when the price of coffee decreases?
The demand for sugar increases.
112
What is the effect of a price decrease from R4 to R3 for Cola-type A?
The quantity demanded of Cola-type A increases from 4 to 8 units.
113
What are Cola-type A and B considered in economic terms?
Substitute goods.
114
What happens to the demand for Cola-type B when the price of Cola-type A decreases?
The demand for Cola-type B decreases.
115
Define supply in economic terms.
The various amounts of a product that producers are willing to make available for sale at each of a series of possible prices during a specified period of time.
116
What does a supply schedule reveal?
The relationship between various prices of a product and the quantity a supplier is willing to supply at those prices.
117
What is the law of supply?
Ceteris paribus, as price falls, the quantity supplied falls too, and as price rises, the quantity supplied increases.
118
What are some factors that affect a producer's decision to supply a good?
Resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, number of sellers.
119
What happens to the supply of apples when the government decreases taxes on their production?
Increase in supply.
120
What is the impact on software supply when employee wages increase?
Decrease in supply.
121
What is equilibrium price?
The price where the intentions of buyers and sellers match.
122
What is equilibrium quantity?
The quantity demanded equals quantity supplied at the equilibrium price.
123
What happens to equilibrium price and quantity of toothpaste when the price of toothbrushes decreases?
Increase in demand for toothpaste, leading to P↑ and Q↑.
124
What occurs to equilibrium price and quantity of cars when consumer income falls due to a pandemic?
Decrease in demand, leading to P↓ and Q↓.
125
What happens to equilibrium price and quantity of bread when the price of baking ingredients decreases?
Increase in supply, leading to P↓ and Q↑.
126
What is consumer surplus?
The difference between the maximum price a consumer is willing to pay for a product and the actual price.
127
What is producer surplus?
The difference between the actual price a producer receives and the minimum acceptable price.
128
What are efficiency losses in terms of consumer and producer surplus?
Reductions of combined CS and PS associated with underproduction or overproduction.
129
What is a price ceiling?
A maximum price set by the government that can be charged for a product.
130
What are black markets in relation to price ceilings?
Markets where buyers pay more than the ceiling price, leading to illegal transactions.
131
What are rent controls designed for?
To protect low-income families from escalating rents due to perceived housing shortages.
132
What is the goal of a price floor?
To set a minimum price that can be charged for a good or service.
133
What is the law of diminishing returns?
As more units of a variable resource are added to a fixed resource, the additional output produced will eventually decrease.
134
What are explicit costs?
Monetary payments made to those who supply labor services, materials, etc.
135
What are implicit costs?
Opportunity costs of using self-owned resources.
136
What is the definition of explicit costs?
Monetary payments made to those who supply labour services, materials, fuel, transportation services, etc.
137
What are implicit costs?
Opportunity costs of using self-owned, self-employed resources, representing potential earnings in their best alternative use.
138
What is normal profit?
The payment made by a firm to obtain and retain entrepreneurial ability or the minimum income necessary for entrepreneurial functions.
139
Define economic or pure profit.
Total revenue minus total costs (both explicit and implicit, including normal profit).
140
What is the short run in economic terms?
A period too brief for a firm to alter its plant capacity but long enough to change the degree of fixed plant usage.
141
What defines the long run in economics?
A period long enough for a firm to adjust all resource quantities employed, including plant capacity.
142
What is total product (TP)?
The total quantity or total output of a particular good or service produced.
143
What is marginal product (MP)?
The extra output associated with adding one unit of a variable resource to the production process.
144
What is average product (AP)?
Output per unit of input, calculated as total product divided by input.
145
What are fixed costs (FC)?
Costs that do not vary with changes in output and must be paid even if output is zero.
146
What are variable costs (VC)?
Costs that change with the level of output, associated with payments for inputs to the production process.
147
How is total cost (TC) calculated?
Sum of fixed cost and variable cost at each level of output: TC = TFC + TVC.
148
What is average total cost (ATC)?
Calculated by dividing total cost by each level of output: ATC = TC/Q.
149
What is marginal cost (MC)?
The extra cost of producing one more unit of output, calculated as MC = ΔTC/ΔQ.
150
What are economies of scale?
Factors that lead to lower average costs of production as plant size increases.
151
What are diseconomies of scale?
Factors that lead to higher average costs of production as plant size increases.
152
Define minimum efficient scale (MES).
The lowest level of output at which a firm can minimize long-run average costs.
153
What is the law of diminishing marginal utility?
As a consumer acquires additional units of a good, the additional satisfaction from each unit decreases.
154
What is total utility (TU)?
The total amount of satisfaction derived from consuming a specific quantity of a good or service.
155
What is marginal utility (MU)?
The extra satisfaction realized from consuming one additional unit of a product.
156
What is the formula for weighted marginal utility (WMU)?
WMU = MU/Price.
157
What is a budget constraint?
A limitation on the consumption choices of consumers based on their income and the prices of goods.
158
What are indifference curves?
Graphs that represent different combinations of goods that provide the same level of utility to a consumer.
159
What does the utility-maximization model highlight?
The income and substitution effects of a price change on consumer behavior.
160
What does rational consumer behavior entail?
Consumers attempt to maximize their utility given their available income.
161
What is the definition of marginal utility (MU)?
The additional satisfaction or utility gained from consuming one more unit of a good or service.
## Footnote
Marginal utility is measured in utils.
162
How do you calculate MU per Rand?
MU per Rand (MU/Price) = Marginal Utility divided by Price of the product.
## Footnote
This helps consumers determine which product gives the most utility for their money.
163
What is the optimum condition for utility maximization?
The last rand spent on each product yields the same extra or marginal utility.
## Footnote
This is achieved when MU per Rand is equal across all products.
164
What is the income effect?
The impact that a change in the price of a product has on a consumer’s real income and consequently on the quantity demanded of the good.
165
What is the substitution effect?
The impact that a change in a product’s price has on its relative expensiveness and consequently on the quantity demanded.
166
What are indifference curves?
Curves showing various combinations of two products that yield the same level of utility to the consumer.
167
What does the marginal rate of substitution (MRS) represent?
The rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility.
168
What are the characteristics of a command economic system?
* Government ownership of most property resources
* Central economic planning
* Central planning board makes decisions.
169
What are the two insurmountable problems faced by command systems?
* Coordination problem
* Lack of incentives.
170
What is consumer sovereignty?
The idea that consumers' preferences determine the production of goods and services.
171
What is the difference between cardinal and ordinal utility?
* Cardinal utility: Assumes utility is measurable numerically.
* Ordinal utility: Assumes consumers can only rank preferences.
172
What factors determine how goods and services will be produced in a market system?
* Cost minimization
* Efficiency in production techniques
* Availability of technology.
173
What is the 'invisible hand' in economics?
The self-regulating nature of the marketplace where individuals' pursuit of self-interest leads to positive social outcomes.
174
What is the impact of price changes on a budget line?
Price changes shift the budget line, affecting the combinations of goods a consumer can purchase.
175
What does the law of diminishing marginal utility state?
As a consumer increases consumption of a good, the marginal utility gained from each additional unit decreases.
176
What is the significance of the equilibrium position in consumer behavior?
It represents the combination of goods that maximizes utility given the consumer's budget constraint.
177
Fill in the blank: The _______ is a schedule or curve showing various combinations of two products a consumer can purchase with a specific money income.
budget line
178
What is the concept of 'creative destruction'?
The process by which new innovations replace outdated technologies or products, promoting economic progress.
179
What are the five fundamental economic questions?
* What goods and services will be produced?
* How will they be produced?
* Who will get the goods and services?
* How will the system promote progress?
* How will the system accommodate change?
180
What is the relationship between price and quantity demanded according to the demand curve?
As price decreases, quantity demanded increases, and vice versa.
181
What is the purpose of deriving a demand curve?
To illustrate the relationship between the price of a good and the quantity demanded at that price.
182
True or False: Indifference curves can cross each other.
False. Indifference curves never cross each other.
183
What happens to marginal utility as consumption of a good increases?
Marginal utility decreases as consumption increases.
184
What is an inverse relationship?
Variables move opposite each other
## Footnote
In contrast to a direct relationship where both variables move together.
185
What defines an independent variable?
The cause or source of change
## Footnote
It is the variable that is manipulated in an experiment.
186
What defines a dependent variable?
The effect or result of the change in the independent variable
## Footnote
It is the variable that is measured in an experiment.
187
Fill in the blank: Slope = _______
Vertical Change / Horizontal Change
188
What indicates a positive slope in a straight line?
Both variables move up or down together
## Footnote
A positive slope means that as one variable increases, the other variable also increases.
189
What indicates a negative slope in a straight line?
Variables move opposite each other
## Footnote
A negative slope means that as one variable increases, the other variable decreases.
190
What is the 'other things equal' assumption?
Ceteris paribus
## Footnote
It is the assumption that all other variables remain constant while analyzing the relationship between two variables.
191
What is the definition of economics?
The study of how individuals, businesses, and institutions make social choices to optimize satisfaction under conditions of scarcity.
192
What is opportunity cost?
The value of the next best alternative that must be forgone to undertake an activity.
193
Provide an example of opportunity cost for an individual.
Choosing between a holiday or a new kitchen
## Footnote
If an individual chooses to buy a car, the opportunity cost may be the holiday they forgo.
194
What is the economic perspective?
Scarcity and choice
## Footnote
It focuses on how limited resources lead to choices in consumption and production.
195
What does rational behavior in economics refer to?
The desire to maximize utility under constraints
## Footnote
It assumes individuals make decisions that provide them with the greatest satisfaction.
196
What is utility in economic terms?
Pleasure, happiness, or satisfaction obtained from consuming a good or service.
197
What is marginal analysis?
The examination of the additional or extra benefits and costs associated with a decision.
198
Differentiate between macroeconomics and microeconomics.
Macroeconomics examines the economy as a whole; microeconomics concerns individual units like households or firms.
199
What is positive economics?
Focuses on facts and cause-and-effect relationships, including theory development and testing.
200
What is normative economics?
Incorporates value judgments about what the economy should be like.
201
What is the significance of the scientific method in economics?
It is used for developing economic principles and models to ascertain cause and effect.
202
Fill in the blank: Utility can be classified as _______ or ordinal.
Cardinal
203
What does the term 'aggregate' refer to in economics?
A total or combined amount, often used in macroeconomics to describe the economy as a whole.
204
What is the graphical expression in economics?
A visual representation of economic relationships, often using graphs to illustrate concepts.
