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Economics Microeconomics > Basics > Flashcards

Basics Flashcards

1
Q

Advantages of Market Economy

A 
Consumer is sovereign
Choice
Highly motivated
No shortage or surplus
No unemployment
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2
Q

Disadvantages of Market Economy

A 
Income inequality
Public goods
Advertising
Merit/demerit goods
Externalities
Monopolies
Labour immobility
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3
Q

Advantages of Command Economy

A

Public + merit goods provided
Little poverty
No unemployment
No advertising

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4
Q

Disadvantages of Command Economy

A 
Lack of choice
Bureaucracy
Lack of motivation
Underemployment
Shortages + surpluses
Pollution
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5
Q

Define specialisation

A

Concentration on a limited range of good

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6
Q

Advantages of specialisation

A 
Skilled
No wasted time
Less training time
More choice of jobs
Continuous usage of equipment
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7
Q

Disadvantages of specialisation

A

Boredom
Interdependence
Structural unemployment

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8
Q

Define division of labour

A

Specialisation on a single product or service

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9
Q

Functions of Money

A

Store of value
Medium of exchange
Means of value
Method of deferred payment

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10
Q

Define positive statement

A

A statement that can be economically tested and verified

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11
Q

Define normative statement

A

A value judgment which is subjective

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12
Q

What is the fundamental economic problem?

A

That there are a finite number of factors of production but an infinite demand

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13
Q

Define opportunity cost

A

The cost of something expressed in the next best alternative forgone

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14
Q

Reasons for the irrational behaviour of consumers

A

Computational- unable to do the maths
Habitual- loyalty
Herding- what others do
Inertia- laziness

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15
Q

What causes a shift in supply?

A 
Changes in costs of production
Productivity
Indirect taxes
Subsidies
Technological advances
Discoveries of new reserves of raw materials
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16
Q

Define joint supply

A

When two things are supplied together such as beef and leather. So an increase in demand for beef will lead to an increase in the supply of leather

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17
Q

What causes the downward sloping demand curve?

A

Substitution effect
Income effect
Diminishing marginal utility

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18
Q

What is the substitution effect

A

Consumers will buy more of a lower priced good than a more expensive one

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19
Q

What is the income effect

A

The lower the price of something, the higher income will be so consumption will rise

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20
Q

What is diminishing marginal utility

A

As more of something is bought, the worth of the last unit falls

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21
Q

What causes a shift in demand

A 
Real income changes
Age distribution
Changes in tastes
Amount of advertising
Changes in interest rates
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22
Q

What is competitive demand?

A

Substitutes
Have a positive cross elasticity of demand
Coke + Pepsi, coffee + tea

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23
Q

What is complementary demand

A

Complements
Have a negative XED
Strawberries and cream

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24
Q

Derived demand

A

Demand created from another good

Labour

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25
Q

What is consumer surplus

A

The difference between the price the consumer gets and the price they are willing to pay

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26
Q

What is producer surplus

A

The difference between the price received by a firm and the price which they are willing to pay at

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27
Q

Define Income elasticity of demand

A

YED

%⌂D / %⌂Y

28
Q

Define inferior good

A

YED = 0>

29
Q

Define normal good

A

YED = 0

30
Q

Define price elasticity of supply

A

PES

%⌂QS / %⌂P

31
Q

Determinants of PES

A 
Time Period
Time to produce
Availability of stock
Perishability
Availability of factors
32
Q

Define price elasticity of demand

A

PED

%⌂QD / %⌂P

33
Q

Determinants of PED

A 
Substitutes 
Addicition
Durability
Proportion of income
Luxury vs Necessity
34
Q

Define elastic PED

A

When price increases, quantity demanded falls by proportionally more so revenue falls

35
Q

Define inelastic PED

A

When prices increases, quantity demanded falls by proportionally less so revenue rises

36
Q

Define Cross elasticity of demand

A

XED

%⌂QD of X / %⌂P of Y

37
Q

Define indirect tax

A

Tax on spending

38
Q

Define specific indirect tax

A

A set tax on every unit

39
Q

Define Ad Valorem tax

A

A percentage tax

40
Q

Evaluate indirect tax

A 
Depends on PED
PED influences incidence
Regressive
Magnitude
Willingness for supplier to pass it on
41
Q

In a tax is consumer on top or the bottom?

A

Top

42
Q

In a tax is producer on top or the bottom

A

Bottom

43
Q

Define subsidy

A

Grant from government to reduce production costs

44
Q

Evaluate a subsidy

A 
Depends on PED
Magnitude 
Time period
Inefficiency
Opportunity cost
45
Q

Define external benefits

A

Benefits to a third party not involved in the transaction

46
Q

Example of external benefits

A

Vaccinations

Recycling

47
Q

Evaluate external benefits

A

Subjective
Not equally spread out
Magnitude
Benefits < costs

48
Q

Define external costs

A

Costs to 3rd parties not involved in the transaction

49
Q

Examples of external costs

A

Passive smoking
Traffic congestion
Pollution

50
Q

Evaluate external costs

A

Subjective
Not spread easily
Magnitude
Costs < Benefits

51
Q

Explain how trade-able pollution permits work

A

Allocate permits on the amounts pollution made
‘Cap and trade’
Government sells permits
An incentive to ‘clean up’

52
Q

Advantages of a TPP

A 
More flexibility
Physical limit
More revenue for clean firms
Revenue for govt
Price mechanism used
Incentive
Can be reduced overtime
53
Q

Disadvantages of TPP

A

Cost of regulation
Dispute
Pass costs onto consumer
Information gap

54
Q

Define regulation

A

Variety of controls and rules for production

55
Q

Advantages of regulation

A

Less asymmetric information
Simple
Protect consumers
Fines are possible

56
Q

Disadvantages of regulation

A 
Distort price mechanism
Expensive
More costs of production
Unintended consequences
Set at any level
57
Q

Ways of decreasing information gaps

A

Radio
Billboards
Internet

58
Q

Reasons for decreasing information gaps

A

Discourage demerit goods

Encourage healthiness

59
Q

Define a minimum price scheme

A

A legally enforced minimum price

60
Q

Define a minimum guaranteed price

A

A legally enforced minimum price where the surplus is bought up

61
Q

Advantages of MinP

A

Less consumption
Stabilise income
Stabilise price
Use aid

62
Q

Disadvantages of MinP

A 
Inefficient
Perishability
Opportunity cost
Depends on PED
Unintended consequences
Unemployment`
63
Q

Define maximum price

A

Legally enforced maximum price

64
Q

Advantages of MaxP

A

Less inequality
Reduces exploitation
Can help low income families

65
Q

Disadvantages of MaxP

A

Can’t allocate efficiently
Unintended consequences
Less supply
Less producer surplus

Economics Microeconomics (2 decks)

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