Core Principles of Economics and Market Equilibrium Flashcards

(44 cards)

1
Q

Explain what efficiency is

A

The best use of resources whilst minimising waste.

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2
Q

Explain what pareto-efficiency is

A

Par. eff.: Eff. occurs when the alloc. of res. results in a person being made bet. off w/ making another person worse off.

NB: No further pareto improvements are possible here

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3
Q

Explain what Kaldor Hicks efficiency is

A

Effstill occur when alloc. of res. results in a person being made betr. off(increased benefit for them)
-whilst making an. person worse off,
- as long as these damages are compensatable.
-but it doesn’t have 2 have happened

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4
Q

Explain what welfare is

A

the lev. of prosp. and standard of living in society as a whole.

NB: this considers both non-monetary and monetary aspects
NB: Analaysing welfare, typically seeks 2. incr. utility (the satis. one gets for getting something
There., amount of welfare= amount of utility= satisfying desires

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5
Q

Explain what maximum welfare is

A

where the overall welfare is the highest it can be

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6
Q

Explain what demand is

A

the willingness of customers to pay

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7
Q

Explain what supply is

A

the amount of goods or services that produces are willing and able to offer at a price in a given time period

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8
Q

Explain what price elasticity is

A

-How far (%)
-the dema, quantity(Q) of good C changes
-if the price(P) of good X changes by 1%?

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9
Q

Explain what elazstic demand is

A

Elastic demand: if the effect of changing price is large→ greater than -1% on a good

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10
Q

Explain what inelastic demand is

A

da effect of change in price on quality demanded is small→ less that -1%
-(E.g: if price increases by 1%, while quantity demanded decreases only by 0.25%

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11
Q

Explain what a transaction is

A
  1. transfer of property rights,
  2. simultaneous exchange of a physical( real pos. of the good), econ.(transfer of money) and leg. rights(transfering property rights.
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12
Q

Explain what transaction costs are

A
  1. non-prod. costs assoc. with the transaction itself, that are incurr/ due to the exch. of goods. (E.g: not. costs when buying a house)

NB: Under some concepts, transaction costs can also be non-monetary (e.g: emotional costs)

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13
Q

Explain what sunk costs are

A

-Costs dat hv been incurr. + cannot be recov.
-has happened whe. or not the prosp. act. is taken.
NB: ignore sunk costs when analysing econ. decisions

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14
Q

Explain what marginal analysis is

A

analyses costs + ben. based on extra/add. costs and benefits
- NB: at every step you compare the whether the extra benefits out weight the extra costs, to see whether taking action is worthwhile.

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15
Q

Explain what a market is

A

Where buyers and sellers interact, to realise the transaction of goods or services

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16
Q

Explain what market failures are

A

failure to eff. alloc. resources

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17
Q

Explain what regulatory/government failures are

A

1.enac. regulations/ laws
2. which don’t prev. mark. failures/
- or wors. mark.
-or cause ineff. res.

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18
Q

Explain what perfect competition is

A
  • A situation where a markt. struct.:
    -has many supp. + cons.
    -prov. homog. goods
    -sans transac. costs
19
Q

TRUE or FALSE: transaction costs can be avoided with full transparency

A

FALSE: also need free entry + exit of firms, and fully defined property rights

20
Q

Explain what revenue is

A

-total money firm receives from selling a good

21
Q

Explain what variable costs are

A
  • exp.
    -dat chang. based
    -on comp.’s produc. or sales volumes
22
Q

Explain what fixed costs are

A

costs unaff. by q. of goods produ.

23
Q

Explain what total variable costs are

A

-sum of var. costs

24
Q

Explain what average variable cost is

A

-variable cost per unit of produc. (AVC= TVC/ Quantity)

25
Explain what total cost is
- sum of tot. var. costs and tot. fixed costs
26
TRUE or FALSE: the phrase 'maximising the size of the pie' does not account for wealth distribution
-TRUE
27
TRUE or FALSE: "Maximising the size of the pie" is a phrase used by cooter and Ulen
- False -Polinsky
28
List the weaknesses of designing the law to be efficient
1. Effi.=/ equity -focus on tot. welf. not how it's distrib. 2. Effic. =/ fairness -cons. outc. not process 3. Effe. =/ utility -based on w2p instead -think of hormone treatment ex.
29
Explain what scarcity is
-LIM. means
30
Explain the formula for calculating revenue
-revenue= price x quantity -TR= p x q
31
Explain the formula for calculating Total Variable Cost
TVC= average of the variable cost x quantity of output e.g: ave. wage rate x number of workers
32
Explain the formula for average variable cost
- Average variable cost= TVC/Q
33
Explain what a price taker is
- just take the price for what it is an equilibrium
34
Explain what a quantity adjust
- goes along with what a price taker determines
35
TRUE OR FALSE: profit= cost- revenue
FALSE Profit= revenue- cost
36
TRUE or FALSE: price is something that cannot be measure mathematically in perf. competition
FALSE: price= marginal revenue P=MR
37
What is the formula for total variable cost?
TVC= total variable cost TVC= average varible cost x quantity produced
38
What is the formula for average variable cost
TVC/ quantity
39
Explain why the AVC curve shows diminishing returns
-to produce more incurs more costs each additional unit of production
40
Explain why the average fixed costs curve is downward sloping
-this is because costs are fixed - pr unit, the costs gets spre. out -so less pr unit
41
What is the formula for average total costs
TC= total costs TC= TVC + TFC
42
Explain the shape of the average total cost curve
- first the fixed costs cause less average total cost because so much reduction in price -then, increase is price because more average variable cost increase
43
TRUE or FALSE: production is maximised when MR>MC
- FALSE-- MR=MC
44
Explain the MC Curve as a Supply Curve
1. AVC, ATC, MC 2. Lowest point on AVC curve= shut down 3. Perfect competition. P=MR when p hits point at mc--> MR=MC -price at which profit is maximised