Core Principles of Economics and Market Equilibrium Flashcards
(44 cards)
Explain what efficiency is
The best use of resources whilst minimising waste.
Explain what pareto-efficiency is
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
Explain what Kaldor Hicks efficiency is
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
Explain what welfare is
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
Explain what maximum welfare is
where the overall welfare is the highest it can be
Explain what demand is
the willingness of customers to pay
Explain what supply is
the amount of goods or services that produces are willing and able to offer at a price in a given time period
Explain what price elasticity is
-How far (%)
-the dema, quantity(Q) of good C changes
-if the price(P) of good X changes by 1%?
Explain what elazstic demand is
Elastic demand: if the effect of changing price is large→ greater than -1% on a good
Explain what inelastic demand is
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%
Explain what a transaction is
- transfer of property rights,
- simultaneous exchange of a physical( real pos. of the good), econ.(transfer of money) and leg. rights(transfering property rights.
Explain what transaction costs are
- 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)
Explain what sunk costs are
-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
Explain what marginal analysis is
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.
Explain what a market is
Where buyers and sellers interact, to realise the transaction of goods or services
Explain what market failures are
failure to eff. alloc. resources
Explain what regulatory/government failures are
1.enac. regulations/ laws
2. which don’t prev. mark. failures/
- or wors. mark.
-or cause ineff. res.
Explain what perfect competition is
- A situation where a markt. struct.:
-has many supp. + cons.
-prov. homog. goods
-sans transac. costs
TRUE or FALSE: transaction costs can be avoided with full transparency
FALSE: also need free entry + exit of firms, and fully defined property rights
Explain what revenue is
-total money firm receives from selling a good
Explain what variable costs are
- exp.
-dat chang. based
-on comp.’s produc. or sales volumes
Explain what fixed costs are
costs unaff. by q. of goods produ.
Explain what total variable costs are
-sum of var. costs
Explain what average variable cost is
-variable cost per unit of produc. (AVC= TVC/ Quantity)
