Dse Econ Flashcards
(292 cards)
1
Q
HKMA
A
Does not determine interest rate
Manage exchange fund, Hong Kong official reserve
Implement monetary policy but not manage monetary policy
Acting as the lender of last resort
Maintain stability of Hong Kong dollar
Developing Hong Kong’s financial infrastructure to enable money to flow smoothly
Responsible for maintaining monetary and banking stability
Keep great sum of reserve
No independent monetary policy
2
Q
Comparative advantage
A
Is used to determine the direction of trade
3
Q
Both goods can have absolute advantage
A
No absolute advantage still have basis for trade
4
Q
Scarcity
A
Add zero price, the quantity demanded is larger than the quantity supplied
Shortage imply scarcity = existence of price implies scarcity
Scarcity cannot be solved by adjusting price
Scarcity leads to competition and then discrimination
Scarcity leads to making a choice and cost
Existence of market price imply scarcity
5
Q
Free goods must be free of charge
A
because more of it is not preferred (don’t compare with economic good) and people are not willing to give up resources for more free goods
Marginal benefit is zero while the total benefit is positive
6
Q
Economic good
A
It is scarcity because more of it is preferred, the marginal benefit and total benefit are both positive
Produced from scare goods
7
Q
Sunk cost
A
Is irrelevant in decision-making as it is incurred and irrecoverable
8
Q
What to produce
A
Types
9
Q
How to produce
A
Methods (factors of production)
10
Q
For whom to produce
A
Allocation
11
Q
Market economy
A
Most resources are allocated by price mechanism
12
Q
Planned economy
A
Most resources are owned by government
Most production activities are not carried out by government officials in planned economy
Government has rules in regulating activities in market economy
13
Q
If private property right is weakened
A
The price will be lower
14
Q
Private property right
A
Exclusive right to use
Exclusive right to divide
Exclusive right to transfer
15
Q
Positive statement
A
Refutable by facts
Does not involve value judgement
It is a theory with predictive power
16
Q
Normative statement
A
Not refutable by facts
Involves value judgement
It is not a theory with no predictive power
“Should” implies normative
17
Q
The world price
A
Remains unchanged even after tariff and quota
18
Q
Advantage of tariff
A
Tariff revenue received by government while the government may not receive the quota rent
19
Q
Advantage of quota
A
More effective in controlling import quantity, while the effect of tariff on import volume depends more on elasticity
20
Q
The import quantity under free trade
A
Must be larger than quota or not it will be ineffective
21
Q
Quota rent
A
(New domestic price minus world price) x new import quantity
22
Q
Net of tariff
A
World price x new import quantity
23
Q
Current account + capital and financial =
A
Reserve
24
Q
Principle of comparative advantage
A
It states that when a country specialise in producing the good in which the country has a lower opportunity cost, the total output will increase
25
Reason of time cost
Highest-valued of best alternative use of time is different so time cost is not the same
26
Short run equilibrium
AD = SRAS
27
Long-run equilibrium
AD=LRAS
28
When the salary tax rate decrease
Working incentive increase
Labour supply increase
Short run aggregate supply increase
Expansionary fiscal policy
29
Spending on infrastructure and government subsidy on research and development
Investment increase
Aggregate demand increase
Production capacity increase
Long-run aggregate supply increase
30
Production subsidy increase
Production cost decrease
Short run aggregate supply increase
31
Wealth decrease for example, property price and share price
The consumption decrease, hence the aggregate demand decrease
32
Spending on education increase (vocational training, subsidy for continuing education)
Labour productivity increase and the labour supply decrease
LRAS increase
33
Fiscal policy
Use of government expenditure and taxation
34
Expansionary fiscal policy
Y increase
35
Spending on education
Labour productivity increase
Labour supply decrease
Government expenditure increase
36
How fiscal balance would be affected in times of economic recession?
Unemployment increase
Salary tax revenue decrease
Profits decrease
Profit tax revenue decrease
Transaction decrease
Stamp duty revenue decrease
37
Explain why can the introduction of a general sales tax stabilise government revenue in times of economic recession
Fluctuation in consumption is less than that of income
Sales tax revenue generated from consumption will fall less than income tax revenue generated from income, thus stabilising government revenue during economic downturn
38
Principle of taxation
(Equality) Taxes should be in proportion to ones taxable income
(economy) cost of administering the tax system are kept to minimum
(convenience) method of tax payment should be convenient to taxpayers
(Certainty) well defined rules on how tax burden is determined, when and how taxes are to be paid
39
Disadvantage of holding money
Interest income forgone from holding other assets
40
Risk of holding money
Instability in purchasing power of money (e.g. inflation/ exchange rate)
41
Tourist buying goods in Hong Kong, which are imported from other countries will improve the balance of payment of Hong Kong
Imported souvenir will worsen visible trade balance and the balance of Hong Kong current account
Souvenir so tutorials will improve the invisible trait balance and hence the balance of Hong Kong’s current account
The worsening in the current account balance is smaller than the improving in the current account balance as there is value added to the souvenirs by local service provider
42
When British citizens require a visa to visit or to work in the EU countries which are two components of current account of Britain in the balance payment is affect
The increase in cost of travel would result in a fall and number of British citizens visiting the EU, hence the import of service
With fewer British worker working in the EU countries, few of them will be willing to work in those countries, factor income from abroad will decrease as total payment to UK workers in the EU country decreases
43
When the airport corporation charges a lump sum fee on every departing traveller
A fee charged on departing travellers would result in an increase in the cost of using the airport
Travelling industry would be adversely affected , reducing the number of both incoming and outgoing travellers
Both import and export of service would drop
Causing an ambiguous change in the current account balance
44
Perfect competition
Perfectly elastic demand
Profit maximising condition: marginal revenue (price) = marginal cost
45
Oligopoly
Interdependent pricing strategies
3-4 companies with market share combined together more than 50%
46
Are ocean Park and Disneyland monopoly?
No
47
What does secondary production provide to other types of production?
Producer good
48
The marginal cost of serving an additional consumer is zero
Public
49
Public goods are often Under produced
by the market
50
Why division of labour can increase the labour productivity?
Choosing the most suitable person for the job
Practice makes perfect
Saving time in training, not cost
51
Disadvantage of division of labour
Lower occupational mobility, risk of unemployment is higher
Greater degree of interdependence among different production stage
52
Limitation of division of labour
Nature of the work
53
Production of land
Does not involve cost, but using it involves cost
54
Supply of land may change over time
But not by human effort
55
What does capital has more than land?
Elasticity of supply and geographical mobility
56
Importation of foreign workers in the labour productivity
Uncertain in labour productivity
If imported workers are more productive on average than the existing local ones, the labour productivity increases
Output per unit of labour
Unit/man-hour
57
When there is structural change and greater power of labour union and license required for more job and degree of division of labour increase
Occupational mobility decrease
58
What increased the geographical mobility?
Extension of railway network
Travelling subsidy
Housing subsidy
political instability
Relaxation of immigration policy
59
Doctors, pilots and professional footballers have low occupational mobility why?
They have specialised skills so changing of occupation has high cost (income forgone)
60
Would drop in profit tax rate necessarily drop the profit tax revenue?
No
Because decrease in profit tax rate increase the incentive for firms to invest,
so investment expenditure increase and end up earning higher profits
Increase in profit tax revenue due to increase in profits may be larger than decrease in profit tax revenue due to reduction in tax rate.
61
Advantage of private limited company instead of listed company
More difficult to be taken over
No need to disclose the accounting information to public
62
Shareholders having voting rights in
Annual general meeting
63
Conglomerate expansion
Firm has expanded into unrelated industries
64
Pros of fiscal policy
Narrow the income gap while monetary policy won’t have such an effect
65
Cons of fiscal policy
May worsen the fiscal balance of the government while the monetary policy will not have such an effect
66
Pros of monetary policy
The monetary policy increases aggregate output via the investment which will enhance present productivity
67
Cons of monetary policy
Bank loans and money supply may not increase even if there is a fall in the required reserve ratio
May lead to uneven income distribution
68
Liquidity
An asset which can be readily converted into cash at short notice without making a loss
69
Order of liquidity
Cash in hand
Demand deposit
Saving deposit
Time deposit
Shares of listed company
Shares of private limited company
Bonds
Property
70
When does the money asset move along the curve?
Bond price decrease , ma decrease (interest income/ interest rate)
Expect price level increase, ma decrease
Nominal interest rate increase, ma decrease
71
Transaction demand for money purpose
Hold money for transaction
(Medium of exchange)
72
Assets demand for money purpose
Hold money to store the value of wealth
(Store of value)
73
If the actual real interest rate is larger than the expected real interest rate
The lender will gain while the borrowers will lose
74
Is falling in inflation rate deflation?
No, is disinflation
75
What is the opportunity cost of holding money?
Nominal interest rate
because holding money
gives up the opportunity to deposit the sum
to banks and earn interest income
76
Nominal interest rate
Equals to real interest rate plus expected inflation rate
77
Under what condition the real interest rate will be larger than the nominal interest rate
When people expect deflation, the expected inflation rate would become negative, nominal interest rate will then be lower than the real interest rate.
78
If inflation rate is still positive
Nominal interest rate will be still higher than the actual real interest rate
79
Interest from the perspective of borrower
Interest is the compensation for postponing resource usage
80
Interest from the perspective of lender
Interest is the premium for postponing resource usage
81
The effect of importation of foreign workers
If the labour productivity of imported workers is higher than that of local workers the labour productivity will increase
82
When there is actual deflation
The actual real interest rate must be positive
The actual real interest rate will be greater than the nominal interest rate
83
Explain how ibonds would relieve the effect of inflation on the holders
The ibonds help preserve the purchasing power of the invested sum of money because the interest return of ibonds will increase at the same rate as actual inflation
84
Does inflation exist in barter economy?
No
85
If payment of salaries went from monthly to biweekly
MD decrease
86
When the bank hold more excess reserve
Money supply decrease
87
When the risk of holding interest bearing assets increase or when the market becomes more volatile
Money asset increase
88
When national income increase?
The transaction demand for money increases
89
Liquidity preference increases
Asset demand for money increases
90
Law of diminishing marginal return
When a variable factors are added continuously to a fixed amount of fixed factors other things being equal the marginal product will eventually decrease
91
Fixed factor
Does not vary in quantity as output changes
92
Variable factor
Varies in quantity as output changes
93
Total cost equals to
Variable cost plus fixed cost
94
Issue newly printed bank notes
The monetary base will increase
95
Legal tender held by licensed bank equals to reserve, does it include in the deposit or CP
No
96
Printing bank notes
Money supply increase
97
More deposit
Multiple creation of deposit
98
Source principal
Only income derived in Hong Kong is subjected to taxation in Hong Kong
99
Direct tax
The tax burden cannot be shifted to other parties
100
Indirect tax
The tax burden can be shifted to other parties (levied goods or services)
101
What tax are not in Hong Kong?
Dividend tax
Interest tax
capital gains tax
Estate duty
General sales tax (but we have sales tax)
102
When we buy a house and we lease it out
Stamp duty ( property and shares transaction)
Rates (property owner)
Property tax (rental income) (x owner occupied flats)
103
What does not count in profit tax?
Shareholder of a listed company
104
Progressive tax type
Salary tax and profit tax
105
Progressive tax definition
Tax rate rises as taxable income increases
When taxable income increases, the percentage increase in tax payment is larger than the percentage increase in income
106
Proportional tax
When the taxable income increases but tax rate remains the same
When income increases the percentage increase in tax payment is the same as percentage increase in income
(Property tax and standard tax)
107
Regressive tax
When taxable income increases the tax rate drops
When income increases, the percentage increase in tax payment is smaller than the percentage increase in income
108
Principle of taxation
Equality
Taxes should be paid in proportion to one’s taxable income
Economy
The cost of administering the tax system are kept to minimum
Convenience
The method of tax payment should be convenient to the taxpayers
Certainty
Well, defined rules on how the tax burden are determined, when and how taxes are to be paid
109
Indirect taxes are regressive, not the other way round
When all buyers paid the same amount of tax for purchasing the same goods or services, the lower income earners pay the larger proportion of their income as tax so the income is less even
110
Tax rate=
Tax payment/ taxable income x100%
111
When the tax payment increases as taxable income increases the tax can be
Progressive proportional or regressive tax because only when the taxable income will increase and affect the tax rate can we determine the tax type.
112
ibonds
Preserve purchasing power
113
Progressive tax makes the income distribution
More even
114
Proportional tax makes the income distribution
No change
115
Regressive tax makes the income distribution
More uneven
116
When standard tax rate increases (to the income gap)
It will narrow the income gap
117
When tax allowance increases
Taxable income decrease
Fewer people fall into the tax net
Narrow the tax base
Number of taxpayer decrease
Number of standard taxpayer decrease
118
When salaries tax rate increase (to the tax reveneu)
Working incentive decrease
Salary tax revenue is uncertain
Because the increasing sales tax revenue decreased the incentive for workers so the income revenue decrease while the salary tax revenue will increase because the tax rate increase so it is uncertain
119
Marginal tax band increase
Low income and middle income also benefited as tax payment decrease
Standard taxpayer may choose to pay at marginal tax band
120
Redistribution of income from rich to poor
Progressive
121
Redistribution of income from poor to rich
Regressive
122
When aggregate output increase
The import will increase and tax revenue will increase, demand for money transaction will also increase
123
No tax allowance for
Standard taxpayers
124
When the government plans to introduce land departure tax in Hong Kong, how would it affect the current account in the balance of payment of Hong Kong?
The tax charge on the departing traveller would result in an increase in cost of crossing the border, travel industry would be adversely affected ,reducing the number of both incoming and outgoing travellers, both import and export of services would drop the change in current account balance is uncertain
125
When introducing land departure tax, it is regressive. It is not proportional because all taxpayers pay same amount of tax that it is inconsistent
with the equality principle
126
When the capital gain tax is imposed what will the effect on the total market value of shares in the economy
Decrease in demand for stock market investment due to lower expected net gain ,share price falls and total market value of shares decreases
127
Direct tax in Hong Kong
Property tax
Salary tax
Profit tax
128
Tourist were unable to return to mainland after firework display. Some waited several hours explain how this would affect the opportunity cost of visiting Hong Kong for the firework display.
The opportunity cost increases as time cost increases since they have to spend more time which has alternative uses
129
During inflation purchasing power decreases, The function of money to serve as a
store of value is weakened
130
Durable
It is not easily damaged and can be stored for a long time ,cigarettes
131
Divisible in good form of money
The total value of it will not decrease if it is divided into small units but not for diamond
132
Deposit creation
When someone deposits into a bank, the bank will have excess reserve. The bank lends out its excess reserves, it will create deposits for another bank. it means that one banks loan will create other banks deposit. When the above process goes on continuously credit creation will be resulted.
133
Why the withdrawal does not necessarily lead to deposit contraction
Bank may have enough excess reserve to meet the withdrawal demands so that there is no need to call back loans
134
When the supply is perfectly inelastic
The supply of good will remain constant, so the price of the good will not change for tax is imposed
135
Apart from the difference in the education level, explain two factors that may lead to income inequality
Gender, sex discrimination so female suffer a lower wage for the same job
Race , ethnic minority have lower wage rate for the same job
136
When the actual change in money supply is equal to the maximum change in money supply
The bank keeps no excess reserves and there is sufficient demand for loans
No cash leakage from the banking system to the public
137
The advantage of spending on infrastructure
Long aggregate supply will increase
138
Disadvantage of spending on infrastructure
Wasteful of resources
139
Internal economies of scale (Q increase, AC decrease)
Lower buying cost
Lower borrowing cost
Higher degree of specialisation
Lower production cost
140
External economies of scale (Q increase, AC decrease)
Lower sourcing cost
Lower marketing expenses
Higher accessibility
Higher labour productivity
141
Internal diseconomies of scale (Q increase, AC increase)
Difficulties in management
Higher cost of management
Higher cost of borrowing
142
External diseconomies of scale (Q increase AC increase)
Higher labour cost
Higher rental cost
More environmental problem
143
Q increase, FC remain unchanged but when FC increase the Q
(Market price) Q Remain unchanged while the profit decrease
144
Total variable cost=
Average variable cost x total output
145
Consumer surplus
Maximum amount that a consumer is willing to pay for the additional unit of good
146
Producer surplus
Minimum amount that a producer has to be paid for producing an additional unit of the good
147
Producer surplus
Minimum amount that a producer has to be paid for producing an additional unit of the good
148
Efficiency is achieved when
MB=MC
Total social surplus is maximized
149
Deadweight loss (except Subsidy)
MB > MC
Total social surplus decrease
150
B4 tax revenue
Uncertain
151
After tax revenue
Decrease
152
Deadweight loss
MB does not equal to MC
Total social surplus not maximized
153
Change in deadweight loss
Difference between MB and MC increase or decrease
154
Change in deadweight loss
Difference between MB and MC increase or decrease
155
Change in deadweight loss
Difference between MB and MC increase or decrease
156
157
158
How the $5000 enhance equity
Equalising income: transfer payment or Subcidy enjoyed main body low income group so it can narrow the income gap and result in higher percentage increase in income of the poor than that of the rich
Equalising opportunity: subsidy on education will enhance the chance of the poor to get higher education without being hindered by their background
Relative to the rich of poor and get more resources to increase future income
159
Equalising the opportunity
Eualising opportunity: subsidy on education will enhance the chance of the poor to get higher education without being hindered by their background. Education also improves their future income thus reducing income inequality over generation.
160
Portable
Not required to carry a large quantity of it for high value transactions
161
Divisible
It’s value will not decrease even if it is divided into small units
162
When Central bank raise the discount rate
The cost of borrowing from the central bank increases so the bank will borrow less money and the bank reserve will decrease
163
Government expenditure> tax revenue
Adavantage
Enhance equity
164
Government expenditure> tax revenue
Disadvantage
Inefficient
165
If improve factor quality (raise the productivity)
Increase the LRAS
166
Expansionary fiscal policy will have no effect on real income in the long run ,do you agree? Explain
An increase in government consumption will increase the aggregate demand, leading to an increase in real income in the short run, but in the long run, real income will not be affected because the long run aggregate supply curve is vertical at a potential income level
167
Investment would increase the
Potential output overtime
168
Investment would raise aggregate demand
Directly
169
Cash sharing scheme could only raise aggregate demand indirectly via
Increase in consumption. In case the resident choose not to spend cash received on consumption, the aggregate demand would vanish.
170
Arguments for cancelling cash subsidy scheme and allocate the sum of money to investment
Investment would increase potential output overtime but cash scheme would not have similar long run effects on the economy and investment would raise aggregate demand directly but the cash sharing scheme could only raise aggregate demand indirectly via an increase in consumption. In case the residents choose not to spend the cash received on consumption, the aggregate demand effect would vanish
171
Argument against the suspension of cash subsidy scheme and allocate the sum for investment
During economic downturn, a reduction in social welfare due to suspension of the cash sharing scheme may result in discontent of the citizens and political instability,
While people can benefit from the cashier scheme instantly, it may take a long time for investment to boost their income
172
Explain the short run effects of an upward adjustment of the required reserve ratio on output and the price level of the economy
When the required reserve ratio increase
money supply will decrease
interest rate will increase
consumption will decrease
aggregate demand will decrease
So in the short run, price level and output level decrease
173
Define deflationary gap
Deflationary gap refers to the difference between aggregate output and the full employment level
174
A natural disaster has struck country F. A large number of factories have closed down temporarily. Many people have lost a job and become pessimistic about their future explain why the natural disaster would lead to a wider deflationary gap in country F
A temporary closure of factories would decrease the short run aggregate supply, on the other hand loss of jobs and pessimism would lower consumption expenditure and thus reduce aggregate demand together shifts of
the two curves would result in drop in aggregate output. Assuming for simplicity, no change in long run aggregate supply and thus full employment output level, then the fall in aggregate output implies wider deflationary gap
175
How can the central bank of country F use an open market operation to narrow the deflationary gap
The central bank could use open market purchase (i.e. buy government bonds from the public) to increase money supply. Then the interest rate would fall thus reducing firms to invest more implying an increase in aggregate demand as a result aggregate output would increase in the short run but long run output would remain unchanged so that the deflationary gap would become narrower
176
MV= PY assuming
V is constant
177
No independent## policy
Monetary in Hong Kong
178
Reason for upper sloping of short run aggregate supply (price is sticky)
When the general price level increase
Nominal wages for workers cannot be adjusted accordingly because of the long-term contracts of factor of production
Real wage decrease
Firms employ more worker
Short run aggregate quantity supplied increase
179
Property price decrease wealth decrease
Consumption decrease aggregate demand decrease
180
When the quality of factors production changes the short run aggregate supply will be
Affected
181
Why long run aggregate supply is vertical
Because potential output depend on its quantity of labour, capital and natural resources and technological level
Since the price level does not affect these long-run determinates of potential GDP, the long run aggregate supply curve is vertical
182
Downward sloping of aggregate demand curve
General price level increase
Purchasing power of money decrease
Private consumption decrease
Aggregate quantity demanded decrease
183
When more tourist stay longer in Hong Kong. The tourist expenditure would increase resulting in a rise in
Export of services, this would lead to an increase in aggregate demand
184
Transfer payment increase
Disposable income increase Consumption increase
aggregate demand increase
185
Salaries tax allowance increase
Disposable income increase
Consumption increase
Aggregate demand increase
186
Salary tax rate increase
shorth run aggregate supply decrease
Disposable income decrease, consumption decrease
aggregate demand decrease
187
General sales tax increase
Short run aggregate supply decrease more than the decrease in aggregate demand
188
Desire to import increase
Import increase
net export decrease
Aggregate demand decrease
189
National income of major trading Partner increase
Export increase
aggregate demand increase
190
Appreciation of domestic currency
Export decrease
Import increase
Net export decrease
Aggregate demand decrease
191
Production subsidy increase
Production coat decrease
Short run aggregate supply increase
192
General sales tax increase
Short run aggregate supply decrease
193
Labour productivity increase
Short run aggregate supply increase
194
Expected price level increase
Short run aggregate supply decrease
195
Spending on infrastructure and subsidising on research and development
Production capacity increase
Long run aggregate supply increase
Investment increase
Aggregate demand increase
196
Spending on education increase
Government expenditure increase
Aggregate demand increase
Labour supply decrease
Short run aggregate supply decrease
Labour productivity in the future increase
Long run aggregate supply increase
197
Importation of foreign workers
Labour supply increase
Long run aggregate supply increase
Short run aggregate supply increase
198
One fiscal policy that would increase the output level without increasing the price level
The government may provide production subsidy
Cost of production decrease
Short run aggregate supply increase
Output level increases but price level decrease
199
During economic recession, the fiscal balance would be affected explain
During economic recession
Unemployment increases which will lead to decrease in taxable income so it will lead to a decrease in salaries tax revenue
With less profit earn or some firms may close down it will lead to a decrease in profit tax revenue
Government may have to increase expenditure on social welfare example unemployment benefits this will increase the government expenditure
200
When both the public expenditure and the GDP increase
The effect is uncertain
201
When both the number of unemployed and labour force decreased by the same amount
The percentage decrease in unemployed population is greater than the percentage decrease in the total labour force implying a reduction in the unemployment rate
202
When both the number of unemployed and labour force increased, but not knowing the amount
Both will increase, but the resulting rate of unemployment depends on the percentage increase in the unemployed population *relative to that* in labour force
203
only in the long run, when the output increase. the average cost
decrease
204
optimal scale= average cost is the
lowest in the long run situation
205
average cost=
total cost divided by total product
206
average output=
total product divided by the input
207
When the public clinic provides medical service for one patient, the resulting rise in gross domestic product will be $45. Do you agree?
No, because the public services usually subsidised by the government for the patient so the market price thus would be higher than $45
208
Explain why getting vaccinated is an effective way to prevent infection and protect oneself from flu viruses using the concept of externality explain why government profession of Subcidy on seasonal influence of vaccination may improve economic efficiency
Getting vaccinated to protect oneself as well as lowering the chance of being infected to the public since the person receiving vaccination is not compensated by the others this is a case of external benefit where the marginal social benefit is larger than a marginal social cost by subsidising. The subsidy can increase the quantity of vaccination to the efficient level so the gap between a marginal of social benefit and cost is narrowed.
209
Explain with two reasons why BTS contribution to the South Korean GDP in 2017 was less than USD 30 million
The raw materials for the souvenir is imported from other countries hence need to deduct from import hence the GDP in 2017 was lower than US$30 million
Also some CDs are produced few years ago and sold them in 2017 so the value of these CDs were not included in GDP in 2017
210
price-taking firm, profit maximising quantity
P=MR=MC therefore short run so cannot use economies of scale
211
Tourist bought goods in Hong Kong, which are imported from other countries balance of payment of Hong Kong will improve why
Imported souvenir will worsen the visible trade balance and hence the balance of Hong Kong’s current account
Souvenirs sold to tourist will improve the invisible trade balance and hence the balance of Hong Kong‘s current account
The worsening in the current account balance is smaller than the improving in the current account balance as there is value added to the souvenirs by local service providers
212
2017 )Two components of current account in the balance of payments of Britain may be affected
Factor of income will drop if the Britain stay less than 12 months in EU as their salary will be counted as factor income paid from abroad
Invisible trade balance may improve since British citizens may require a visa to visit EU countries resulting in decrease in the number of British citizen visiting the EU countries and hence import of services
213
2 countries will have mutually beneficial trade if
The cost of producing good x and y are different
214
Explain why the stock price of Apple decreased after the latest iPhone 15 was launched
The new model of iPhone has no innovative features. People expect a decrease in potential customers for apples products.
Apple was expected to earn less profits and to distribute less dividends per share to shareholders in the future
The expected decrease in future dividends would lower demand for the companies share and thus decrease the stock price
215
When demand is more inelastic
Price drops more
216
When supply is more inelastic
Price drop less
217
Production possibility frontier
Production possibility froniter shows the maximum production combination given a fixed quantity of resources and technology level.
218
Without trade,
A country can only consumes its own production therefore P1=C1
219
Advantage of time rate to employers
Lower cost in calculating wages
220
Disadvatges of using time rate to employer
Cost of supervising woker’s performance is higher as worker has lower incentive to work
221
Advantage of using piece rate to employers
Lower cost of supervising worker’s perofrmance as working incentive is higher
222
Disadvantage of piece rate to employer
Higher mointoring cost in product quality as workers rush for output
223
Basic slary plus commision advantage compared to time rate for employers
Part of business risk can be shifted to the workers, income of workers will be lower if the business is poor
224
Advantage of using basic slary plus commision to employers compared to profit sharing
Easier to maintain a team of staff
225
Disadvantage of basic salary plus commision for employer
Higher cost in calculating wage
226
Why paid by monthly salary
Their work is not standardized
227
The advantage of time rate to employee
Stable income even if the business is poor
228
Geographical mobility
Railway extension
Political instability
Relaxation of immigration policy
Travelling and housing subsidy
229
Piece rate advantage to employee
Higher effort yield higher income compared to time rate
230
Piece rate disadvantage to employee
Income maybe unstable as it would vary with the output compared to time rate
231
Advantage of basic salary plus commision to employee
There is basic salary even if the business is poor compared to profit sharing scheme
232
Disadvantage of basic salary plus commision to employee
Income maybe unstable as it would vary with the output compared to time rate
233
Advantage of public ownership
Can provide stable service with a lower price
Easier to get information about the general public from the government for decision-making
234
Disadvantage of public ownership
Management is less efficient
Less sensitive to price signal
235
Difference between government department and public corporation
Public corporation is a separate legal entity while government department is not
Public corporation is managed by board of director appointed by the government while government department is directly managed by the government
236
Why do monopolies continue to exist
Government franchise
Natural monopoly (China Light and Power Company Ltd)
Government ownership
237
Balance of payment does not include
Reserve in financial account
238
Proportion of income spend on the good, adjustment time and number of uses increase
The elasticity of demand increase
239
240
Mobility of input increase and there is excess capacity the elasticity of supply will
Increase
241
External economies of scale
Improvement of infratructure accessibility and thus reducing delivery cost
Increase in education level
Improve general labour productivity and the efficiency of production of an industry
242
Internal economies of scale
Discount recieved from bulk purchase of raw materials
More research and development can be done for developing better product or production method
243
Procuder surplus
Total revnue- total variable cost
244
Internal diseconomies of scale
When a firm becomes too large, the management becomes difficult
Firms have large outstanding loans so marginal cost of furthur borrowing increases
The market may have saturated
Leading to a rise in marketing cost
245
External diseconomies of scale
Higher labour cost
When firms in a region compete for the same type of labour, higher wages, average cost increases
Higher rental costs
Land and capital become scarce
Average cost increase
More environmental problems
Roads become congested,
pollution increase hence the average cost increases
246
Why the introduction of new indirect tax broaden the tax base
Introducing new indirect tax like general sales tax and value-added tax will
make more people or commodites fall into the tax bracket
thus broadening the tax base.
247
If there is inflation assume tax allowance
Decrease so more people fall into tax net
248
When price level increases, real income will not necessarily
Decrease
249
When GDP deflator decrease
Price level decreasing
Purchasing power increasing
Cost of living decrease
250
Inflation does not affect
Medium of exchange
251
Inflation
Persistent increase in the general price level
252
Difference between CPI and GDP deflator
CPI only includes consumer goods while GDP deflator includes both consumer and producer goods
CPI calculates a fixed basket of goods while GDP deflator has variable basket of goods
253
The effect of inflation
Purchasing power of money decreases(fewer goods or services can be bought with same amount of money)
People prefer to hold more real assets instead of monetary assets
Cost of living increase
(People have to spend more to maintain a certain standard of living)
Effect on consumption expenditure or living standard or real income is uncertain
254
Scarcity implies shortage ,do you agree?
No, because scarcity refers to the situation which the amount of resources are insufficient to satisfy all our wants at zero price while the shortage means the quantity demanded of the good is greater than the quantity supplied at market Price below the equilibrium price
If the price is set in equilibrium shortage will not exist
255
A free good must be free of charge do you agree?
Yes, because more of free good is not preferred and no one is willing to give up resources for getting more free goods.
256
Supposed the government imposed an effective rent control on living units
Poor people would be able to rent a living unit more easily do you agree?
There will be shortage of living units under the rent control
Other competitive criteria or a non-price competition will emerge. The new competitive criteria will not necessarily depend on income for example landlords may choose tenants with a higher education background or stable job
257
Are inputs economic goods
No
258
Are goods with alternative uses are regarded as economic goods
No
259
Scarcity does not apply to free goods
True
260
A good which is free of charge is free good do you agree?
No, because more of the good may still be preferred
261
No choice, no cost because there is nothing to give
Up in making decision
262
Value of best
Alternative use of time
263
Why resources spent in the past is not a cost
Because this is not an existing option and they are irrecoverable
264
For whom to produce
Refers to the allocation of goods and services
265
Why a firm will continue to production when profit of the firm is negative
Because the fixed cost of the firm are already incurred and irrecoverable while the producers surplus of the firm is positive
266
267
What to produce
Refers to the types and quantities of goods and services to be produced
268
Advantage of market economy
Most efficient way to allocate resources (function of price)
269
Disadvantage of market economy
Lack of provision of goods
270
Advantage of planned economy
Solve the problem of divergence between private and social cost or benefit
271
Disadvantage of planned economy
Lack of market price in guiding resource allocation will lead to economic waste
272
273
Reasons for profit sharing
Because cost of monitoring quality of output is low
274
When demand is perfectly inelastic, total expenditure
Increase
275
When supply is perfectly inelastic and demand is perfectly elastic, total expenditure
Decrease
276
When supply is perfectly elastic, total expenditure
Uncertain
277
No parallel manner, producer surplus
Remains unchanged, CS uncertain
278
When price increase the total benefit increase
Correct
279
Allocative function
Higher price of something would induce developers to direct more resources to the production of that something
280
Why is import deducted
Not the nation’s output
Has been included in the other catagories
281
Explain a factor that would lead to more than 3 billion decrease in GDP
The amount of GDP derived from the spillover effect of the production of the export will also decrease
282
Open market operation can affect money supply
Directly
283
Adjusting the required reserve ratio affects money supply but it depends on demand for
Loan
284
When there is unexpected deflation explain under what circumstances does these taxi driver will have no gain or loss
Under floating interest rates
if the adjustment of interest rates is fast enough
to catch up with the fall in the general price level
there will be no loss nor gain
285
Cost of unemployment
Loss of output
Lost of human capital
Political and social unrest
286
Advantage of holding silver bonds over cash
Purchasing power can be better preserved in times of inflation since nominal rate of return of silver bonds rises with inflation while cash remains same regardless of inflation rate
287
Disadvantage of holding silver bonds over cash
Liquidity is lower since it takes days for silver bonds to be redeemed and converted into cash
288
Monopolist is inelastic
Demand
289
Consumer goods
For self consumption
290
Producer goods
To help further production
291
292
How the use of money can facilitate exchanges?
The use of money allows the act of buying and selling to be seperated, so that exchange no longer requires double coincidence of wants.
