Economics

Question 1

The concepts of Economics

Answer 1

How the economy allocates scarce resources to get the best possible outcome.

Question 2

What is microeconomics vs macroeconomics?

Answer 2

Micro: Is the study of an indivisual firm in an economy.
Macro: Is the study of the whole economy.

Question 3

What is Opportunity Cost?

Answer 3

Foregoing the next best option.

Question 4

What is the economic problem?

Answer 4

To many wants and needs but not enough resources to fill them.

Question 5

What is the economic desicion making process?

Answer 5

Identifying the problem to make a decision, looking at the pros and cons to act upon the consequences.

Question 6

The importance of economic models?

Answer 6

They are important so economists can study and analyse the flow of the economy to help make the best possible decision.

Question 7

What is the PPF?

Answer 7

illustrates the trade-offs an economy faces when allocating resources between two goods or services.

Question 8

The characteristics of a Market Economy?

Answer 8

• Preferences
• Income
• Opportunity cost

Question 9

The law of demand/ The relationship between and indivisual market vs market demand??

Answer 9

The relationship between the cost of a good or service and the amount the consumer is willing to pay, therefore the quantity demand decreases/increases.

Question 10

Non-priced factors affecting demand?

Answer 10

• income, i.e. effect on normal and inferior goods
• population
• tastes and preferences
• prices of substitutes and complements
• expected future prices

Question 11

Effects in changes of non-priced factors on demand?

Answer 11

Changes in non-price factors can lead to shifts in the demand curve, either increasing or decreasing demand. A rightward shift indicates an increase in demand, while a leftward shift indicates a decrease.

Question 12

Law of supply?

Answer 12

All other factors being equal, as the price of a good or service increases, the quantity supplied of that good or service will also increase, and vice versa.

Question 13

The relationship between individual and market supply schedules and curves?

Answer 13

Essentially, the market supply schedule represents the total quantity supplied by all firms at various prices, while the market supply curve graphically depicts this relationship.

Question 14

Change in supply along the curve?

Answer 14

This means that the quantity supplied will increase if the price increases, and decrease if the price decreases, assuming all other factors affecting supply remain constant.

Question 15

Non-priced factors affecting supply?

Answer 15

• costs of production
• expected future prices
• number of suppliers
• technology
• events affecting the availability of resources and the supply chain

Question 16

Effect in changes of non-priced factors on supply?

Answer 16

Changes in non-price factors shift the entire supply curve, leading to either an increase or decrease in supply, which impacts the market equilibrium. A decrease in supply (a leftward shift) leads to higher equilibrium prices and lower equilibrium quantities, while an increase in supply (a rightward shift) leads to lower equilibrium prices and higher equilibrium quantities.

Question 17

Market equilibrium concept?

Answer 17

Market equilibrium describes a state where the quantity of a good or service demanded by consumers perfectly matches the quantity supplied by producers.

Question 18

Market clearing?

Answer 18

Market clearing occurs when the quantity demanded equals the quantity supplied, resulting in a stable price and quantity.

Question 19

Market shortages/surpluses?

Answer 19

Shortages occur when demand exceeds supply, causing prices to rise, while surpluses occur when supply exceeds demand, causing prices to fall.

Question 20

Changes in supply/demand on equilibirum?

Answer 20

Changes in supply and/or demand disrupt market equilibrium, leading to a new equilibrium price and quantity. When either demand or supply shifts, the market adjusts to a new intersection point, reflecting the new equilibrium.

Question 21

Simultaneous shifts in equilbrium?

Answer 21

Simultaneous shifts in both demand and supply can be more complex, but generally, if they move in the same direction, the new equilibrium quantity will change, and the price may or may not change.

Question 22

price elastisity in demand?

Answer 22

A measurement of the change in the demand for a product as a result of a change in its price.

Question 22

Determants of elastisity in demand?

Answer 22

The availability of substitutes, whether a good is a necessity or a luxury, the proportion of income spent on the good, and the time period considered.

Question 23

Distinction between goods that are elastic/inelastic in demand?

Answer 23

Elastic goods have a large change in quantity demanded when the price changes, while inelastic goods have a small or no change in quantity demanded, even with price fluctuations.

Question 24

Link between price elasticity of demand and total revenue?

Answer 24

A rise in price lowers total revenue TR increases as price falls.

Question 25

Price elasticity in Supply?

Answer 25

A measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price or cost.

Question 26

Inelastic/Elastic goods in supply?

Answer 26

Meaning a price increase leads to a proportionally larger increase in quantity supplied, or a price decrease leads to a proportionally larger decrease in quantity supplied. Price inelastic goods, conversely, have a lower responsiveness to price changes, meaning a price change leads to a proportionally smaller change in quantity supplied.

Question 27

Determants of elastisity in supply?

Answer 27

Time, the availability of resources, the nature of the product, and the production process.

Question 28

Application of elastisity of demand and supply to markets?

Answer 28

Businesses can make informed pricing decisions, governments can develop effective tax policies, and economists can analyze market dynamics.

Question 29

tax and price discrimination?

Answer 29

Governments utilize it to assess the impact of taxes and subsidies, and to design policies that maximize revenue or achieve specific economic goals. Understanding elasticity also helps determine the incidence of a tax (who bears the burden) and enables businesses to implement price discrimination strategies.

Question 30

Market effeciency in a perfectly competitive market?

Answer 30

The market allocates resources optimally, maximizing total surplus (the sum of consumer and producer surplus).

Question 31

The concepts of consumer surplus, producer surplus, total surplus, deadweight loss

Answer 31

Total surplus is the sum of consumer and producer surplus, and deadweight loss is the reduction in total surplus caused by market inefficiencies.

Question 32

The effeciency of market equilibrium?

Answer 32

All potential gains from trade are exhausted, and the allocation of resources is efficient.

Question 33

How under- and overproduction in a market can result in a deadweight loss?

Answer 33

Decrease in total surplus from the inefficient level of production.

Question 34

Effects of a tax subsdidy on a market?

Answer 34

increases the price consumers have to pay and decreases the price producers receive, a subsidy does the opposite.

Question 35

Price ceilings vs Price floorings

Answer 35

Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. Price floors prevent a price from falling below a certain level.

Question 36

Market failure?

Answer 36

Market failure is a situation where the efficient allocation of resources by a free market is not achieved, leading to an inefficient distribution of goods and services.

Question 37

Characteristics of an imperfectly competitive market?

Answer 37

Firms not being price takers, barriers to entry and exit, product differentiation, and a small number of suppliers.

Question 38

Concept and Causes of Market power?

Answer 38

Market power refers to a company's relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand, or both.

Question 39

How market power can influence market efficiency?

Answer 39

Market power, the ability of a firm to influence prices and output in a market, can lead to a deadweight loss, meaning a reduction in overall economic efficiency. When a firm with market power restricts output to raise prices, it prevents some transactions that would otherwise benefit both consumers and producers from occurring, creating a loss of potential surplus.

Question 39

Policy options to influence market power, including regulation/deregulation and legislation?

Answer 39

Regulation, like competition laws, can restrict anti-competitive conduct, while deregulation, such as removing barriers to entry, can foster competition. Legislation plays a crucial role in establishing these rules and enforcing them through agencies like the ACCC.

Question 39

Influence of externalities on market efficiency?

Answer 39

Externalities cause market inefficiencies, leading to a deadweight loss because the market equilibrium quantity is different from the socially optimal quantity.

Question 40

Policy options to correct for externalities, including the use of taxes and subsidies?

Answer 40

Taxes can discourage activities with negative externalities, like pollution, while subsidies can encourage activities with positive externalities, like education or renewable energy.

Question 40

The classification of goods, i.e. based on rivalry and excludability?

Answer 40

private goods, club goods, common resources, and public goods

Question 41

P{ublic goods and the free rider effect?

Answer 41

People have an incentive to let others pay for the public good and then to “free ride” on the purchases of others.

Question 41

Common resources and the tragedy of the commons?

Answer 41

The tragedy of the commons describes a situation where individuals, acting in their own self-interest, overuse a shared resource, leading to its depletion or degradation, ultimately harming everyone who relies on it.

Question 42

Policy options to reduce market failure associated with public goods and common resources?

Answer 42

new laws or taxes, tariffs, subsidies, and trade restrictions.