ezy econ Flashcards
(81 cards)
1
Q
internal costs/benefits
A
costs/benefits gained by the economic agent for producing or consuming a product
2
Q
private costs =
A
internal costs
3
Q
private costs =
A
internal costs
4
Q
whether consuming or producing a product is good for an agent depends on
A
whether the private benefits are greater than the private costs
5
Q
external costs/benefits
A
the costs/benefits gained by other economic agenst in society for producing or consuming a product
6
Q
social costs =
A
internal costs + external costs
7
Q
social benefits =
A
internal benefits + external benefits
8
Q
whether consuming or producing a product is good for society depends on whether
A
the social benefits are greater than the social costs
9
Q
individual decisions are based on
A
private costs and benefits
10
Q
social welfare is maximised
A
by weighing up social costs and benefits
11
Q
externalities
A
external costs and benefits that affect third parties but are not considered by the decision maker
12
Q
merit good
A
a good that is underprovided by a market
13
Q
demerit good
A
a good that is overprovided by a market
14
Q
2 reasons why goods are over/under provided for
A
- externalities
- imperfect information
15
Q
classifying goods as a merit or demerit good often is a
A
valued judgment
16
Q
tragedy of the commons
A
in some circumstances individuals action rationally in their own interests may not do the best thing in the interest of the whole group
- over exploitation
e.g over fishing in a pond not enough fish to breed and reproduce … no fish for anyone
17
Q
which types of market failure can indirect taxation help
A
- product is overprovided for in a market
increases the price and reduces demand and market output
18
Q
what are 2 types of fiscal government intervention
A
- indirect tax
- subsidy
19
Q
how to measure the value of a tax on a graph
A
measured by the verticle distance between the 2 supply curves
20
Q
what affects the effectivness of a tax
A
the PED
21
Q
how to work out tax revenue on a graph
A
tax revenue = tax value x new quantity
22
Q
internalising the externaility
A
increasing prices (imposing indirect tax) to reflect negative externalities
23
Q
which types of market failures can subsidies help
A
product is under provided for by the market
- decrease the price, increasing demand and market output
aka merit good
24
Q
how do you measure the value of a subsidies
A
the length between the 2 supply curves
25
subsidy cost =
subsidy value x output
26
3 issues with subsidies
- cost - provided by tax, so need to tax more
- benefit - who benefits, if rich people could increase inequality more
- imperfect information - hard to estimate value and worth of positive externalities
27
why are price controls set
market price:
- are consumers being exploited (max price)
- are producers receiving fair price (min price)
28
what happens to market supply and market demand when a max price is set
- market supply decreases
- market demand increases
- leaves excess demand and potential market failure, do the excess demand consumers get goods abroad or a black market...
29
non-binding maximum price
ineffective intervention by the government in the market
(setting a max price above the market equilibrium price)
- incentiveses producers to keep selling at the same price or even higher cause they can get away with it
30
why might the government set a non-binding maximum price
to create stability in case of future shocks
-e.g agriculture, don't know if its a good or bad harvest, if bad prices tend to rise quite high and this sets them to a binding maximum price
31
what happens to market supply and demand when a minimum price is set
- market supply increases
- market demand decreases
- excess supply
32
non-binding minimum price
ineffective intervention by the government in the market
33
why might a minimum price be set (2)
- to protect producers, giving them a fairer price
- to counter demerit goods such as alcohol making it more expensive to buy
34
what are the 3 problems price controls create in the market for max prices
- deadweight loss, supply want to produce more, consumers demand more
- black markets, excess demand find elsewhere
- imperfect information, government failure
35
state provision
where government directly provide a good or service
36
mixed economy
an economy which combines free markets with state intervention
37
nationalisation
opposite to privatisation
38
3 issues with state provision
- may encourage inefficiency (no competition)
- may discourage innovation and invention (do not have to answer to customers, they exist whether they make a profit or a loss each year)
- allocation or resources (does it provide the most efficient allocation of resources)
39
regulation
rule created and enforced within a market
- aim to change behavior and improve societies welfare
40
3 problems with regulation
- imperfect information
- excessive regulation, (unnecessary costs for businesses and may become outdated)
- ineffective enforcement, regulatory capture (biased friends with people having to regulate)
41
geographical immboility
barriers which prevent factors of production moving location (geographical labour as example)
42
3 reasons why geographical labour immobility occurs
- workers don't want to leave family and friends
- frictions (costs) in housing market, buying and selling
- regional cost variances (cost of living can vary across country)
43
occupational immobility
barriers which prevent factors of production changing industry
e.g only skilled in coal mining
44
why does factor immobility cause market failure
fop cannot adapt to changes, resources become unused
- therefore, misallocation of resources
45
3 ways to solve geographical immobility
- reduce housing market friction (costs)
- provide subsidy for relocation
- bring jobs to workers, encourage businesses to move to areas of high unemployment
46
3 ways to solve occupational immobility
- provide re-training and education schemes
- slow down decline of struggling industries
- incentives other industries to employ redundant workers
47
equality in the distribution of income and wealth
all economic agents hold the same stock of wealth and receive the same flow of income
48
inequality in the distribution of income and wealth
economic agents hold different stocks of wealth and receive the different flow of income
49
why might inequality in the distribution of income and wealth cause market failure
individuals unable to provide labour, unnecessary state spending for necessities that cannot be afford
- both are missalocation of resources, leads to market failure
50
5 solutions to imperfect information
- screening procedures, extract missing information (e.g job interview)
- signalling procedures, informs other side of the quality (a degree)
- product standards, labeling on packets (cigarette packaging)
- legal enforcement, (MOT test)
- direct intervention, (drink driving campaigns)
51
why do governments intervene in the free market
free markets sometimes produces imperfect outcome, intervene in order to improve society's welfare
52
government failure
government intervention which has a harmful effect upon society's welfare, costs greater than the benefits
53
why might intervention result in government failure
- information failure - valuing externailities is a valued judgement
- law of unintended consequences, unforseen effects
- costs of maintaining and enforcing policy outweigh benefits
- regulatory capture, work in interest of firm instead of society (biased)
54
what are the 3 functions of the price mechanism
- rationing, allocates the goods to consumers who value the most
- signalling, prices signal information about a market to economic agents (shows whether in equilibrium)
- incentive, high price supply more, consumers buy less
55
partial market failure
A market exists but too much or too little of a good or service is produced.
56
if XED value is positive what good is it
a substitute good
57
if XED value is negative what good is it
a compliment
58
ignore the sign if the XED value is greater than 1
they are elastic
- goods are both closely related
59
ignore the sign if the XED value is less than 1
they are inelastic
- they are weakly related
60
ignore the sign if the XED value is 0
then they are perfectly inelastic
- they have no relation
61
short run economic growht
growth in real ouput due to use of idle resources, thereby taking up the slack in the economy, caused by increase in AD
62
Long run economic growth
growht in real output caused by increase in quality, quantity or efficiency of factors of production, an increase in the economy's productive capacity
63
cyclical unemployment
demand deficient unemployment, lack of AD causes unemployment because labour is a derived demand
64
structual unemployment
occupational, geographical immobility
65
frictional unemployment
time taken between jobs searching for a new position
66
expansionary fiscal policy conflic trade offs
- increase in demand pull inflation
- current account deficit (more inports)
- worsening of gov finances
67
expansionary monetary policy conflicts
- increase in demand pull infaltion
- current account deficit (more imports) (CAD)
68
monetary policy
changes to interest rates, the money supply, and exchange rate by the central bank in order to influence the level of AD in the economy and achieve monetary economic objectives
69
real wage unemployment
voluntary unemployment caused by sticky wages
70
joint demand
complimentary good
71
competitive demand
substitute goods
72
derived demand
demand for a good or service that comes from the demand for something else
73
composite demand
increase in production of one good decreases the production of another
e.g cheese and butter
74
joint supply
increase in production of one good leads to increase supply of other good (bi-product)
e.g beef and leather
75
quasi public good
can share aspects of a pure good, but can also be rival and excludable
76
public good
non-excludable and non-rival
77
how is a public a market failure leading to a complete market failure
free rider problem, have the incentive to not contribute anything at all, but still benefit the same as if they were to contribute
if everyone does this no one pays leads to a missing market and complete market failure
78
what are 6 types of marketr failure
- self interest, (negative/positive externalities and tragedy of the commons)
- info failure (merit/de-merit)
- free rider problems/profit motivated firms (public goods)
- inequality (income inequality)
- factor immobility
- monopoly power (consumers exploited with high prices)
79
how does imperfect information lead to market failure
imperfect info mean irrational decisions are being made which leads to over consumption/under consumption, leading to a missaclocation of resources and market failure
80
market failure definition
when the free market fail to allocate scarce resources at the socially optimal level of output
81
how does setting a minimum price on an inelastic good lead to government failure
due to inequality and burdening the poor
