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this is econs BITCH > i detest econs (pt 1) > Flashcards

i detest econs (pt 1) Flashcards

fallin' fallin' fallin' fallin'

1
Q

free market system

A

resources are allocated according to the price mechanism and market forces of demand and supply

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2
Q

what four characteristics are necessary for a free market system to allocate resources efficiently

A
  1. perfect competition
  2. rational behaviour and pursuit of self interest (huge assumption)
  3. freedom of choice and enterprise
  4. private ownership of property
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3
Q

perfect competition

A

each of the many buyers and sellers have an insignificant share of the market

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4
Q

rational behavior and pursuit of self-interest

A

driven by self-interest; prod max. profit, cons. max. utility

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5
Q

freedom of choice and enterprise

A

consumers are free to decide what to buy with their incomes (consumer sovereignty) firms can choose what to sell and how to produce

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6
Q

private ownership of property

A

indivs have rights to own control and dispose of land, capital and natural resources. owners of fop have rights to the income earned from using fop

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7
Q

price mechanism

A

changes in price cause resources to move in or out of industries (invisible hand that allocs resources)

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8
Q

market equilibrium

A

a position from which there is no inherent tendency for change; achieved when quantity demand= quantity supplied

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9
Q

equilibrium price

A

price at which the quantity demanded is equal to the quantity supplied (market clearing price)

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10
Q

disequilibrium

A

(refers to market) shortages or surpluses of goods that trigger the market adjustment process

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11
Q

market adjustment (price > equilibrium price)

A
  1. surplus in market
  2. downward pressure on price
  3. producers lower prices
  4. demand increases due to low prices + quantity decreases (profitability falls)
  5. fall in prices continues
  6. equilibrium price reached
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12
Q

market adjustment (price < equilibrium price)

A
  1. shortage in market
  2. upward pressure on price (consumers try to outbid one another)
  3. producers produce more (as profitability increased)
  4. quantity demand decreases (as price increased)
  5. increase in price continues
  6. equilibrium price reached
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13
Q

demand

A

amt consumers are willing and able to purchase at a given price over a given period of time

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14
Q

law of demand

A

quantity dd for a good or service is inversely related to its price ceteris paribus –> substitution effect and income effect

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15
Q

marginalist principle for dd

A

experiences diminishing marginal utility in consuming additional units of a good –> max. utility with given budget –> rational consumer increase qty dd as price decreases –> downward sloping dd curve

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16
Q

non price determinants of dd

A

taste and pref, expectations of future prices, income, price of related goods (substitutes and complements), derived demand, govt policies (direct tax/subsidies), population, interest rates, exchange rates

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17
Q

supply

A

qty of a good or service that producers are willing and able to offer for sale at each given price over a given period of time

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18
Q

law of supply

A

qty supplied is directly related to price of product

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19
Q

marginalist principle for ss

A

ldmr states that beyond a certain point of production, adding an additional fop results in smaller increases in output to max profits, the rational producer will increase outputs as prices increases and vice versa

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20
Q

non price determinants for ss

A

cost of production, innovation/ state of technology, natural factors (agriculture), no of firms, government policies (indirect taxes/subsidies), prices of related goods (joint supply, competitive supply), expectations of future prices

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21
Q

society’s welfare

A

sum of consumer and producer surplus

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22
Q

consumer surplus

A

difference between max amt the consumer is willing to pay and what he actually pays

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23
Q

producer surplus

A

difference between what producers are willing and able to receive and what they actually receive

24
Q

price elasticity of demand

A

measure of degree of responsiveness of the qty dd of a good to change in its price, ceteris paribus

25
Q

sign of ped

A

negative to reflect law of demand

26
Q

magnitude

A

more than one –> price elastic, more than proportionate rise/fall in qd
less than one but more than zero, price inelastic, less than proportionate rise/fall in qd

27
Q

applications of ped

A
  1. effect of price change on qty dd
  2. effect of total revenue of firm (draw diagram)
  3. decisions the firms can make to raise total revenue
28
Q

determinants of ped

A

shit –> substitutes, habituality of consumption, (proportion of) income spent, time horizon

29
Q

pes

A

measure of degree of responsiveness of the qty supplied of a good to change in its price, ceteris paribus

30
Q

sign

A

pawsitive (law of supply)

31
Q

magnitude

A

0<pes<1, inelastic
pes>1, elastic

32
Q

applications pes

A

price change, qty change differently due to pes

total revenue

33
Q

determinants pes

A

level of stock, avail of spare capacity, mobility of fop (btwn industries), time horizon (momentary perfectly price inelastic, short run restricted by at least one fop relatively price inelastic, long run all fop variable), length of production

34
Q

ced

A

measure of degree of responsiveness of the qty dd of a good to a change in the price of another good, ceteris paribus

35
Q

sign

A

ced>0, substitutes
ced<0, complements
ced=0, unrelated

36
Q

magnitude of pes

A

closer relationship = larger magnitude

37
Q

applications pes

A

fall in price of substitute: price comp and decrease price, make good less substitutable like advertising

fall in price of complement: output planning increase prod, collab

38
Q

yed

A

degree of responsiveness of the qty demanded of a good to a change in income, ceteris paribus

39
Q

sign yed

A

positive for normal goods (necessities –> inelastic demand and not very sensitive, luxuries –> elastic and very sensitive), negative for inferior goods

40
Q

magnitude yed

A

the more responsive the qd is to changes in income, the larger the magnitude

41
Q

determinants of yed

A

degree of necessity –> necessity vs luxury (depends on level of income of consumers, and stage of development of their economy)

42
Q

applications of yed

A

firms will: (economic growth)
channel resources to sales of luxury goods, market luxury goods

recession
channel resources from sales of luxury goods to normal goods, promote inferior goods

segment consumer base

43
Q

limitations of elasticity principles

A

ceteris paribus assumption: changes in qd can be attributed to various factors and diff to keep all other factors constant

cost concerns:
if increasing tr will also increase costs, profit will not rise

prediction issues:
calculations done from past data may not be accurate in the future

computation issues:
involves collecting price and qty data, inaccurate data = inaccurate analysis

44
Q

direct subsidy

A

granted directly to buyers
increases buyers’ disposable income

45
Q

indirect subsidy

A

granted indirectly through sellers, lowers sellers’ cop

46
Q

direct tax

A

granted directly to buyers
decreases buyers’ disposable income and purchasing power

47
Q

indirect tax

A

raises cop, paid indirectly by consumers thru sellers (ad valorem tax has pivotal shift)

48
Q

price ceiling good and bad

A

good:
ensure affordability

bad:
inefficiencies
chronic shortage
black market
deadweight loss

49
Q

price ceiling

A

maximum price
set below market equilibrium price
legally established

50
Q

price floor good and bad

A

good:
protect income
minimum wage

bad:
involves g spending of buying surplus
surplus loss
deadweight loss

51
Q

price floor

A

minimum price
legally established
set above market price

52
Q

quota

A

limit on quantity produced, less than equilibrium qty
legally established
affects ss, at quota ss is fixed (perfectly price inelastic) (theres also deadweight loss)

53
Q

labour market

A

buyers of labour= firms, sellers of labour= households

54
Q

labour demand

A

depends on how much revenue each unit of labour can bring to the firm
1. dd for final good (derived dd)
2. productivity of labour
3. supply of alt and complementary fop

55
Q

labour supply

A
  1. immigration
  2. educational attainment
  3. non-wage benefits of job
  4. alt employment opportunities
56
Q

minimum wage good and bad

A

good:
increases income and standard of living and inclusive growth

bad:
1. higher unemployment
2. illegal employment below minimum wage
3. encourages substitution with other fop

57
Q

wage differentials

A
  1. imperfect market (trade union/ monopsony)
  2. discrimination
  3. ped/pes
  4. minimum wage

this is econs BITCH (3 decks)

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