Micro Flashcards
(305 cards)
1
Q
Total revenue
A
P x Q
How much money a firm receives in total from sales
2
Q
Average Revenue
A
P/ TR ÷ Q
What a business receives on average from each sale.
3
Q
Marginal revenue
A
change in TR ÷ change in Q (only use if quantity goes up by more than 1)
The additional revenue a firm makes selling 1 extra unit
4
Q
If MR = + (TR) (elasticity of demand)
A
TR increases
demand is elastic
5
Q
if MR = 0 (TR) (elasticity of demand)
A
TR stays the same
demand is unitary
6
Q
if MR = - (TR)
A
TR decreases
demand is inelastic
7
Q
decreasing price will (TR)
A
increase TR
8
Q
increasing price will. (TR)
A
decrease TR
9
Q
^ TR =
A
v P x Q ^
Demand = elastic
MR = +
10
Q
v TR =
A
^ P x Q v
Demand = inelastic
MR = -
11
Q
Allocative efficiency
A
Welfare is maximised
MC = AR
(Mary Can’t Allocatively Run)
12
Q
Productive efficiency
A
Average cost at its lowest
MC = AC
(Mary Cant Analyse Corners)
13
Q
X inefficiency
A
when as firm is producing above its average cost curve for a given level of output
14
Q
dynamic efficiency
A
how changing technology improves a firms output potential over time
15
Q
to be dynamically efficient a firm needs
A
supernormal profit
so it can invest its supernormal profit in R+D
16
Q
the 5 different market structures
A
- monopoly
- perfect comp
- monopolistic competition
- oligopoly
- monopsony
17
Q
How to calculate the n-firm concentration ratio
A
identify the 4 largest firms
add up market shares of these 4 firms
answer is concentration ratio of the 4 firms
18
Q
monopoly assumptions
A
only 1 firm
profit maximiser
high barriers to entry
19
Q
barriers to entry are
A
legal barriers sunk costs economies of scale brand loyalty anti competitive practices
20
Q
legal barriers
A
stops new firms using incumbent firms ideas (stealing ideas)
patent
copyright
trademark
21
Q
sunk costs
A
the money can’t be recovered if a firm leaves the market
advertising
specialist machinery (no on else can use it)
22
Q
what doe high sunk costs mean? and what does this mean for new firms
A
increased cost of failure
deters new firms
23
Q
economies of scale
A
internal economies of scaled used by big firms to reduce their long run average costs.
24
Q
what do economies of scale allow monopoly to do
A
keep costs and prices low so small firms can’t compete with their low prices
25
6 internal economies of scale
```
risk bearing
managerial
financial
purchasing
technical
marketing
(Richards mum flies past the moon)
```
26
Brand loyalty
strong branding in incumbent firms makes it impossible for any new firms to make any sales
27
anti competitive practises
anything a firm might do to reduce or restrict competition
28
technical economies are where
companys invest in specialist capital to increase productivity and decreasing their long run average cost
29
managerial economies are where
companys employ specialists which increase productivity and decrease long run average costs
30
a marketing economy is where
big firms spread their marketing costs across many units decreasing long run average costs big firms
31
The higher the risk
the higher the interest rates
32
firms expand and grow bigger
they become less risky, so they can borrow at lower interest rates, reducing long run average costs
33
Risk-bearing economies: big firms can
exploit risk bearing economies of scale, then big profits to diversify to new areas reducing the cost of failure in one area
34
Risk-bearing economies: small firms
don't have enough profit to diversity so the cost of failure is high
35
as companies get bigger, they can exploit internal economies to
Reduce their long run average costs
36
economies of scale; in the short run a firm can't
experience internal economies of scale, don't have enough time
37
the 6 internal economies of scale:
Purchasing, technical, managerial, marketing, financial, risk bearing, risk-bearing
RICHARDS MUM FLIES PAST THE MOON
38
Purchasing economies
when firms expand and are bigger purchases they can bulk buy and negotiate lower prices, reducing their long run average cost
39
technical economies
when firms invest in specialist capital to increase firms productivity and decrease their long run average costs
40
internal economies of scale
Reductions in long run average cost, as a industry’s size increases
41
alienation
decreases their motivation
| = productivity falls, and long run average costs rise
42
Bureaucracy
all the paper work, managers, filling and secretary that
43
communication
when firms get really big communication can really slow down , wastes precious time in a business and increasing long run average costs
44
Internal diseconomies of scale
when a firm expands to much and long run average costs start to rise
Alienation
Bureaucracy
Communication
45
The minimum efficient scale is where
a firm first reaches its lowest LRAC
46
external economies of scale
a firm’s long run average costs fall, as industry output increases.
47
as the size of the industry increases
recruit quicker and at lower pay reducing long run average cost
because the whole industry was growing and employees are attracted
48
internal economies of scale are shown as
movements along our LRAC curve
49
external economies of scale are shown as
the LRAC curve will shift downwards
50
profit =
TR - TC
51
opportunity cost
the lost opportunity of the next best alternative
52
normal profit =
0
| when TC = TR
53
If it’s making less than normal profit,
it’s no longer covering its opportunity cost - so it will leave the market.
54
supernormal profit is
the extra profit above opportunity cost
| TR > TC
55
Explain the shape of the marginal cost curve
marginal costs first decreased because of specialisation - workers get more productive decreasing costs
marginal costs then decreased because of the law of diminishing marginal returns - reduces productivity and increases costs
56
ATC =
AVC + AFC
57
ATC will intercept
marginal cost at it lowest point
58
Marginal revenue is
the additional revenue from selling one extra unit.
59
marginal cost is
the additional cost of selling one extra unit.
60
profit maximising
MC=MR up to AR curve
61
Why do some firms grow, while others stay small
- lack the finance to expand.
- regulations can prevent firms from growing too big because of concerns over consumer exploitation.
- firms might be worried about diseconomies of scale.
62
as firms grow bigger, they might experience:
the divorce of ownership and control
63
divorce of ownership and control can lead to
The principal-agent problem
64
The divorce of ownership and control can lead to the principal-agent problem is when
The principal-agent problem is when the agent (e.g. the manager who runs and controls the business) pursues different objectives to the principal (e.g. the shareholders who own the business)
65
Organic growth is when
a firm grows by investing in itself to increase output.
66
Inorganic growth is when
a firm grows by acquiring, or merging with, another firm
67
4 different types of inorganic growth
1. backward vertical integration
2. forward vertical integration
3. horizontal integration
4. conglomerate integration
68
backwards vertical integration is when:
a firm integrates with another firm who is further away from the consumer in the same production process
69
forward vertical integration is when
firm integrates with another firm who is closer to the consumer in the same production process
70
horizontal integration is when
a firm integrates with another firm at the same stage of the production process
71
conglomerate integration is when
two firms in unrelated industries join together.
72
pros of organic growth
- keep ownership and control of the firm
| - low risk, continue doing what already are and are good at
73
cons of inorganic growth
- higher risk - getting involved in a market you know much less about, integrating with unknown markets and new companies
74
Vertical integration is when
a firm integrates with another firm at a different stage of the same production process.
75
demergers
company separate itself into 2 companies
76
If a firm gets too small it will reduce economies of scale, so:
Its LRAC will increase
77
monopoly
there is only 1 firm in the market
78
assumptions of monopoly
1. only 1 firm
2. profit max MC=MR
3. high barriers to entry
79
legal monopoly
over 25% of market share
80
barriers to entry
1. legal barriers
2. sunk costs
3. economies of scale
4. brand loyalty
5. anti competitive practices
81
a monopoly is
Productively inefficient, allocatively inefficient, possibly dynamically inefficient, X-inefficient
82
natural monopoly
A natural monopoly is when it’s naturally most efficient if only one firm is in the market.
83
2 reasons why a monopoly might be a natural monopoly
1. high sunk costs
ineficient if another firm entered market
2. huge internal economies of scales
can use to make long run average costs super low
RICHARDS MUM FLIES PAST THE MOON
84
price discrimintaion
why are adults charged higher prices and students lower prices for train tickets?
Adult demand = more inelastic, adults have higher incomes and less responsive to price changes. can charge adults higher prices.
Student demand = more elastic, students have less money to spend and more responsive to price changes. have to charge students lower prices.
85
examples of price discrimination in the world
bus tickets, cinema tickets, education (scholarships), train
86
elastic consumers are charged
inelastic consumers are charged
Elastic consumers a lower price - don't want to loose them
| inelastic consumers a higher price - won't care about higher prices
87
Price discrimination is when
a firm charges different groups of consumer different prices, but for the same good.
88
the 3 conditions of price discrimination
1. market power - change prices without loosing all consumers
2. information - info on consumers elasticity
3. limit reselling - able to limit elastic consumers from selling cheap tickets to inelastic consumers
89
different number of firms =
different level of competition
90
many buyers and sellers =
comp v high
91
few large sellers
| oligopoly
comp low
92
competition is high if
lots of firms
93
competition is there
number of firms competing in a market
94
competition is lower is
only a few firms competing
95
contestable markets
is simply a market with low barriers to entry and exit and doesn't matter how many firms in the market (e.g. mango low barriers but many sellers, origami low barriers but few sellers)
96
market that isn’t contestable will have
High barriers to entry e.g. high sunk costs and economies of scale
97
contestable market is
a market with low barriers to entry and exit, easy for firms to enter
98
in the long run firms in contestable markets will only be able to make
normal profit
99
who is in charge of making sure big firms stay in line with regulations and competition policy?
CMA - competition and markets authority
100
the CMA use 4 key types of regulation
1. merger policy
2. price regulation
3. profit regulation
4. performance targets and quality standards
101
what is merger policy
blocking mergers that might give firms too much market power
102
what is price regulation
capping the prices firms can charge consumers
103
what is profit regulation
taxing firm profits if they make too much supernormal profit
104
what is performance targets and quality standards
imposing targets and standards so firms don't provide dodgy goods or services
105
the CMA investigates a merger if
combined market share over 25% - too much market power and could hurt consumers with higher prices
combined annual turnover over £70m - negatively effect consumers
106
price regulation
limits how much a firm can increase its prices which protects consumers from high prices
107
RPI is a measure of
inflation
108
price regulation: what are the 2 types of price cap
1. RPI +K
| 2. RPI -X
109
RPI+K
first calculate RPI - increase price in line with inflation
K - supernormal profit; so CMA allow firms to increase their prices by +K so that the firm can invest the K (profit) into new capital = better quality and cheaper good
110
RPI -X
first calculate RPI - allow firms to increase prices along side inflation
slacking so minus RPI by X so that they can make efficiency improvements gains now in the short run to push costs down
111
Regulatory capture is when
a regulator begins to favour the company they’re regulating.
| low quality standards, increasing price too much -> favours firms and harms consumers
112
profit regulation is when
a firms’ profits are taxed at 100% above a certain limit
| - this encourgaes companies to reinvest profits which will mean improved capital
113
however profit regulation can mean there is no
profit incentive so firms might just get lazier
114
CMA wants to
increase quality so use targets and standards to get firms to cooperate.
115
performance targets are
targets for firms to meet, to ensue there providing a top quality service
116
quality standards are
standards of quality that firms have to meet to sell their goods and services
117
example of performance targets
NHS - each hospital has the performance target of responding to accident and emergency patients in less than 4 hours.
118
example of quality standards
food standards agency
119
when is the CMA not effective
sneaky firms - the firms lawyers settle the case
play nice to regulators
return to sell poor quality products for high prices and being x-inefficient 1
120
to stop firms selling poor quality products for high prices and being x-inefficient what is needed
competition - new firms to enter the market and compete with incumbent firms, they will force incumbent firms to lower prices and improve quality of products and stop being so x-inefficient otherwise loose consumers to the new entrances
121
how to get new firms to join the market
CMA can increase contestability by: lowering barriers to entry, so that it is easier for firms to entry the market and therefore easier to contest incumbent firms
122
4 ways the CMA can increase contestability
1. deregulation
2. privatisation
3. stopping anti-competitive practises
4. helping small businesses
123
deregulation is where
regulations are removed to lower barriers to entry
| the result: lower prices, better customer service and increased efficiency (taxis and uber)
124
Privatisation
Privatisation is when the government transfers ownership of a public sector firm to the private sector.
pressure to cut costs and max profits which help improve efficiency
e.g. BT, British gas, British airways
125
what usually follows privatisation?
deregulation -
| e.g.. sky and virgin, easy jet, EDF ->competeing
126
negative of privatisation
cut cost too low - reducing quality
| increase prices - to exploit consumers
127
Competitive tendering is when
The government outsources specific job contracts to the private sector. Private sector firms bid to win the contract, by offering the best deal - the highest quality for the lowest cost. The government then chooses the firm which offers the best value for money - and awards them the contract!
128
Competitive tendering beneficial for the government because,
by getting private sector firms to bid against each other for the contract, private sector firms will undercut each other’s prices and offer better quality. This means the government can make sure it’s getting the best deal possible - saving money, and increasing quality.
129
anti-competitive practises
Anti-competitive (or restrictive) practices include anything a firm might do, to restrict competition.
130
Predatory pricing is when
a firm aggressively cuts its prices below AVC to force out competitors from the market.
In the short run, the firm incurs a loss.
But in the long run, firm forces out its competitors, so they can take over the market - restricting competition.
131
price collusion
Collusion is when two or more firms agree to limit or restrict competition.
132
anti-competitive practices include
Predatory pricing
price collusion
vertical integration
133
If the CMA catches firms engaging in anti-competitive practices, they can:
Set a fine up to 10% of annual revenue
Sentence CEOs to jail time
Name and shame the firm publicly
134
ways to help small business grow
subsidies, tax breaks and loans.
135
Access to loans
enterprise capital funds to lend out to new business for super low interest rates to help them expand and benefit form economies of scale and compete with big businesses
this will increase contestability and decrease prices
136
R&D tax breaks
small to medium size enterprises receive reduce tax rates if they are using their profits to invest into R&D and increase dynamic efficiency
the lower corporation tax will reduce costs and increase supernormal profit so they can do more R&D and come up with new innovations
137
Subsidies
gov gives subsidies to small firms
the subsidie will reduce firms costs decreasing AC and MC so firms will be able to drop its prices from P max to P1
makes it easier to compete with big incumbent firms
138
Nationalisation is when
the private sector transfers ownership of a private sector firm to the government.
e.g.. railways were nationalised prices set price =to mc allocatively efficient to maximise welfare but at this price making a huge loss
139
who demands labour
producers
140
Labour market diagram: Demand curve is downwards sloping because
when wages go down can afford to hire more workers
| when wages go up they can afford to hire any more workers the demand for labour will decrease
141
Labour market diagram: supply curve is upwards sloping because
as wages go up ppl realise they can make more money and will be willing to work more, quantity of labour supplied will increase
as wages go down ppl can't make as much money working so will be willing to work less, quantity of labour supplied will decrease
142
as wages increase
Workers will supply more labour and firms will demand less labour
143
wages decrease
Workers will supply less labour and firms will demand more labour
144
in the labour market what do we call excess supply?
unemployment
145
As wages decrease back to equilibrium, we’ll see:
A decrease in quantity supplied of labour and increase in quantity demanded of labour
146
As wages increase back to equilibrium, we’ll see:
An increase in quantity supplied of labour and decrease in quantity demanded of labour
147
above the equilibrium wage there’ll be
Excess, supply, unemployment, surplus.
148
below the equilibrium wage, we find that:
Quantity demanded of labour is higher than quantity supplied of labour
149
consumer surplus =
willing to pay - actually pays
150
consumer surplus is
the difference between what consumers are willing to pay and what they actually pay.
151
supply curve =
the marginal cost curve
152
the lowest price producers are willing to except is
= to marginal cost
153
producer surplus
the difference between what producers are willing to sell for and what they actually sell for.
154
YED =
YED = % change in quantity demanded / % change in income
155
YED measures
How much Qd will respond to a change in income
156
Normal good will always be
Positive
157
Inferior goods will always be
Negative
158
Inferior goods:
Y increases
So demand ...
Decreases
159
Inferior goods:
Y decreases
So demand ...
Increases
160
Normal goods:
Y increases
So demand ...
Increase
161
Normal goods:
Y decreases
So demand ...
Decreases
162
So for income inelastic goods, when income increases:
quantity demanded will increase by a smaller %
163
Income inealstic good are
Necessities
164
Income elastic goods are
Luxury goods
165
For a % change in income, quantity demanded of an income elastic good, or a luxury, will:
quantity demanded will increase by a larger %
166
Fixed cost
Cost that doesn’t change with an increase or decrease in the amount of goods or services produced or sold
167
Variable cost
Cost that varies with the level of output
168
Corporation tax
% of businesses profits
169
Specific tax is
A fixed amount of tax paid of each unit sold
170
Due to specific tax producers will require
Higher prices to make up for the tax
171
What happens to the supply curve of a specific tax?
Shifts upwards
172
Where is the specific tax shown on a diagram?
The space between the 2 supply curves
173
An ad valorem tax is
An ad valorem tax is a tax charged as a % of the price of a good e.g. VAT
174
Where is the size of the ad valorem tax shown
The vertical distance between the 2 supply curves
175
Tax revenue =
Size of tax per unit x q sold
176
Subsidy is shown on a diagram by the
Distance between he 2 supply curves
177
Subsidy means that
There is more incentive to sell
| And the price is decreased
178
Total cost of subsidy =
Size of subsidy x quantity sold
179
A subsidy means that our supply curve wil
will shift vertically down by the size of the subsidy
180
PED
When is it elastic and inelatsic?
Elastic - bigger than 1
| Inelastic- 0.
181
Examples of perfectly inelastic goods in the world
addictive drugs
| life saving drugs
182
as we move closer to 0 demand becomes
more inelastic
183
between -1 and 0 =
inelastic
184
PED =0
demand is perfectly inelastic
185
elastic demand is between
-1 and -infinity
186
-1 and -infinity
elastic demand is between
187
inelastic
between -1 and 0 =
188
PED = ∞
perfectly elastic
189
PED = -1
unitary demand
190
for unitary demand we need
the % change in quantity demanded the same size as the % change in price
191
what she is a unitary elastic demand curve
curved like the beginning of a U
192
factors which influence PED
```
necessity
addiction and habit
availability of substitutes
brand loyalty
proportion of income
time period
```
NASBIT
193
a necessity good is an
inelastic good
194
a luxury good is a
elastic good
195
addictive good will be a
inelastic good
196
however habit goods can also be addictive meaning that they are also an
inelastic good
197
what is a substitute
A substitute is a product which can replace another product e.g. a Samsung and an iPhone.
198
market failure is when
the price mechanism leads to a misallocation of resources
199
examples of market failure
negative externalities
positive externalities
public goods
information gaps
200
negative externalities are
Costs which affect third-parties outside the price mechanism.
201
what are the 2 types of negative externalities
negative production externalities
| negative consumption externalities
202
negative consumption externalities are
when the consumer is creating negative externalities - eg.smoking
203
negative production externalities
when the producer is creating negative externalities - eg.pollution
204
private benefits and costs are
inside the price mechanism
205
social costs =
private costs + private costs
206
social benefit =
external benefits + private benefits
207
outside the price mechanism we find
external costs and benefits
208
negative production externalities mean the government has to intervene because
producers are only thinking about the private costs and benefits
209
what curves does the government consider
MSC
| MSB
210
net benefit/ welfare=
social benefit - social cost
211
in a negative externality diagram; where is over production shown
between socially efficient eq (MSC intellects MSB) and market eq
212
what do we label supply in a cost/benefits diagram?
MPC
213
what do we label demand in a cost/benefit diagram?
MPB
214
in a negative externality diagram; if the distance between the MSC and MPC is getting bigger then
external costs are increasing
215
in a negative externality diagram; if the MPC and MSC curves are parallel then
external costs stay the same, as quantity increases
216
in a negative externality diagram; When producers and consumers don’t consider the external costs of their actions they end up…
Overproducing and overconsuming
217
The result of overproducing and over consuming is
a welfare loss
218
social efficient point is
MSB=MSC
219
In a free market, producers and consumers only consider their...
own private costs and private benefits
So they produce where MPC = MPB
220
indirect taxes make production more
costly for firms
221
after the indirect tax...
costs have been increases so MPC shifts upwards to insect where MSC =MPB
222
the indirect tax has to be set equal to ...
the external cost at the socially efficient Eq
223
when MPC+tax intersects MPB at the socially efficient Eq the negative production externality has been
internalised
224
what can the government use to internalise negative externalities
indirect tax
225
tradable pollution permits
if a firm is finding it difficult to reduce pollution and another firm is finding it easy and cheap they can sell their pollution permits to the other firm so that they can producer a bit more pollution.
226
the cap and trade system works by
- first they government sets a cap, how much pollution it will allow each year
- gives out permits to firms -shared between
227
Firms finding it expensive to reduce their pollution will:
Buy permits from firms finding it cheaper to reduce their pollution
228
minimum prices mean that
prices are kept high
quantity demanded is low
reducing the overconsumption
229
minimum prices should be set
above the Eq price
230
minimum price creates
excess supply and the prices legally can't be reduced causing a disequilibrium
231
minimum price creates
excess supply and the prices legally can't be reduced causing a disequilibrium
232
how can you solve negative externalities
min prices
regulation
indirect tax
233
positive externalities
Benefits which affect third parties outside the price mechanism
234
Social cost =
private cost + external cost
235
Social benefit =
private benefit + external benefit
236
in positive externalities the MSB curve is parallel with the ...
in negative externalities the MSC curve
MPB curve
237
Subsidies are
a grant from the government to a firm to increase supply
| the gov use tax revenue to encourage the consumption and production of goods that are good for society
238
XED measures
how the quantity demanded of one good, good A, will respond to a change in price of another good, good B.
239
XED=
%change in QD of goodA / %change in QD of goodB
240
XED= -
compliments
241
XED= +
substitutes
242
XED= 0
unrelated goods
243
Substitute is
a product which can replace another product
244
many substitute then
elastic
245
few substitutes then
inelastic
246
strong brand loyalty
inelastic
247
weak brand loyalty
elastic
248
large proportion of your income
elastic
249
small proportion of your income
inelastic
250
short run
inelastic
251
long run
elastic
252
price increase will
lead to a contraction in demand, quantity demanded will decrease.
253
decrease in price will
lead to an extension in demand, quantity demanded will increase.
254
An extension in demand only takes place when:
price decreases
255
When something other than the price of our good changes, that means:
the entire demand curve will shift.
256
demand decreases
demand curve shifts to the left
257
producer surplus is
the difference between what producers are willing to sell for and what they actually sell for
258
in a positive externality diagram; if the distance between the MSC and MPC is getting bigger then
external benefit increases
259
in a positive externality diagram; if the MSC and MPC is parallel then
external benefit stays the same
260
what do public goods have in common
non-rival and non-excludable
261
free rider problem
when people take advantage of being able to use a common resource, or collective good, without paying for it, as is the case when citizens of a country utilize public goods without paying their fair share in taxes.
262
the government deals with incomplete information by using
regulation
providing information and advertising
subsidising
263
Incomplete information is when
someone doesn’t have full information about the benefits or costs of their decisions.
264
what can incomplete information lead to?
under consumption as consumers can see the long term benefits of consuming
also over consumptions were consumers aren't informed of the long term costs
265
Asymmetric information is when
one party knows more than another party in a transaction.
266
the market can fail in four different ways:
Negative externalities, positive externalities, public goods, information gaps
267
how the government can step in to address these market failures with a range of different policies
Taxes, subsidies, tradable pollution permits, minimum and maximum prices, regulation and information provision.
268
max prices is set
below the eq
269
examples of government failure
1. distortion of the price mechanism
2. the law of unintended consequences
3. administration costs
4. information gaps
270
was does max price cause and why
excess demand/ shortage
| lower price reduces the incentive to supply but more is demanded at this lower price
271
maximum prices can distort the price mechanism by
Reducing price below equilibrium, creating excess demand
272
Government failure is when
the government intervenes to correct a market failure but makes the allocation of resources even worse than before.
273
minimum prices cause
excess supply/ surplus
274
minimum prices can distort the price mechanism by
over producing and causing a wastage can lead to dumping
275
Government intervention intends to correct market failures and help society...but
Unintended consequences eg. speed bumps
| The law of unintended consequences
276
explain how information gaps can lead to gov failure
underestimated costs
277
explain how administration costs can lead to gov failure
regulation means people needed to regulate
278
what is The law of unintended consequences
Government intervention intends to correct market failures and help society...but can cause Unintended consequences eg. speed bumps and ambulances
279
what are the 3 functions of the price mechanism
Rationing
incentivising
signalling
280
Free market economies allocated their resources by
The price mechanism
281
In a mixed economy all resources are allocated by
The government and the price mechanism
282
In a command economy all resources are allocated by
the government
283
Division of labour enables:
specialisation
284
what is the division of labour
where the production process is split up into smaller tasks where each worker is assigned to a different task this allows workers to specialise
285
barter
exchange (goods or services) for other goods or services without using money.
286
functions of money
1. medium of exchange
2. provide a unit of account
3. provide a store of value
4. deferred payment
287
positive statment
proven statement
288
normative statement
can prove
289
opportunity cost is
the lost opportunity of the next best alternative
290
ppf
just tells us the different combinations that can be produced not the best
291
Elasticity of demand for labour, tells us
How responsive demand for labour is to changes in wage
292
few substitute =
inelastic demand
293
lots of substitutes =
elastic demand
294
wages are a small % of total cost
unresponsive inelastic demand
295
wages are a large % of total cost
v responsive elastic demand
296
in the short run, if wages increase, demand will be:
inelastic because there’s not enough time to find substitutes
297
in the long run, if wages increase, demand will be
elastic because there is enough time to find substitutes
298
if demand is inelastic wages will be
higher
299
if demand is elastic wages will be
lower
300
What are the three key factors which affect labour elasticity of demand?
Substitutes
% of total cost
Time
301
in markets where workers require lots of skills and qualifications, supply will be:
inelastic
302
in markets where workers require few of skills and qualifications, supply will be:
elastic
303
in the short run if wages increase
workers don't have time to train and apply for a job so workers are unresponsive to a change in price, so inelastic supply
304
in the long run if wages increase
workers will have lots of time to apply and train for the job so elastic supply
305
Derived demand is
demand for a factor of production (like labour) that is derived from the demand of another good/service.
