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Economics > Micro-economics > Flashcards

Micro-economics Flashcards

1
Q

Production possibility frontier

A

The maximum potential output of an exonomy if all resources are fully utilised (PPF)

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2
Q

What could cause ACTUAL economic growth

A
  1. Fall in unemployment
  2. Less capital laying idle
  3. Less lad laying idle
  4. Better management of resources
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3
Q

What could cause POTENTIAL economic growth?

A
  1. Increase in retirement age
  2. Mass immigration
  3. Improvement in the health of workers
  4. Improvements in workers skills/knowledge
  5. More roads/railways tracks built
  6. Wuicker internet speeds
  7. More factories / office spaces built
  8. Tehcnological breakthrou
  9. Introduction of fertilisers, pesticides and insecticided
  10. Irrigation introduce in arid areas
  11. Introduction of genetically-modified seeds
  12. Drainage introduced in wetland areas
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4
Q

Captial goods e.g.

A

Factories, tractors, roads, cranes, diggers, wind turbines

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5
Q

Consumer goods e.g.

A

TVs, playstations, paintings, wine, handbags, smart speakers

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6
Q

Resources

A

The 4 factors of production

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7
Q

Missallocation of resources

A

Not all resources are being fully utilised

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8
Q

Advantages of specialisation

A
  1. World output increases

2. Can lead to economies of scale being better exploited

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9
Q

Disadvantages of specialisation

A
  1. Can lead to large economic decline if there are production problems in that industry
  2. Can lead to large economic decline if the demand for the good falls
  3. Countries may be over-dependent on other countries selling goods and services to them if they are specialied in just one or two goods
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10
Q

Advantages of division of labour

A
  • worker become more skilled and quicker at doing one task
  • fewer mistakes and better consistency
  • only have to be trained in 1 or 2 tasks, so training costs fall
  • workers can be allocated to roles which suit their strengths
  • less duplication of tools and equipment
  • less time is wasted moving between tasks
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11
Q

Disadvantages of division of labour

A
  • workers only develop a narrow range of skills, leading to long term structural unemployment if demand for that skill falls
  • monotonous, lose interest in their job, morale can fall and mistakes happen, may reduce productivity
  • quit their jobs more frequently than before, higher hiring costs and training costs
  • no other worker has the skills to do that job if one worker is ill or leaves, each stage of production is inter-dependent
  • if demand is low division of labour may not be possible
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12
Q

Consumers keep buying up to the point where

A

The marginal benefit from the final unit consumed is equal to the price charged

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13
Q

Unit Tax

A

A fixed amount of tax per unit is added to the value of the good

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14
Q

Ad Valorem Tax

A

A percentage tax is added to the value of the good

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15
Q

Subsidy

A

A grant given to the producers, from the government, to lower firms’ cost of production

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16
Q

Indirect tax

A

A tax expenditure. This tax only occurs when a transaction takes place

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17
Q

Direct Tax

A

Taxes on Income, and taxes on wealth

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18
Q

Consumer incidence of tax

A

The part of the tax borne by consumers

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19
Q

Producer incidence of tax

A

The part of the tax borne by producers

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20
Q

Consumer incidence of subsidy

A

The part of the subsidy that benefits consumers

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21
Q

Producer incidence of subsidy

A

The part of the subsidy that benefits producers

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22
Q

Consumer incidence of subsidy

A

The part of the subsidy that benefits producers

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23
Q

Government tax revenue =

A

Ttax per unit x Quantity of taxed units bought

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24
Q

Government spending on Subsidies =

A

Subsidy per unit x quintity of subsidised unit produced

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25
Q

the supply of labour curve

A

The supply of labour curve shows the quantity of qualified workers offering their labour at any given wage

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26
Q

The demand for labour curve

A

It shows the quantity of worlers that firms would hire at any given wage

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27
Q

Price elasticity of supply of labour value

A

measures the responsiveness of the quanty supplied of labour, to a change in wage

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28
Q

Elastic supply of labour

A

Supply of labour is elastic when a change in wage leads to a more than proportional change in quantity supplied of labour

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29
Q

Inelastic supply of labour

A

Supply of labour is inelastic when a change in waher leads to a less than proportional change in quantity supplied of labour

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30
Q

Price elasticity of demand or labour value

A

The price elasticity of demand for labour value measures the responsiveness of the quantity demanded of labour, to a change in wage

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31
Q

Elastic demand for labour

A

Demand for labour is elastic when a change in wage leads to a more than proportional change in the quantity demanded of labour

32
Q

Inelastic demand for labour

A

Demand for labour is inelastic when a change in wage leads to a less than proportional change in the quantity demanded of labour

33
Q

The national minimum wage

A

The lowest a worker can legally be paid for an hour’s labour. The minimum wage is a floor price

34
Q

Trade union

A

A trade union is an organisation representing workers, with the aim of increasing wages, and improving the working conditions for its members

35
Q

Prive Elasticity of supply of labour Value =

A

% change in quantity supplied of labour / % change in wage

36
Q

Price Elasticity of demand for labour Value =

A

% change in Quanity demanded of labour / % change in wage

37
Q

The basic economic problem

A

Resources are finite, but our wants are infinite. Therefore we have to choose how to allocate our scarce resources in order to best maximuse utility in society

38
Q

Market success

A

When resources are allocated in a way thay utility in society is maximised

39
Q

Market failure

A

Ther is a misalllocation of resources in a free market. Welfare is not maximise

40
Q

Government failure

A

When government intervention leads to an even worse allocation of resources. Welfare is lower because of the government intervention

41
Q

External cost

A
  • cost to the 3rd part
  • cost outside of the economic transaction
  • cost ignored by the free market system
42
Q

External benefit

A
  • benefit to the 3rd party
  • benefit outside of the economic transaction
  • benefit ignored by the free market system
43
Q

Welfare loss

A

Welfare loss occurs on units were the marginal social cost of production is greater than the marginal socail benefit from consumption

44
Q

Tradeable pollution permits

A

A market approach for pricing pollution. The government austions off a limited amount of pollution permits. Firms have to compete against each other to buy a pollution permit

This encourages those firms which can most easily and cheaply make changes to recuce their emissions, to alte their pollition production process

45
Q

Total economic surplus =

A

Producer surplus + consumer surplus + any 3rd part welfare gaines from positive externalities - any 3rd party welfare losses from negative externalities

46
Q

Social marginal cost of production =

A

Private marginal cost of production + any production externality

47
Q

Social marginal benefit from consumption =

A

Private marginal benefit from consumption + any consumption externality

48
Q

Advantages of a buffer stock agency

A
  • producer will be more likely to invest in worthhile capital projects, and hire additional labour
  • maximum price protects consumers from high prices in bad harvest
  • minimum price precent bankruptcies in bumper harvest
  • food security
49
Q

Disadvantages of a buffer stock agency

A
  • there are initial costs of buying stock and building storage silos
  • ongoing costs of running a buffer stock agency
  • government may run out of stock in back-to-back bad harvests
  • government may run out of storage space in back-to-back bumper harvests
  • only possible if the good is non-perishable and storage costs are low
  • no incentive to improve quality of product
50
Q

Market success

A

When resources are allocated in such a way that utility in society is maximised

51
Q

Market failure

A

There is a missallocation of resources in a free market. Welfare is not maximised

52
Q

Government failure

A

When government intervention leads to an even worse allocation of resources. Welfare is lower because of the government intervention

53
Q

Asymmetric information

A

When one party has more information than the other party in an economic transaction

54
Q

Merit goods

A

Goods that are under-consumed in a free market

55
Q

Reasons why merit goods are under consumed

A
  1. Consumers under-estimate the true benefits of the good

2. The good has positive externalitites

56
Q

Demerit goods

A

Goods that are over-consumed in a free market

57
Q

Reasons why demerit goods are over consumed

A
  1. Consumer under-estimat the true costs of consuming the good
  2. The good has negative externalities
58
Q

Economic inertia

A

Consumer continue to pruchase the good in the same quantity as before, despite new evidence emerging regarding the benefits of consuming the good

59
Q

Herd behaviour

A

Individuals, rather than carfully researching the benefits and costs of consuming a good, base their consumption decisions on what other people are buying

60
Q

Moral hazard

A

When an individual, knowing that they are insured against any possible loss, choose to undertake more risky transactions

61
Q

Private sector goods

A

Goods produced by private firms - not by the government

62
Q

Public sector goods

A

Goods produced by the government

63
Q

Private goods

A

Goods that rival and excludable

64
Q

Public goods

A

Goods that are non-rival and non-excludable

65
Q

Quasi-public goods

A

A good that has characteristics of both a public good and a private good.

66
Q

Non rival , excludable Quasi-public good example

A

Watching a film on netflix

67
Q

Rival, non-excludable quasi public goods example

A

Blackberries growing on a road-side hedge

68
Q

Public goods examples

A

Lighthouses, street lights, flood defence systems

69
Q

Private goods examples

A

Bread, clothes, tennis racket

70
Q

Rival

A

Once bought or consumed by someone, it cannot be bought or consumed by another person

71
Q

Excludable

A

When the producer can easily prevent any non-paying individuals from enjoying the benefits of that good

72
Q

Free-rider problme

A

Once the good is provided for one person, it is impossible for the firm to prevent those who have not paid from enjoyinh the benefits of that good

73
Q

Bumper harvest

A

The weather has been favourable to producers. A high-yeiling harvest has occurred

74
Q

Minimum price

A

The legally lowest price a good can be sold for

75
Q

Maximum price

A

The legally highest price a good can be sold for

76
Q

Buffer stock agency

A

A government-run firm that buys left-over stock during bumer harvest, and sells these stockpiles in times of bad harvests to alleviate shortage

77
Q

What is the purpose of a buffer stock agency

A

To stabilise prices

Economics (5 decks)

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