Micro Equilibrium And Macro Indicators Flashcards
What’s economic efficiency
A situation where nothing can be improved as total utility has been maximised
Whats Economic efficiency
What does it lead to
Where markets are working perfectly
Leads to perfect supply and demand curves and market state known as market equilibrium
Assumptions to create perfectly competitive market. 6
Many sellers
Many buyers
Homogeneous products that are perfect substitutes
Perfect knowledge
Perfectly mobile factors of production
No externalities
What’s an oligopoly
When small number of sellers dominate market
What’s a cartel
When several suppliers work together to fix price rather than behaving competitively
What are consumers known as in dominated markets
Price takers
Outcomes of market failure. 8
Productive and allocative inefficiency
Abuse of power
Under provision of merit goods
Over provision of demerit goods
Missing markets
Poor decision making
Unstable prices
Unfair distribution of income
What’s productive inefficiency
productive inputs physical capital and labor are underutilized so economy operating below ppf
Allocative inefficiency
Where resources in the economy are not distributed optimally and therefore consumers cannot purchase the quantity of goods that they desire.
What’s a monopsony
One buyer in market
Ways gov can intervene to avoid market failure. 8
Taxation
Subsidies
Laws, regulations permits
Advertising
Nudges
Price control
Changes to property rights
General rights
What’s nudges
Through lobbying consumers, can make it easier/harder to produce or consume goods
What’s macroeconomics
The study of behaviour of whole (aggregate) economies
What are 4 objectives seen as important in macroeconomics for achieving a prosperous society
Full employment
High, sustainable rate of economic growth
Price stability
Acceptable BoP
How’s rate of economic growth measured
GDP, GNP
Categories of unemployment. 3
Cyclical, frictional
Structural
What’s frictional unemployment
reflecting the gap between someone voluntarily leaving a job and finding another as job search isn’t instant
Structural unemployment
involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers
Cyclical unemployment
is the number of people out of work as a result of a temporary setback in the economy, such as a recession or change in a business cycle
3 methods for measuring gdp
Total value of goods and services produced (output)
Income
Expenditure
Formula for measuring gdp by Total value of goods and services produced (output)
Durable goods + non durable goods + services + structures + change in inventories
Formula for measuring gdp by income
Wages from labour + interest form capital + rent from land + profits from entrepreneurship
Formula for measuring gdp by expenditure
Household spending+investment+gov spending+net exports
Difference in gdp n gnp
GDP calculates output within specific location whereas gnp calculates output for specific nationality, even if elsewhere
