Which will cause a movement along the demand curve for good X?
A change in the price of good X
Consider the market for chicken. An increase of the price of beef will…
Increase the demand of chicken
- Higher price of chicken
- Higher chicken purchases
On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by…
Movement from one point inside the curve to a point on the curve
A public good may be defined as any good or service that…
Must be distributed to all citizens in equal shares
If an increase in bus fares in London reduces the total revenue of the public transit system, this is evidence that demand is…
Elastic
If a 5% reduction in the price of a good produces 3% increase in quantity demanded, the price elasticity of demand over this range of the demand curve is…
Inelastic
The income elasticity of demand for grapes is estimated to be 1.50.
We can conclude that grapes are…
A normal good
The change in quantity demanded resulting from a change in purchasing power is known as the…
Income effect
- Suppose a milking parlour has 2 milking stalls and 2 workers.
- It is able to milk 100 cows each day.
- When it adds a third stall with no extra workers, it is able to milk 150 cows per day.
- The marginal product of the third milking stall is…
50 cows per day
If both the marginal cost and average variable cost curves are U-shaped, at the point of minimum average variable cost, the marginal cost must be…
Equal to the average variable cost
Implicit costs are the opportunity costs of using the resources of…
Owners
Explicit costs are payments to…
Non-owners of a firm
Which statement is true for global milk consumption in the last 5 years?
Slightly increasing
Which asset has the highest average value on a dairy farm?
Livestock
Which asset has the lowest average value in a dairy farm?
Fodder reserve
Which of the large beef producer regions is not free of FMD?
- EU
- South-America
- Asia
Which country is the top beef producer in the EU?
France
Which cost has the largest share in the total cost for broilers?
Feed
When does scarcity exist?
When people consume beyond their needs
Economics is the study of…
People making choices
Ceteris paribus means…
Other relevant factors like consumer incomes must be held constant
Give an example of a pair of factors exhibiting a direct relationship
- The price of gasoline
- Amount of gasoline purchased
Opportunity cost is the cost…
Best option given as a result of choosing an alternative
Milk equivilant
The amount of milk used for producing a specific dairy product
Elements of EU market regulations
- Internal market regulation
- Direct producer subsides
- Foreign trade regulations
Hungarian export of liquid milk to…
- Italy
- Romania
- Slovenia
Hungarian import of milk products from…
- Germany
- Poland
- Slovakia
- Czech republic
Largest hen egg producer
China
Which EU country has the highest fishery & aquaculture product per capita consumption?
Spain
How many EU member states are there?
28
What is a business cycle?
Alternating periods of economic growth and contraction
Can be measured by changes in GDP
What are the 4 phases of a business cycle?
- Peak
- Recession
- Trough
- Recovery
Causes of the business cycle
Changes in the forces of supply + demand
What is a peak?
Phase of the business cycle during which real GDP reaches its maximum after rising during a recovery
Recession
- The downturn in the business cycle
- GDP declines
- Contraction
- Defined as at least 2 quarters of GDP decline
What is a trough?
- Business cycle phase where GDP reaches the minimum
- After a recession
- Turning point between recession and recovery
What is recovery?
- Upturn in the business cycle during which GDP rises
- Expansion
When is downturn considered a depression?
Depression - Historical reference to extreme deep and long recession
Economic growth
Expansion in national output measured by the annual percentage increase in a nations GDP
Why is economic growth an economic goal of a country?
- Increases standard of living
- Creates a bigger ‘economic pie’
Three types of economic indicators
- Leading
- Coincident
- Lagging
What are the leading indicators?
Variables that change before real GDP changes
Coincident indicator
Variable changing at the same time as GDP
Lagging indicator
Variable changing after GDP changes
Cause of unemployment
- Total spending falls
- Business finds it profitable to produce a lower volume of goods and avoid unsold inventory
Unemployment rate
% of people who are seeking jobs
Civilian labour force
- People 18+ who are employed/unemployed
- Not including armed forces, home makers
Discouraged worker
Someone who wants to work but has stopped searching
They think there will be no job offers
Underemployment
People working at jobs below their level of skills
Criticisms of the unemployment rate
- Does not include discouraged workers
- Does not measure underemployment
- Includes part-time workers
Give the types of unemployment
- Seasonal
- Frictional
- Structural
- Cyclical
Seasonal unemployment
Caused by recurring changes in hiring due to changes in weather conditions
Frictional unemployment
Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, entering or re-entering the labour force
Structural unemployment
Unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities
Cyclical unemployment
Caused by the lack of jobs during a recession
Results from insufficient aggregate demand
Full employment
Unemployment =
Sum of:
- Seasonal unemployment
- Frictional unemployment
- Structural unemployment
What % of unemployment is considered full employment?
5%
GDP gap
Difference between:
- Full-employment
- Real GDP
- Actual real GDP
What is the cost of unemployment?
GDP gap
What is the economic problem?
Providing for people’s wants and needs in a world of scarcity
Scarcity
Condition in which wants are forever greater than the available supply of time, goods and resources
Scarcity forces us to…
Make choices
What are resources?
Categories of inputs used to produce goods and services
What are the three categories of resource?
- Land
- Labour
- Capital
Land resource
A natural resource
Labour
Mental + physical capacity of workers to produce goods and services
Entrepreneurship
Special type of labour
Capital
Physical plants, machinery and equipment used to produce other goods
Financial capital
Money used to purchase capital
Economics
Study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants
Macroeconomics
Branch of economics:
- Studies decision-making for the economy
- Focus on inflation, unemployment, economic growth
Microeconomics
Branch of economics:
- Studies decision-making by a single individual
- Individual decision making within an economy
Scientific method
- Problem identification
- Model development
- Testing a theory
Purpose of an economic model
Forecast or predict the results of various changes in variables
What is presumed when testing a model?
Ceteris paribus
Ceteris paribus
While certain variables change, all other things are unchanged
Positive economics
Analysis limited to statements that are verifiable
- Uses testable statements
- “if-the” statement
Normative economics
Analysis based on value judgement or opinions and uses words such as ‘good’, ‘bad’, ‘ought-to’
Slope of a line
The ratio of change in the variable on the vertical axis to change in the variable on the horizontal axis
When price changes
There is movement along a curve
When something other than price changes…
The whole curve shifts
What is an example of a change other than price?
When income increases, the whole demand curve shifts upwards
Price elasticity and demand, elastic
Ed > 1
Price elasticity and demand, inelastic
Ed<1
Price elasticity and demand, unitary elastic
Ed = 1
What can cause a shift in a demand curve
Number of buyers in a market, tastes and preferences
What can cause a shift in a supply curve
- Technology
- Number of sellers
- Resource prices
- Taxes
Two types of price controls
- Price ceilings
- Price floors
Price ceiling
Maximum price a seller can charge (mandated by government)
Purpose of price ceilings on bread
Needy people will pay lower bread price than the eqilibrium price
Why may price controls be counterproductive
- Shortages
- Illegal markets
- Less quality
What are examples of price ceilings?
- Land rent control
- Wage and price controls
What is a price floor?
Minimum price a seller can be paid
Examples of price floor
- Minimum wage law
- Agricultural price supports
Why do we have price ceilings and floors?
Because of failures in the free market
Market failure
- Market equilibrium leads to too few/many resources
- Price system fails to achieve society’s goals
Sources of market failure
Lack of competition, externalities, public goods and income inequality
What did adam smith say about competition?
There must be competition for markets to function properly
What happens when competition is lacking?
Market failure
Externality
Cost or benefit imposed on other people than the consumers and producers of a good or service
Negative externality
Detrimental to third parties, pollution
Positive externality
Beneficial to third parties, vaccinations
Solve market failure
- Taxes
- Subsidies
% increase/decrease calculated by…
- Difference between the two numbers
- Divided by the original number
What effect on sales would a 10% increase in apple prices have?
Depends on the price elasticity of demand for apples
Elasticity
Responsiveness/sensitivity to a change in price
Price elasticity of demand
Ratio of % change in the quantity demanded of a product to a % change in its price
Elastic demand
- % change in quantity demanded > % change in price
- Change more than 1% in quantity demanded in response to a 1% change in price
Inelastic demand
- Elasticity coefficient > one and total revenue
- Change of <1% in quantity demanded in response to a price
Unity elastic demand curve
% change in quantity demanded = % change in price
Perfectly elastic demand curve
- Decline in quantity demanded to zero
- Demand curve is horizontal
- Elasticity coefficient = infinity
Perfectly inelastic demand
- No change quantity demanded in response to price changes
- Quantity demanded doesn’t = change as the price changes
- Demand curve is vertical
- Elasticity coefficient = 0
Income elasticity of demand
Ratio of % change in the quantity demanded of a good to a given % change in income
Cross-elasticity of demand
Ratio of % change in quantity demanded of a good to a given % change in price of another good
Price elasticity of supply
Measure of the responsiveness of the quantity supplied to a change in price
What decides who pays what part of the tax increase
- The more elastic the demand, the more the corporation pays
- The less the elastic demand, the more the consumer pays
The three economic questions
- What to produce
- How to produce
- For whom to produce
Production possibilities curve
- Illustrates economy’s capacity to produce goods
Technology
Body of knowledge and skills applied to how goods are produced
Economic growth
Ability of an economy to produce greater levels of output
What makes economic growth possible?
- Increase production in excess
- Research + development
What happens when a country doesn’t invest in new technology
Everything else being equal, the country will not grow
Explicit costs
Payments to nonowners of a firm for their resources
Implicit costs
Opportunity costs of fusing resources owned by the firm
Implicit costs example
- Investing your nest egg in your own enterprise
- Giving up earning interest on that money
Total opportunity costs =
Implicit costs + explicit costs
The long run
Period of time so long that all inputs are variable
